Must-read before investing in NFTs: From zero to understanding non-fungible tokens and choosing the right project

What is NFT? How is it different from Bitcoin and Ethereum?

Recently, the term NFT has been everywhere, but many people don’t really understand what it is. Simply put, NFT stands for “Non-Fungible Token,” which contrasts with “Fungible Tokens” like Bitcoin and Ethereum.

What’s the difference? Imagine you have a 100-dollar bill and I have a 100-dollar bill. These two bills are exactly the same and can be exchanged freely—that’s fungibility. Bitcoin(BTC) and Ethereum(ETH) are also fungible tokens. But if you have a Picasso painting and I have a Monet painting, these two artworks cannot be exchanged on a one-to-one basis because they each have unique characteristics—that’s non-fungibility, which is the core concept of NFT.

Specifically, NFTs include digital assets like artworks, game characters, virtual real estate, domain names, and any other one-of-a-kind digital items. They all operate on blockchain platforms, issued according to standards like ERC-721, ERC-1155, while Bitcoin and Ethereum use standards like ERC-20, BEP-20.

From a technical perspective, the commonality between NFTs and FT (Fungible Tokens) is that both are based on blockchain technology and are forms of cryptocurrency; the difference is that NFTs emphasize uniqueness and irreplaceability, whereas FTs focus on liquidity and interchangeability.

The Development Path of NFTs: From a Cat to a Frenzy of Art Auctions

To understand why NFTs are so popular, we need to look at how they reached today.

Back in 2017, a project called CryptoKitties exploded on Ethereum. Users bought, traded, and bred virtual cats en masse, causing network congestion. One rare cat named “Dragon” sold for $110,000, demonstrating the commercial potential of NFTs.

However, after the CryptoKitties craze subsided, interest in NFTs declined sharply. But this didn’t stop developers from exploring further; NFTs gradually expanded into art, gaming, sports, and other fields.

In 2018, a turning point occurred when a digital artwork titled “Everydays: The First 5000 Days” sold for $6.9 million, setting a new record for NFT auctions and transforming perceptions of digital art.

The real explosion came in 2021. With the emergence of blue-chip projects like CryptoPunks, Bored Apes(BAYC), Women’s World(World of Women), Art Blocks, and others, the NFT market experienced exponential growth. Many new projects flooded in, with diverse formats and content. More importantly, many renowned artists, celebrities, and brands entered the NFT space.

Interestingly, the NFT market exhibits a unique pattern: its bull runs generally synchronize with Bitcoin(BTC)'s crypto bull markets but tend to lag behind. In other words, when Bitcoin starts to rise, the NFT market often follows.

Current State of the NFT Market: The Need for Calm and Rational Reflection

According to the latest market data, Opensea shows over 1,000 NFT projects across nine fields including art, gaming, domain names, and virtual worlds. Among them, CryptoPunks, Bored Apes(BAYC), MAYC, Art Blocks, DeGods, and others account for nearly 50% of the total market cap, reflecting a strong Matthew Effect.

But the reality is not optimistic. The total market value of NFTs is declining, and trading volume continues to shrink. The floor prices (minimum sale prices) of many blue-chip NFT projects are hitting new lows, indicating that even investors in “quality projects” are starting to sell.

This situation contrasts sharply with the frenzy of the past two years, when the NFT market was highly speculative, with many buying NFTs to flip for profit. Now, the market is becoming more rational, with a significant shift: NFTs are beginning to integrate with the real economy.

A clear example is profile picture (PFP) NFTs, which derive value through brand empowerment and real-world applications. Although this support is still weak, the direction is promising.

The Next Hot Spot: Physical Assets on the Chain Could Change the Fate of NFTs

Why do some believe NFTs still have hope? Because industry insiders are optimistic about a new direction—bringing physical assets onto the blockchain.

Imagine a famous painting, a jadeite, or a property, being traded quickly, conveniently, and efficiently via NFT technology, with real-world backing giving NFTs tangible application value. This mutual reinforcement could create a virtuous cycle.

Currently, fields like calligraphy, jewelry, and real estate are actively exploring the possibility of physical assets on the chain. If this trend solidifies, it could become the core driver of the next bull market for NFTs. This is also why many seasoned investors are optimistic about the long-term prospects of NFTs.

How to Pick Promising NFT Projects? Focus on These Key Indicators

Investors often ask: why do projects like CryptoPunks, Bored Apes(BAYC), Art Blocks, Azuki, Doodles become blue chips? The answer seems simple—good-looking, artistic, strong teams, celebrity endorsements.

But that’s not enough. A project with these superficial qualities can still fall apart once hype fades. For example, the FantomBear project backed by Chinese singer Jay Chou is a typical lesson.

So, why hasn’t Bored Apes(BAYC) met such fate? The core reason is: it has sustainable “blood-making” ability.

The Bored Apes team continuously launches new IPs, develops derivative products, and forms business collaborations, generating steady income. This gives investors hope and encourages holding rather than selling.

Therefore, evaluating whether an NFT project is worth investing in should go beyond team background and celebrity endorsements. The key is its business model—can it generate ongoing revenue and provide real returns? That’s what determines the project’s survival.

For projects with a solid business model, long-term holding (over 2 years) can be considered, as they need time to build brand influence and attract users. However, such projects are rare.

Most projects have very short lifespans and are suitable for short-term trading (within half a year). The reality is that operators aim to quickly harvest hype and then disappear. They don’t care if the project still has value after death, because they can create the next project rapidly.

How to judge if a project has a genuine business model? The most direct methods are:

• Visit the project’s official website and forums, and review community discussions
• Join Telegram, Discord, and other groups to observe conversations among users and developers
• See how others evaluate it; with more research, your judgment will improve

Special note: If the smart contract code shows minting rights or scam flags, just abandon it—stay as far away as possible.

Comparing NFT Trading Platforms: Choosing the Right Platform Is Critical

To trade NFTs, you need a trading platform. According to the latest data, there are over 40 NFT platforms, with the top three by trading volume being Blur, Opensea, and X2Y2.

Blur

• Advantages: Strict quality control on artworks, high artistic and uniqueness standards. The biggest selling point is that it currently charges no fees.
• Disadvantages: As a new platform, its user base and liquidity are still limited, and selection is narrow.

Opensea

• Advantages: The oldest and largest NFT marketplace globally. Wide user base, high trading volume, extensive project selection, and excellent liquidity.
• Disadvantages: Higher centralization and relatively high fees.

X2Y2

• Advantages: Decentralized architecture, offering better privacy and data security.
• Disadvantages: As a newer platform, it faces challenges in user base and liquidity.

How to choose? Based on your priorities:

• If security and privacy are most important, choose X2Y2
• If low fees matter most, choose Blur or X2Y2
• If you want the widest project selection and liquidity, Opensea is the best choice

Four Major Risks of NFT Investment You Must Know in Advance

Many are attracted by the high returns of NFTs but overlook the risks involved. Before entering, understand these risks.

Risk 1: Poor Liquidity

This is the most fatal weakness of NFTs. If you buy an NFT today and want to sell it tomorrow, you might have to wait days with no buyers. For non-blue-chip projects, it might never sell. If you participate in short-term trading, be prepared: you may not only fail to sell but also have to accept a price below the floor.

Risk 2: Counterfeit Goods Everywhere

NFT projects often launch via blind boxes, where you pay before knowing what you get. This creates opportunities for scammers. For example, after Cool Cat became popular, many fake versions appeared. Many investors paid ETH to open blind boxes only to get counterfeit items that couldn’t be sold.

Mitigation: Always verify the contract address through official channels to ensure you’re buying the genuine project.

Risk 3: Wallet Authorization Traps

This is a common but deadly pitfall. Never sign authorization for third-party sites if your wallet holds NFTs. Avoid blindly trying NFTFi (NFT + DeFi) products, as they are vulnerable to hacking, which can lead to loss or destruction of your assets.

Once compromised, these assets are irrecoverable. The irreversible nature of blockchain is a double-edged sword.

Risk 4: Market Cycles and Downturns

NFT markets are highly correlated with the crypto market. When Bitcoin(BTC) enters a bear market, NFTs often follow suit. If you are heavily invested at a high point, you risk being trapped.

Summary: Unless you are a die-hard supporter of blue-chip NFTs or have strong risk tolerance, avoid going all-in. Small-scale testing, diversification, and risk control are the rational strategies for NFT investment.