I. Introduction

In recent years, NFT (Non-Fungible Token) as an important innovative area of blockchain technology applications has attracted widespread attention globally. From the limited edition issuance of digital artworks to the digitization of diverse assets such as game props, virtual real estate, music works, etc., NFT breaks the homogenization limitations of traditional digital assets, endowing each digital asset with a unique identification and indivisible, irreplaceable characteristics, providing a new model for the confirmation, transaction, and circulation of digital asset ownership.

At the peak of the NFT market, a digital artwork can fetch a high price of millions of dollars. Some well-known NFT projects such as Bored Ape Yacht Club have become part of popular culture, not only having a large number of celebrity fans but also giving rise to rich commercial collaborations and brand extensions. These phenomena have not only driven the rapid expansion of the NFT market, but also sparked widespread participation from financial institutions, artists, creators, and ordinary investors, making NFTs a hot topic in the fields of financial technology and digital culture.

However, the NFT market has recently encountered a significant adjustment. Trading volume has plummeted, prices of many NFT projects have collapsed, and market activity has sharply declined. Once highly sought-after NFT projects are now facing liquidity problems and shrinking value. This series of phenomena has raised questions among market participants and industry observers: Has NFT reached a decline, or even a ‘death’?

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2. NFT Overview

2.1 Definition and Core Features of NFT

NFT, or Non-Fungible Token, is a type of digital asset based on blockchain technology, characterized by its uniqueness, non-interchangeability, and verifiability. Unlike fungible tokens such as Bitcoin and Ethereum, each NFT has a unique identifier, representing a specific digital asset or real-world asset, and cannot be exchanged on an equivalent basis with other NFTs.

Taking digital artwork as an example, artists can transform their paintings, music, videos, etc. into NFTs. Suppose a painter creates a digital oil painting and turns it into an NFT, this NFT is like a unique digital certificate, proving the uniqueness and ownership of this digital oil painting. Even though others can replicate the image of this digital oil painting, they cannot replicate the unique ownership and authenticity represented by this NFT. This uniqueness gives NFTs a unique value in the digital asset field, addressing the problem of digital content being easily copied and pirated, providing creators with a new way to protect copyrights and realize value.

In addition, NFT also has indivisibility, with its smallest unit being 1, unlike Bitcoin, which cannot be divided into smaller units for trading. For example, an NFT representing virtual real estate fully represents ownership of a piece of virtual land and cannot be divided into multiple parts for separate sale. Verifiability is achieved through the distributed ledger technology of blockchain, where every NFT transaction and ownership change is recorded on the blockchain. Anyone can query and verify the historical transaction records and ownership of NFTs through a blockchain browser, ensuring the authenticity of NFTs and the transparency of transactions.

2.2 The technical foundation and working principles of NFT

NFT’s technical foundation is blockchain technology, which is a decentralized distributed ledger maintained by multiple nodes, each of which stores a complete copy of the ledger. On the blockchain, data is stored in the form of blocks, each block containing transaction data for a certain period of time, and linked to the previous block through cryptographic algorithms, forming an immutable chain structure.

NFT is created, traded, and stored based on blockchain smart contracts. Smart contracts are computer programs that automatically execute contract terms, deployed on the blockchain. When creating an NFT, the creator defines the attributes of the NFT through smart contracts, such as metadata like name, description, image, or file link, and records this information on the blockchain. For example, on the Ethereum blockchain, common NFT standards are ERC-721 and ERC-1155, developers can write smart contracts based on these standards to create NFTs.

Taking Ethereum as an example, when a user wants to create an NFT, they first need to write a smart contract that complies with the ERC-721 standard, and then deploy the contract to the Ethereum blockchain. After successful deployment, the user can call functions in the smart contract to mint the NFT. Each NFT will be assigned a unique Token ID associated with specific metadata. During the transaction process, when an NFT is sold or transferred, the smart contract will automatically execute the transaction logic, update the ownership information on the blockchain, and transfer the ownership of the NFT from one address to another. At the same time, the transaction records will be permanently stored on the blockchain, ensuring the traceability and immutability of the transaction.

The metadata of NFTs is usually stored in a distributed storage system, such as IPFS (InterPlanetary File System). IPFS is a peer-to-peer distributed file system that divides files into multiple small blocks, stores them on different nodes, and uniquely identifies files through hash values. When creating an NFT, the hash value of the metadata is recorded on the blockchain, while the actual file content is stored in IPFS. In this way, the corresponding metadata can be accurately obtained from IPFS through the hash value on the blockchain, ensuring the reliability and persistence of NFT data.

2.3 Development History Review of NFT

The development of NFT can be traced back to early blockchain experiments, going through the process from germination to gradual maturity, and then to explosive growth.

• Germination stage (2012-2017): In 2012, the emergence of Colored Coins marked the initial germination of the concept of NFT. Colored Coins realized the mapping of real assets to the blockchain by attaching metadata to the Bitcoin blockchain, but a complete concept of NFT had not yet formed at that time. In 2014, the Counterparty project was established on top of the Bitcoin blockchain, supporting the creation of various types of digital assets, including early forms of NFT, such as the famous ‘Pepe Frog’ NFT. However, during this period, the application and recognition of NFT were very limited. It wasn’t until 2017 that the CryptoPunks project on Ethereum launched 10,000 unique pixelated avatar NFTs, opening a new chapter in the development of NFTs. These avatars attracted the attention of cryptocurrency enthusiasts due to their uniqueness and scarcity. In the same year, Dapper Labs introduced the CryptoKitties game, where players could buy, breed, and trade digital cat NFTs with unique attributes. CryptoKitties quickly became popular, sparking widespread public interest in NFTs and also leading to network congestion on the Ethereum network. This proved the potential of NFTs in the entertainment and collection fields, prompting more developers to explore the application scenarios and technical standards of NFTs.
• Development Stage (2018-2020): During this period, the NFT market gradually grew, with various NFT projects emerging continuously and applications expanding. The emergence of NFT trading platforms such as OpenSea provided a more convenient and efficient infrastructure for NFT transactions, promoting liquidity in the NFT market. At the same time, NFTs began to be widely used in digital art, gaming, music, and other fields. Artists started selling their digital works through NFTs, and game developers used NFTs to provide unique in-game items and assets to players. Games like Axie Infinity gained popularity with their unique gameplay and NFT economic system, attracting a large number of players. During this period, NFT technical standards continued to improve. In addition to ERC-721, standards such as ERC-1155 were gradually adopted, providing a more flexible and efficient way for the creation, trading, and management of NFTs.
• Boom Phase (2021 - early 2022): 2021 was known as the ‘NFT Year’, and the NFT market saw explosive growth. Cryptocurrency artist Beeple’s digital artwork ‘Everydays: The First 5000 Days’ was sold at Christie’s for nearly $70 million, marking a significant moment in the NFT market that attracted global media and investors’ attention. Numerous celebrities, public figures, and brands entered the NFT space, further driving the popularization and application of NFTs. NFT projects like the Bored Ape Yacht Club became part of pop culture, where NFTs not only serve as digital collectibles but also lead to various business collaborations and brand value. During this phase, the trading volume and market capitalization of the NFT market surged significantly, with new NFT projects and applications emerging continuously. Various NFT applications appeared in fields such as virtual real estate, sports collectibles, and tickets, painting a prosperous picture of the NFT market.

3. Analysis of the current situation of NFT

3.1 The current NFT market size and trading data

In recent years, the NFT market has experienced rapid expansion and fluctuations. According toNonFungible.comThe data shows that during the boom period of the NFT market in early 2021-2022, the trading volume has experienced explosive growth. The total trading volume of NFT in 2021 reached 17.6 billion U.S. dollars, a 210-fold increase compared to 82 million U.S. dollars in 2020. During this period, a large number of new users flocked to the NFT market, with over 2.5 million crypto wallets participating in holding or trading NFTs in 2021, compared to only 89,000 a year ago, and the number of buyers increased from 75,000 to 2.3 million.

However, since the mid-2022, the NFT market has started to see significant adjustments. Trading data indicates that both market activity and transaction volume have declined. Taking OpenSea, the world’s largest NFT trading platform, as an example, its monthly trading volume dropped significantly from nearly $2.6 billion in May 2022 to less than $700 million in June, and continued to decline. In January 2024, the trading volume was only $195 million, a sharp drop of 96% from the peak in early 2022. Looking at the global NFT market as a whole, according to data from Dune Analytics, the total trading volume of NFTs in 2023 decreased by about 70% compared to 2022, and the transaction volume also significantly shrank.

In terms of trading volume, the NFT market also faces challenges. The monthly average trading volume of NFTs in 2023 decreased by about 50% - 60% compared to the peak period of 2021 - 2022. This data reflects a significant decrease in the trading enthusiasm of market participants, which has greatly impacted the market liquidity of NFT projects. User growth has also tended to stagnate, and the active user count on some platforms has decreased to varying degrees.

From the perspective of market capitalization, the total market capitalization of the NFT market reached its peak in 2021-2022, but also experienced a significant pullback. At the end of 2021, the total market capitalization of the NFT market exceeded 40 billion US dollars, but by the end of 2023, this value had dropped to around 10 billion US dollars, a decrease of over 75%. Some previously popular NFT projects, such as the Bored Ape Yacht Club, saw their floor price (referring to the lowest-priced NFT in a series of NFTs) drop by over 80% from its peak in 2022, reflecting the overall downward trend in the value of NFT projects.

3.2 NFT application case studies in various fields

NFT demonstrates unique application value in multiple fields, and despite overall market challenges, there are still development highlights in some niche areas.

• In the field of digital art: NFT provides a new mode of artwork sales and copyright protection for digital artists. For example, the digital artwork “Everydays: The First 5000 Days” by artist Beeple was sold at Christie’s for nearly $70 million, becoming a landmark event in NFT digital art. In this case, Beeple synthesized the digital images created every day over the years into a complete work, and digitized and tokenized it through NFT technology. Buyers not only gain ownership of the digital artwork, but also can trace the creation and transaction history of the artwork through the blockchain, ensuring the uniqueness and authenticity of the work. This model breaks the dilemma of easy replication and difficult copyright confirmation of traditional digital artworks, allowing digital artists to better realize the commercial value of their works. Many digital artists sell their works directly to global collectors through NFT markets such as SuperRare, Foundation, etc., without relying on traditional art galleries or intermediaries, achieving a direct connection between creation and sales.
• Gaming Sector: NFTs’ application in games has created a brand new gaming economy and player experience. Taking Axie Infinity as an example, this is an NFT game based on the Ethereum blockchain, where players can collect, nurture, battle, and trade Axies (a type of NFT digital pet). Each Axie has unique attributes and genes, determining its combat capabilities and value in the game. Players can breed Axies to create new pets and trade them in-game or on external markets like OpenSea. Axie Infinity also introduces the ‘Play-to-Earn’ model, allowing players to earn NFT assets through battles and tasks, which can be exchanged for real-world currency, incentivizing a large number of players to participate in the game. Furthermore, in-game assets like land and items can also exist in the form of NFTs, giving players true ownership of these virtual assets for free trading and use, adding more economic value and social interaction to the game.
• In the field of music: musicians have started to use NFT to release and sell music works, bringing new changes to the music industry. For example, American rapper 3LAU released his album ‘Ultraviolet’ through an NFT platform in 2021, where fans could purchase the NFT version of the album, gaining exclusive music content, behind-the-scenes production videos, and opportunities to interact with the singer. This method not only provides musicians with new sources of income but also strengthens the connection with fans. Some emerging music NFT platforms, such as Audius, Royal, are committed to providing convenient channels for musicians to issue and sell NFTs, allowing musicians to better control the copyright and revenue of their works. On these platforms, musicians can divide their music works into different NFTs, such as copyright for songs, performance rights, usage rights, etc., and sell them to different investors or fans, achieving diversified financing and circulation of music assets.
• Sports Sector: The application of NFT in the sports sector is mainly reflected in sports collectibles and event ticketing. NBA Top Shot is a typical case, which is an NFT platform launched by Dapper Labs in cooperation with the NBA. Users can purchase and trade digital collectibles containing exciting moments of NBA stars on this platform. These collectibles exist in the form of NFT, with each NFT corresponding to a unique game clip, possessing uniqueness and collectible value. For example, an NFT capturing a spectacular dunk moment by LeBron James may be purchased at a high price by collectors due to its rarity and the influence of the basketball star. In terms of event ticketing, some sports events have started to adopt NFT tickets. These tickets not only prove the audience’s entry qualifications but also serve as unique digital souvenirs, which can be retained by the audience after the game or traded on the secondary market. NFT tickets also provide anti-counterfeiting, traceability, and smart contract functions, such as automatic refunds and resale restrictions, improving the efficiency and security of ticket management.

3.3 Introduction to Major NFT Projects and Platforms

In the NFT market, some projects and platforms have occupied important market positions with their unique positioning and advantages.

• OpenSea: As the world’s largest NFT trading platform, OpenSea was founded in 2018, supporting various types of NFT trading, including digital art, collectibles, game items, virtual real estate, and more. The platform provides a simple and user-friendly interface, allowing users to easily create, purchase, and sell NFTs. OpenSea has long held a leading position in market share in the NFT trading field, despite recent challenges from competitors, it still maintains high user activity and trading volume in 2024. Its strengths lie in its diverse NFT categories, large user base, and strong liquidity, attracting NFT creators and collectors from around the world. OpenSea is also actively driving innovation in the NFT market, such as supporting cross-chain transactions, allowing users to transfer and trade NFTs between different blockchain networks, further enhancing the liquidity of NFTs. In addition, OpenSea continuously enriches the platform’s NFT content through collaboration with artists, brands, and developers, providing users with more diverse choices.
• CryptoPunks: CryptoPunks is one of the earliest NFT projects on Ethereum, launched in 2017, with significant historical significance and cultural influence. The project consists of 10,000 unique pixelated avatar NFTs, each with different features such as hairstyles, expressions, clothing, etc., determining the rarity and value of each CryptoPunk. CryptoPunks are considered the “blue chip stocks” of the NFT space, maintaining high prices, with total sales exceeding $2.87 billion and a market value of approximately $800 million. Due to their scarcity and early market entry advantage, CryptoPunks have attracted numerous prominent collectors and investors, becoming a symbolic project in NFT collections. Many celebrities, entrepreneurs, and cryptocurrency enthusiasts take pride in owning a CryptoPunk, and its unique pixel art style has influenced the design of many subsequent NFT projects. In addition, CryptoPunks’ smart contracts use innovative “on-chain hash” technology, storing the composite images of the collectibles in encrypted hashes on the Ethereum blockchain, ensuring the permanence and immutability of the images, providing an important reference for the technical development of NFTs.
• Bored Ape Yacht Club (BAYC): BAYC is a popular NFT project that emerged in 2021, consisting of 10,000 unique ape avatar NFTs, each with different attributes and features such as hats, glasses, clothing, etc. These attributes are randomly generated through programming, making each ape unique. With its unique creativity, strong community operation, and brand marketing, BAYC quickly became a star project in the NFT market. The project’s community members include numerous celebrities, public figures, and entrepreneurs, forming a highly social community. BAYC not only has value as a digital collectible, but also achieves diversified brand development through brand authorization and derivative product development, such as launching ape-themed clothing, toys, animations, etc., further expanding its commercial value. For example, the collaboration with the well-known brand Gucci to launch a co-branded series of products has attracted widespread attention in the market and consumer enthusiasm, extending the influence of NFTs to the fashion and consumer goods industry. In addition, BAYC also enhances the stickiness and participation of community members by airdropping other NFT projects to holders, such as Bored Ape Kennel Club (BAKC), building a rich NFT ecosystem.

The voice of questioning NFT

4.1 Price Crash and Market Bubble Theory

Recently, the significant price fluctuations in the NFT market have attracted widespread attention, leading many to question whether there is a serious bubble in the NFT market. From the data, it can be seen that after the prosperity of the NFT market in early 2021 to 2022, prices have experienced a significant pullback. Taking the Bored Ape Yacht Club as an example, its floor price reached about 150ETH (Ethereum) in May 2022, but by the end of 2024, this price had dropped to about 25ETH, a decline of over 80%. Similarly, the price of the Pudgy Penguins NFT project has also experienced a significant decline, with its floor price dropping by more than 70% from its high in 2022.

Behind this phenomenon of sharp price drops, speculative behavior in the market is considered one of the main factors. In the early development of the NFT market, a large number of investors were attracted by its novel concept and potential high returns, flooding into the market and causing the prices of many NFT projects to be excessively hyped. Some investors purchased NFTs not based on their actual value, but in the hope of obtaining high profits through short-term trading. This speculative behavior drove the irrational rise in NFT prices, forming a price bubble. For example, some newly issued NFT projects, lacking actual application scenarios and value support, can attract a large number of investors to rush to buy solely based on unique creativity or marketing methods, leading to inflated prices.

In addition, market sentiment and speculation cycles also have a significant impact on the prices of NFTs. The popularity of the NFT market largely depends on the drive of market sentiment. When the market is enthusiastic about NFTs, prices tend to rise rapidly; however, once the market sentiment shifts and investor confidence is undermined, prices will plummet sharply. As media coverage and social media discussions decrease, the heat of the NFT market gradually cools down, leading to a decline in investor interest and purchasing willingness in NFTs, resulting in reduced market demand and prices falling accordingly.

The sharp drop in prices in the NFT market is also related to market liquidity issues. When the market sentiment is poor, the trading volume of many NFT projects drops significantly, making it difficult to cash out assets, further exacerbating the price decline. In this situation, even if investors want to sell their NFT holdings, they may face the dilemma of not finding buyers or only being able to sell at extremely low prices, highlighting the liquidity risk in the NFT market and further raising doubts about the value of NFTs in the market.

4.2 Technical Defects and Security Risks

Although NFT is based on blockchain technology and has characteristics such as decentralization and immutability, it still faces some technical flaws and security risks in practical applications.

The issues of transaction efficiency and scalability of NFT are prominent. Currently, most NFT projects are built on blockchain platforms such as Ethereum, but the Ethereum network faces problems of transaction congestion and high fees when processing a large number of transactions. When the NFT market is active, the Ethereum network often experiences congestion, leading to extended transaction confirmation times for NFTs, sometimes requiring hours or even days to complete confirmation. Transaction fees also significantly increase with network congestion. During the peak of the NFT market in 2021, some NFT transaction fees were as high as hundreds of US dollars, undoubtedly increasing user transaction costs and restricting the widespread application and popularization of the NFT market. Although some Layer 2 solutions and other high-performance blockchain platforms attempt to address these issues, they are still in the development stage and have not yet fully matured to meet the rapid growth needs of the NFT market.

The security of NFT smart contracts is also an important issue. Smart contracts are the core of NFT creation, trading, and management, but the smart contract code may contain vulnerabilities that hackers can exploit for attacks. For example, the ‘Wormhole’ cross-chain bridge attack incident in 2022, where hackers exploited smart contract vulnerabilities to steal approximately $320 million worth of encrypted assets from the Wormhole cross-chain bridge, including a large number of NFTs. This event not only caused huge economic losses to users but also raised concerns in the market about the security of NFT smart contracts. Once smart contracts are deployed, their code is usually difficult to modify, and if vulnerabilities are discovered, it is difficult to fix them in a timely manner, posing potential security risks to NFT projects.

The metadata storage of NFT also carries certain risks. The metadata of NFT contains important information such as the description, image, or file links of digital assets, which are usually stored in distributed storage systems such as IPFS. However, distributed storage systems are not completely reliable and there is a risk of data loss or damage. If the IPFS node storing the NFT metadata fails or is shut down, it may result in the inability to access the NFT’s metadata, thus affecting the value and utility of the NFT. Some NFT projects may involve metadata falsification, providing false metadata to mislead investors, which also damages trust in the NFT market.

Five, Refuting the View of ‘NFT is Dead’

Continuous innovation applications and development potential

Despite the challenges facing the NFT market at present, it continues to demonstrate sustained innovative applications and enormous development potential in multiple fields.

In the field of digital identity verification, NFT is gradually emerging. Traditional digital identity verification methods often suffer from issues such as privacy leaks and easy data tampering. NFT, based on the tamper-resistant and verifiable characteristics of blockchain, provides a more secure and reliable solution for digital identity. For example, some projects are trying to use NFT to represent users’ digital identities. Users can prove their identity by holding specific NFTs, and this information is stored on the blockchain, allowing only the user to authorize access and use, effectively protecting user privacy and security. In the field of education, academic certificates, training certificates, etc., can also exist in the form of NFTs, allowing employers or other institutions to easily verify the authenticity of the certificates through blockchain, preventing issues such as academic fraud.

The application of NFT in supply chain management has also brought new changes to the industry. By recording information of each link in the supply chain on NFT, the entire process of product traceability from raw material procurement, production processing, logistics transportation to sales is achieved. Taking the luxury goods industry as an example, each luxury item can have a unique NFT, recording its production process, source of raw materials, sales channels, and other information. When consumers make a purchase, they can scan the information on the NFT to obtain detailed traceability data of the product, ensuring the purchase of genuine products, while also increasing the brand’s trust and product’s added value.

In the metaverse and virtual reality (VR)/ augmented reality (AR) fields, NFTs play a crucial role. The metaverse is seen as the future direction of the Internet, and NFTs, as important carriers of digital assets in the metaverse, provide users with the ability to truly own and trade virtual assets. On metaverse platforms, users can purchase, sell, and own NFT assets such as virtual land, houses, and items, which have unique attributes and value, and can be circulated and used in different metaverse applications. The development of VR and AR technologies has also brought new application scenarios for NFTs. For example, users can immerse themselves in NFT digital artworks through VR devices, or display and interact with NFT assets in AR environments, enhancing the interactivity and user experience with NFTs.

From the market perspective, with the acceleration of the global digitalization process, the NFT market is expected to embrace a broader development space. According to market research institutions’ predictions, in the next few years, the scale of the NFT market will continue to grow, especially driven by emerging application areas, and its scope of application will continue to expand. With the development of technologies such as 5G and artificial intelligence, the integration of NFT with these technologies will create more innovative application scenarios, further enhancing the value and influence of NFT. As people’s understanding and acceptance of digital assets continue to increase, NFT, as a new form of digital asset, will attract more investors and users to participate, injecting new vitality into the market.

5.2 Long-term Value and Stable User Base

NFT has an undeniable long-term value in the digital asset field, with its core value lying in providing unique ownership proof for digital assets, solving the copyright confirmation and value circulation issues of digital content.

In the field of digital art, NFT provides artists with a platform to directly connect with the market, enabling them to better control the copyright and revenue of their works. Artists can permanently record their digital works on the blockchain by issuing NFTs, ensuring the authenticity and uniqueness of their works. Regardless of how many times the work is copied, the original ownership of the NFT always belongs to the creator. The creator can earn royalties from each transaction of the work, providing a sustainable economic model for the development of digital art. For collectors, NFT digital artworks have unique collectible value. They are not only symbols of ownership of digital works but also carry the creativity and cultural value of the artists. Over time, some excellent NFT digital artworks may appreciate in value due to their scarcity and artistic value.

NFT’s long-term value in the gaming field is equally significant. In traditional games, virtual assets are often owned by game developers, and players only have the right to use them. Once the game ceases operation, players’ virtual assets become worthless. However, in NFT games, virtual assets exist in the form of NFT, and players truly own these assets, allowing for free trading and use both inside and outside the game. This change in ownership not only enhances players’ commitment and engagement in the game, but also brings new vitality to the game’s economic system. Players can generate real income by selling NFT assets obtained in the game, motivating them to participate more actively in the game. NFT games can also achieve interoperability of virtual assets through cross-chain interaction with other games or applications, creating a larger gaming ecosystem.

From the perspective of user base and community foundation, NFT has a broad and solid user base. Despite recent market adjustments, there are still a large number of users who maintain strong interest and enthusiasm for NFT. In the NFT community, users have formed a strong social network and cultural identity, they are not only holders and traders of NFT, but also disseminators and promoters of NFT culture. Taking the Bored Ape Yacht Club community as an example, members form close connections and interactions through online and offline activities such as virtual gatherings, art exhibitions, brand collaborations, etc. Community members take pride in owning Bored Ape NFTs, and this sense of identity and belonging makes them more firmly support the project’s development, even in the face of unfavorable market conditions, they still maintain confidence in the project. Many NFT projects continuously enhance user stickiness and loyalty through ongoing community operations, such as organizing creation competitions, providing exclusive benefits, and regularly updating project progress, ensuring the stability of the user base.

Conclusion

For investors, it is important to remain rational and cautious. When investing in NFT projects, it is necessary to conduct in-depth research on the project background, team, use cases, and market potential to avoid blindly following the trend. Focus on the long-term value of the project, choose NFT projects that are innovative, practical, and have a strong community foundation for investment. It is important to diversify investments reasonably to reduce risks and avoid concentrating all funds on a few popular projects. At the same time, closely monitor market dynamics and changes in regulatory policies, and adjust investment strategies in a timely manner.