NFTs (Non-Fungible Tokens) are a technology that proves the uniqueness of digital assets on the blockchain. As of 2026, they are utilized across a wide range of fields, including digital art, gaming items, and membership rights. However, purchasing them without a proper understanding of their mechanisms and risks can lead to unexpected losses or disputes. This article explains the fundamentals of NFT standards, storage methods, and secondary market trading, while summarizing the key points you must verify before making a purchase.
How NFTs Work: Blockchain and Smart Contracts
NFTs are built on a decentralized ledger technology known as blockchain. On the blockchain, transaction histories are recorded in a tamper-resistant format, allowing anyone to verify them. The "ownership" of an NFT is managed through token holding information recorded on this ledger.
Smart contracts (self-executing programs) are used for issuing and trading NFTs. Smart contracts automatically execute token transfers and royalty payments according to predefined conditions, enabling transactions without the need for intermediaries. However, if there are bugs or vulnerabilities in the smart contract, there is a risk of losing funds or NFTs.
NFT Standards: ERC-721 and ERC-1155
The two most prominent NFT standards on the Ethereum blockchain are "ERC-721" and "ERC-1155." ERC-721 is a standard where each token holds unique value, making it ideal for digital art and rare collectibles. In contrast, ERC-1155 allows multiple types of tokens to be managed within a single contract, making it well-suited for NFTs issued in large quantities, such as in-game items.
These standards directly impact NFT compatibility and ease of trading. When purchasing, it is crucial to verify which blockchain the NFT was issued on and which standard it complies with. Different blockchains may limit the range of compatible wallets and exchanges available for use.
Storing NFTs: Wallet Types and Key Considerations
To store NFTs, you need a cryptocurrency wallet. Wallets generally fall into two categories: "hot wallets" provided by exchanges, and "cold wallets" where you manage your own private keys. While hot wallets offer greater convenience, they carry a higher risk of hacking. Cold wallets, being managed offline, provide superior security; however, if you lose your private key, you will permanently lose access to your NFTs.
Managing your private key is the most critical factor in safeguarding your NFT ownership. Sharing your private key with others or entrusting it to unreliable services can lead to theft. Additionally, failing to back up your wallet may result in the loss of your NFTs due to device failure or loss. Before making a purchase, ensure you fully understand how wallets work and the associated risks.
Secondary Market: Trading on Marketplaces and Fees
NFTs are traded on secondary markets such as OpenSea and domestic marketplaces. Each transaction incurs platform-specific fees, including sales commissions and gas fees. Fee structures vary by platform and timing, so always check the official website for the latest information.
In the secondary market, prices are determined by supply and demand, meaning an NFT may sell for less than its original purchase price. Additionally, an NFT's value is heavily influenced by the project's operational status and broader market trends. For tokens with low liquidity, selling can take considerable time. If purchasing for investment purposes, fully understand the risks associated with price volatility and make decisions at your own responsibility.
What to Check Before Buying: Risks and Taxes
Before purchasing an NFT, be sure to verify the following points.
- Project Credibility: Research the issuer's information, roadmap, and the development team's track record. Be cautious of anonymous teams or exaggerated marketing claims.
- Smart Contract Audits: Verify whether the project has undergone a security audit. Note that even audited contracts are not guaranteed to be completely safe.
- Scope of Rights: Purchasing an NFT does not automatically grant copyright or commercial usage rights. Always review the terms of use.
- Taxes: In Japan, profits from selling NFTs may be taxed as miscellaneous income. Since tax rates and filing procedures can change with tax law revisions, consult a tax accountant or official sources for the latest rules.
- Choosing an Exchange: Exchanges and marketplaces handling NFTs differ in their security measures, fees, and available assets. To help you select a reliable service, please refer to our comparison of crypto exchanges.
Summary
NFTs are unique digital assets built on blockchain technology and smart contracts, making it essential to understand their standards, storage methods, and secondary market mechanisms. When purchasing NFTs, there are numerous factors to verify, including the project's credibility, the status of smart contract audits, the scope of rights, tax implications, and the selection of exchanges. NFT prices are highly volatile, and there is a risk of losing your principal investment. Always check the latest information on official websites and trade at your own risk.
Risks and Disclosure
Risk: Cryptocurrencies are highly volatile, and there is a risk of losing your principal. This article provides general information based on data as of 2026-08-07 and does not constitute investment solicitation, advice, or a recommendation for specific assets. Trading eligibility and tax regulations vary by country/region; therefore, please verify the regulations in your country of residence and the latest terms of each exchange before proceeding.
Affiliate Disclosure: This article may contain advertising (affiliate) links, through which our site may earn compensation at no additional cost to the reader. Such compensation does not influence our evaluation content.
Frequently Asked Questions
What is an NFT?
An NFT (non-fungible token) is a technology that certifies a unique digital asset on a blockchain. It is used for digital art, game items, and more, with ownership recorded on a public ledger.
What should I check before buying an NFT?
Verify the project's credibility, the smart contract's audit status, the rights you receive, tax implications, and the security of the marketplace. Be aware of price volatility and the risk of losing your initial investment.
How are NFTs taxed?
In Japan, profits from selling NFTs may be taxed as miscellaneous income. Since tax rates and filing rules can change, check the latest official information or consult a tax professional.
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