3Web3 101
Part 3 · Assets · Chapter 10

NFTs

An NFT is a unique on-chain certificate. It is not usually the image itself. It proves that a certain token ID belongs to a certain address.

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10. NFTs

#One-Sentence Version

An NFT is a unique on-chain certificate. It is not usually the image itself. It proves that a certain token ID belongs to a certain address.

#Correcting the Biggest Misunderstanding

Many people think: "NFT = the monkey picture."

More accurately:

An NFT is an on-chain record saying that item X is currently owned by address Y.

The image is usually not stored fully on-chain. It is often stored on a server or IPFS, while the NFT stores a pointer to metadata.

When you buy an NFT, you usually receive:

  1. The on-chain record that a token ID belongs to your address.
  2. Metadata such as image, video, or description, often stored off-chain.
  3. Any project-specific rights, such as community access or commercial licensing, depending on the project's terms.

You usually do not automatically receive:

  • Copyright to the image, unless explicitly granted.
  • The ability to stop others from right-click-saving the image.

Analogy:

Buying an NFT is like buying a certificate of ownership. Others can take photos of the artwork, but the ownership record still points to you.

#NFT vs Fungible Token

Fungible Token (ERC-20) Non-Fungible Token (ERC-721)
Analogy Money Property deed or concert ticket
Each unit Interchangeable Unique
Fractional? Yes, 0.5 token is possible Standard NFTs are whole items unless wrapped or fractionalized
Identified by Balance amount Token ID
Examples USDT, ETH CryptoPunks #1234, a ticket NFT

NFTs are useful when this specific thing is different from all other things.

#Common NFT Use Cases

#1. Digital Art and Collectibles

The first NFT boom was mostly avatars and digital art.

Examples: CryptoPunks, Bored Ape Yacht Club, Art Blocks.

Notes:

  • Prices are highly volatile.
  • Value depends on community, brand, and culture more than technology.
  • Most projects do not survive long cycles.

#2. Domains and Identity

NFTs can map human-readable names to addresses.

Examples:

  • ENS: .eth names, such as vitalik.eth
  • SNS: .sol names on Solana
  • Unstoppable Domains

Use: instead of pasting a long address, send to alice.eth.

#3. Credentials and Memberships

NFTs can prove participation or membership:

  • Early supporter badges.
  • POAPs for event attendance.
  • Community access passes.

Some are non-transferable, often called soulbound tokens. Their purpose is identity, not trading.

#4. Game Items

Game items such as equipment, skins, or land can be represented as NFTs.

Ideal: players truly own items, can sell them, and maybe use them across games.
Reality: most blockchain games have struggled with user experience and sustainability.

#5. Real-World Asset Certificates

NFTs can represent ownership proofs for real-world assets such as real estate, luxury goods, or collectibles. This is still early because legal systems must recognize the connection between on-chain records and real-world rights.

#How to Evaluate an NFT Project

This is not investment advice, but these questions help reduce obvious mistakes:

  1. Who is the team? Anonymous teams can disappear more easily.
  2. What does it do beyond being an image?
  3. What rights or utility does holding it provide?
  4. How liquid is it? Check floor price and actual trading volume.
  5. What is the price history? Many NFTs are down 90%+ from highs.

Better mindset:

Treat NFTs as hobby spending, not guaranteed investments.

If you buy because you like the art or want to support the creator, fine. If you buy only because you expect resale profits, be ready to lose everything.

#NFT Safety Risks

NFT users are frequent phishing targets because minting is exciting, links spread fast, and signatures are confusing.

Common traps:

  1. Fake mint sites: a project uses a.com; scammers create a-mint.com.
  2. "Free NFT" spam: a wallet receives an NFT titled "click to claim." Do not touch it.
  3. setApprovalForAll phishing: one approval lets an attacker move all NFTs from that collection.
  4. OTC phishing: a stranger DMs you with a fake marketplace link.

Defenses:

  • Enter mint links only from official websites or verified official social posts.
  • Do not click, approve, transfer, or sell unknown NFTs in your wallet.
  • Revoke unused NFT approvals using trusted tools after verifying the domain.
  • Store expensive NFTs in a cold wallet, not a daily hot wallet.

#Copyright

"If I buy an NFT, can I use the image commercially?"

Answer: it depends on the license.

Common models:

  • Commercial rights: you may use the image commercially.
  • Personal use only: avatar and sharing are allowed, commercial use is not.
  • Ownership record only: the project keeps the copyright.

Read the project's license before buying. Otherwise, you may think you bought IP rights when you only bought a token pointing to an image.

#Quick Memory Table

Key Point One-Sentence Version
NFT essence On-chain record that a unique token ID belongs to an address.
ERC-721 Main NFT standard.
Uses Collectibles, domains, memberships, game items, asset certificates.
Value Depends on community, rights, and utility, not just technology.
Biggest safety risk setApprovalForAll phishing.
Mindset Hobby spending first, investment second if at all.

#What to Read Next

Part 3 ends here. Next we move to application layers: DeFi, DEXs, and DAOs.

-> 11. What Is DeFi?

If you remember one sentence: An NFT is a unique on-chain certificate, not usually the file itself. The biggest practical risk is malicious approval.