What is NFT

The full name of NFT is Non-fungible token. Various currencies we use in daily life, including RMB and Bitcoin, whether they are fiat or virtual currencies, can be exchanged with each other and do not have uniqueness. Their values are the same, which is fungible tokens. On the other hand, non-fungible tokens are unique. Each NFT has its own attributes and they are not interchangeable with each other. The creators of NFTs can upload and record various metadata such as title, author, timestamp, etc., along with digital artworks on the blockchain, preserving proof through smart contracts, which will never be destroyed or lost. Perhaps everyone can appreciate or download this digital artwork, but its ownership belongs to only one person, which is the inherent value of NFT.

Currently, some social platforms have begun to support uploading NFT-exclusive avatars to showcase their uniqueness, such as Twitter and Jike. After users subscribe to their membership services for a fee, they can associate their wallets and choose the corresponding NFT as their avatar.

Development History of NFT

(1) Early stage (2012-2017)

The concept of NFT can be traced back to Colored Coins project in 2012, which represented real assets by endowing Bitcoin with different attributes on the Bitcoin blockchain and can be regarded as the prototype of NFT. However, the truly iconic one was CryptoPunks launched in 2017, which consisted of 10,000 unique pixelated avatars issued on the Ethereum blockchain, each with unique appearance features. Users can own and trade these avatars. CryptoPunks is considered an early successful application of NFT, attracting some avant-garde enthusiasts to enter this field and laying the foundation for the development of the NFT market. Another influential project in the same year was CryptoKitties, where users can collect, breed, and trade virtual cats on the blockchain, and each cat has a unique set of genes and attributes. The popularity of CryptoKitties caused congestion on the Ethereum network, bringing more attention to NFT as a unique form of digital asset.

Image source:https://cryptopunks.app/

(2) Development and Exploration Stage (2018 - 2020)

At this stage, the NFT market is beginning to attract more projects and developers. Various NFT projects are emerging like bamboo shoots after a spring rain, covering multiple fields such as digital art, games, music, and sports. In the field of digital art, some platforms dedicated to the trading of digital artworks, such as KnownOrigin, have appeared. Artists can sell their works in the form of NFTs, achieving copyright protection and value confirmation for digital works. In the gaming field, projects like Axie Infinity are starting to stand out. Players can collect, breed, and battle Axie creatures in the game, which exist in the form of NFTs. Players truly own them and can trade them outside the game. Despite the numerous attempts of projects, the overall scale of the NFT market in this period is relatively small, with limited visibility. It is still in the exploratory stage of development, with both technology and the market needing further maturity.

Image source:https://axieinfinity.com/

(3) Outbreak and Mainstreaming Phase (2021 to present)

2021 was called the “NFT Year”, and the NFT market saw explosive growth. Traditional auction houses such as Christie’s began to get involved in NFT auctions. Beeple’s digital artwork “Everydays: The First 5000 Days” was sold for a high price of $69.34 million, setting a record for NFT art auctions, attracting the attention of global mainstream media, and bringing NFT into the public eye. Subsequently, many well-known brands and celebrities entered the market, such as the NBA launching NBA Top Shot, turning exciting basketball moments into NFT collectibles that fans can buy, collect, and trade; singer Grimes also sold her digital artwork as NFT, with sales totaling millions of dollars. During this period, the NFT market rapidly expanded, with a significant increase in trading volume on NFT trading platforms like OpenSea. New NFT projects and applications continue to emerge, including innovative applications such as virtual land, identity authentication, and tickets, gradually moving NFT from a niche digital asset field to the mainstream.

Steps to purchase NFT

Due to the limited and unique nature of NFT, it is easily manipulated. In order to avoid unnecessary losses, it is recommended that users conduct sufficient research and evaluation of the price before purchasing. The following are the specific steps to buy NFT:

(1) Create cryptocurrency wallet
Users need to create a cryptocurrency wallet, such as MetaMask, and deposit corresponding token assets, usually ETH and SoL, before purchasing NFTs.

(2) Enter the NFT trading platform
Register and log in to the NFT market. OpenSea is the world’s largest NFT market, covering various types of NFT such as digital artworks, collectibles, game props, etc. Rarible is also a well-known NFT market that supports users to create, sell, and collect NFTs. SuperRare focuses on high-quality digital artworks.

(3) Select and purchase NFT
In the selected NFT market, various NFT artworks can be seen. Users can browse different categories and artists by clicking ‘Explore,’ choose an NFT that interests you, and then click ‘Buy Now’ or participate in an auction.

Taking OpenSea as an example, users can explore and select their interested categories in the menu bar of OpenSea, such as Air, Gaming, PFPs, Music, etc.

Image source:https://opensea.io/

Click on your favorite NFT to view more detailed introductions. On the details page, you can see all relevant information. Click “Buy now” to trade at the current price, or you can click “Make offer” to set an amount lower than the current price. If the seller accepts, the transaction can be completed.

Image source:https://opensea.io/collection/lilpudgys

Combining historical prices (Price History), owner listings (Listings), buyer offers (Offers), and trading activity (Item Activity) data to check the scarcity of the NFT, evaluate whether it is popular, and thus determine its future appreciation potential.

Image source:https://opensea.io/assets/ethereum/0x524cab2ec69124574082676e6f654a18df49a048/9338

(4) Complete the purchase

Once the purchase price is determined, users need to complete the transaction through your wallet. This usually involves signing the transaction request in the wallet. After the signature is completed, the transaction will be packaged and added to the blockchain.

(5) View NFT

After the purchase is completed, users can view the purchased NFT in their account, and some platforms also allow the NFT to be set as part of their personal profile.

If you need to transfer NFT to another wallet address, you can select the corresponding NFT in the digital wallet, click ‘Transfer’, enter the target wallet address, and confirm the transfer operation. To sell NFT, you can create a sales listing on the original purchase market or other supported markets, set the selling price and selling method, and wait for the buyer to make a purchase.

Risk Warning

NFT has depicted a promising digital future for us. In the overall sluggish global economic environment, the booming market of encrypted digital asset trading has brought us a ray of hope. However, most people only see the explosive potential returns it may bring, while ignoring the potential enormous risks:

(1) Market Risk
The NFT market has large price fluctuations, and its value is influenced by various factors such as market demand and project popularity. Before purchasing NFTs, it is important to fully understand the market trends and avoid blindly following investments. For example, the virtual land NFT that JJ Lin purchased for 800,000 RMB depreciated by 500,000 RMB in just two months.

(2) Technical Risk
Digital wallets and the NFT market rely on blockchain technology, and are exposed to risks such as smart contract vulnerabilities and network attacks. Choose well-known digital wallets and NFT markets, and regularly update wallet and software versions to reduce technical risks. For example, Jay Chou’s previously gifted BAYC was stolen, worth 3.2 million.

(3) Legal and Compliance Risks
Currently, the legal status and regulatory policies of NFTs vary in different countries and regions. Before purchasing NFTs, it is important to understand the local laws and regulations to ensure that the transaction is legal and compliant.