What the token actually contains
An NFT is an entry in a smart contract recording that a particular token ID belongs to a particular address. In most cases the token does not contain the artwork; it contains a link to it, frequently on IPFS and sometimes on an ordinary web server that can stop responding.
Owning the token generally conveys no copyright, no reproduction rights and no legal claim over the underlying image unless a separate licence says so. A few projects granted commercial rights explicitly; most did not, and buyers frequently did not check.
What happened
NFT trading volumes rose to tens of billions of dollars in 2021 and early 2022. Beeple's Everydays sold at Christie's for $69m. Profile picture collections traded at six-figure floor prices.
By 2023–24, volumes had collapsed by well over 90% from peak, and analyses found that the large majority of collections had a market capitalisation of effectively zero. Many holders discovered that a floor price is only meaningful if there is a bid at it, and that a thin market with wash trading inflating reported volume is not a market at all.
Wash trading and royalties
Because a wallet can trade with itself at no cost beyond gas, reported NFT volumes were substantially inflated — particularly on platforms that rewarded trading with tokens. Independent analyses found large fractions of volume on some marketplaces to be wash trades.
Creator royalties, a central part of the original pitch, turned out to be enforced by marketplaces rather than by the blockchain. When marketplaces competed by making them optional, most royalty income disappeared. It was a useful lesson in the difference between what a protocol enforces and what a company chooses to.
What remains
The underlying technology has real applications — event ticketing, credentials, in-game items, and provenance records where the issuer is trusted. The speculative collectibles market that dominated 2021 has not recovered and there is no particular reason to expect it to.
The FCA does not regulate NFTs as financial instruments in most cases, meaning no consumer protection, no FSCS and no ombudsman. HMRC treats disposals as chargeable for capital gains tax.
How you would actually trade it
If you are going to: verify the contract address from the project's own verified channels, since fake collections mimicking real ones are standard. Check what rights, if any, the licence grants. Check where the asset is actually stored.
Understand that the floor price displayed is the lowest ask, not a bid. The relevant number for whether you can sell is the highest bid, and on most collections it is far lower or absent entirely.
Every marketplace interaction requires signing an approval. Malicious signature requests drain wallets routinely; use a dedicated wallet holding only what you are prepared to lose.
What goes wrong
- Most collections are worth approximately nothing, and that has already happened rather than being a forecast.
- No rights conveyed in most cases.
- Link rot. The referenced asset can simply disappear.
- Wash-traded volume makes reported liquidity unreliable.
- Phishing and approval scams are pervasive.
- No regulatory protection of any kind.
This entry describes how a market works. It is not a recommendation, a price forecast, or advice about whether this belongs anywhere near your money. How entries are written.