NFT

I. Core Definition and Technical Characteristics of NFT

Definition: NFT (Non-Fungible Token), or non-fungible token, is a unique digital asset certificate based on blockchain technology. Unlike fungible tokens like Bitcoin (BTC) that are interchangeable and divisible, NFTs feature uniqueness, indivisibility, and non-fungibility. Each NFT has a distinct blockchain serial number to prove ownership of digital content or specific rights.

Technical Underlying Logic:

• Blockchain Carrier: Most NFTs are issued on public chains like Ethereum (ERC-721/ERC-1155 standards), Solana, and Polygon, with data on the chain being tamper-proof.

• Uniqueness Realization: Smart contracts generate unique metadata for each NFT (e.g., image hashes, creator information, issue numbers) to ensure irreproducibility.

II. Core Use Cases of NFT

1. Digital Artworks and Collectibles

• Representative Cases:

  • Bored Ape Yacht Club (BAYC): Ape avatar NFTs, with single pieces once sold for over $1 million, becoming status symbols;

  • CryptoPunks: Pixel avatar NFTs issued in 2017, launching the crypto art craze, with some works auctioned for over $20 million.

• Value Logic: Through blockchain - based rights confirmation, virtual artworks are transformed into tradable scarce assets, addressing the pain point of easy replication of digital content.

2. Virtual Real Estate and Metaverse Assets

• Typical Platforms:

  • Decentraland, The Sandbox: Users buy virtual land (NFT) for construction, socializing, or commercial development, with the highest virtual land transaction price reaching $4.3 million in 2021;

  • Otherside: Metaverse plot NFTs issued by Yuga Labs (BAYC team), with daily trading volume exceeding $100 million.

3. Game Props and Blockchain Game Assets

• GameFi Model:

  • Axie Infinity: Players collect and trade NFT pets (Axies) for battles, with NFT props freely tradable in the market, achieving daily transaction flow of over $300 million in 2021;

  • Gods Unchained: A blockchain card game where each card is an NFT, supporting cross-platform trading.

4. Intellectual Property and Content Ownership

• Application Scenarios:

  • Musicians issue NFT singles (e.g., The Weeknd sold music NFTs via Nifty Gateway);

  • Photographers chain works as NFTs to avoid piracy, such as NFT photos by renowned photographer Ansel Adams auctioned for over $100,000.

5. Real-World Asset Mapping

• Physical Association Cases:

  • Luxury brands issue NFT digital collectibles, allowing buyers to redeem physical goods (e.g., Nike's CryptoKicks NFT corresponds to physical sneakers);

  • Real estate projects split property rights via NFTs for fractional ownership (e.g., property NFTs on the Propy platform).

III. Key Technical Standards of NFT

Standard	Public Chain	Features	Representative Projects
ERC-721	Ethereum	Single uniqueness, each NFT with independent number, suitable for artworks and collectibles	CryptoPunks, BAYC
ERC-1155	Ethereum	Supports batch NFT creation (mixed fungible/non-fungible), reduces Gas fees, suitable for game props	Axie Infinity, Decentraland
SPL (Solana)	Solana	Low fees, high throughput, suitable for high-frequency trading NFTs (e.g., blockchain game assets)	DeGods, Okay Bears
Polygon ID	Polygon	Combined with Layer 2 expansion, reduces NFT mint costs, suitable for mass consumer applications (e.g., social media NFTs)	Instagram NFT functionality testing

IV. Core Participants and Ecosystem of the NFT Market

1. Creators

   • Artists, designers, and musicians issue NFTs through platforms (e.g., OpenSea, Rarible), earning from initial sales (Mint) and secondary transaction royalties (typically 5%-10%).

2. Marketplaces

   • Centralized Platforms: OpenSea (70% market share), LooksRare, X2Y2;

   • Decentralized Platforms: Sudoswap (AMM-model NFT trading), Uniswap v3 (supports partial NFT trading pairs).

3. Collectors & Investors

   • Divided into speculators (short-term hype) and genuine collectors (long-term holding of high-quality IP), with some NFT funds (e.g., MetaStreet Capital) specializing in blue-chip NFTs.

4. Infrastructure Service Providers

   • Wallets (MetaMask, Phantom), cross-chain bridges (Wormhole), NFT data analysis tools (Nansen, DappRadar).

V. Controversies and Risks of NFT

1. Bubble and Speculation Risks

   • During the 2021 bull market, many valueless NFTs (e.g., randomly generated animal images) crashed by over 90% after being hyped—e.g., "mutant ape" series NFTs fell from 20 ETH to 0.1 ETH.

2. Copyright and Legal Disputes

   • Some NFTs face infringement issues (e.g., unauthorized artwork uploaded to the chain). In 2022, American artist Beeple's NFT works were accused of plagiarism, sparking copyright controversies.

3. Environmental and Energy Consumption Controversies

   • NFT minting based on Ethereum's PoW mechanism consumes massive electricity (e.g., carbon footprint of a single BAYC NFT equals 300 transatlantic flights), pushing the industry to shift to PoS public chains (e.g., Solana, Polygon).

4. Liquidity and Valuation Challenges

   • Most NFTs lack standardized valuation systems, with poor liquidity (niche NFTs may not trade for months), and prices easily manipulated by "dog zhuang" (e.g., pumping via fake transactions).

VI. Future Development Trends of NFT

1. Compliance and Regulatory Implementation

   • The U.S. SEC began treating some NFTs as "securities" (e.g., NFTs with dividend attributes), and the EU promotes the CDSM act for NFT creators' copyright protection.

2. Deep Integration with the Real World

   • Brand Marketing: Luxury brands such as LV and Gucci continue to issue NFTs as membership benefits or product Easter eggs.

   • Identity verification: Some countries pilot NFT driver's licenses and degree certificates (e.g., Estonia's digital citizen identity NFT).

3. Technical Upgrades and Experience Optimization

   • Layer 2 expansion: Ethereum NFTs shift to Layer 2 networks like Arbitrum and Optimism, reducing transaction fees from hundreds of dollars to under $1;

   • 3D and VR integration: NFTs evolve from static images to interactive 3D assets—e.g., Nike's virtual sneakers can be "tried on" in the metaverse.

Risk Warnings

The NFT market essentially thrives on "attention economy + scarcity consensus," with over 90% of NFT projects eventually going to zero. Ordinary investors should note:

• Refuse to follow hype for "algorithm-generated NFTs" without IP foundations;

• Verify creator backgrounds and copyright ownership (e.g., confirm originality via on-chain data);

• China clarifies that virtual currency-related businesses are illegal financial activities. NFTs involving token trading may violate regulatory red lines, requiring strict compliance with laws and regulations.