How non-fungible tokens changed from niche crypto collectibles to a multi-billion dollar business
Before 2021, NFTs were a fringe asset. Over the last 10 years, developers and crypto enthusiasts periodically experimented with non-fungible tokens, from the Rare Pepes that were created on Counterparty as early as 2012 to the now legendary Crypto Punks. Few outside the blockchain ecosystem had heard of them.
Now it seems no fashion house, celebrity or sports team is without their NFT collection – and with this transition into the public consciousness, prices have gone stratospheric. In 2022 so far, some of the big NFT events that have hit the headlines include:
- Snoop Dogg and Eminem dropping their own NFT collections
- Reese Witherspoon’s story-telling partnership with World of Women
- JayZ, Snoop Dogg (again), Logan Paul, Heidi Klum, 3LAU and many other well known names buying Crypto Punks
- Justin Bieber, Mark Cuban, Jimmy Fallon, Post Malone, Madonna and, yes, Snoop Dogg buying Bored Apes
- Dolce & Gabbana’s first NFT drop selling out for millions of dollars
- Sports stars such as David Beckham, Sebastian Vettel and Michael Jordan dropping their own NFTs
- Artist Beeple’s iconic work The First 5000 Days selling at Christie’s for $69 million
With Crypto Punks – which cost under $10 to mint – and Bored Apes now selling for up to tens of millions of dollars, it is easy to see how NFTs are perceived as a bubble with little or no inherent value. Yet these collectibles are more than just JPEGS. So let’s take a deeper dive into exactly what they are – and why they have superpowers.
What is an NFT exactly?
NFT stands for Non Fungible token, which differentiates it from a fungible token such as Bitcoin or Ether. If an item is fungible, this means that it effectively is indistinguishable from, and has the same value as, any other item of the same type.
For example, a grain of wheat is fungible because its market value is the same as that of any other grain of wheat, and a barrel of Brent crude oil is fungible for the same reason. The bank notes and coins of a fiat currency system are fungible. One $100 bill is the same as another $100 bill. 0.1 Bitcoin is interchangeable with any other 0.1 Bitcoin.
Having said this, there are degrees of fungibility. Cryptocurrency that has been used illegally can sometimes be less acceptable for payments, in a similar way to banknotes that have been damaged in some way.
However, assets that are clearly nonfungible are easily identified: works of art, houses, antiques, sporting collectibles and memorabilia are all products that are one-off and which cannot automatically be assigned the same value or equivalence as another item of its kind.
Fungibility is an economic concept that existed in the non-digital world a long time before cryptocurrency. The ERC721 token standard enabled the creation of digital tokens on a blockchain that could clearly be distinguished from all the other tokens in a collection.
Price appreciation and risk
The most common example of NFTs these days is digital images. A quick visit to the major NFT marketplaces such as OpenSea, Looks Rare or Rarible will reveal many hundreds of thousands of artworks, memes and videos that are on sale for prices that range from cents to millions of dollars.
Announcements of new NFT drops spread virally in the crypto and NFT communities, and committed traders and collectors will commit hours on social media to networking and unpaid work on behalf of a community to win a coveted spot on the whitelist of a hot new drop, hoping to mint for a reasonable price and then flip the NFT for a profit while the hype is still real.
Unlike the normal crypto or stock markets, where there are fundamentals that can be examined along with market sentiment, the NFT market is driven in a large part by fashion and hype.
While collectors who bought or minted Bored Apes and Crypto Punks early have made huge fortunes, many NFTs have seen their price plummet since launch. An NFT of Jack Dorsey’s first tweet, which originally sold for $2.9 million was recently on sale for less than $7,000.
Other types of NFT
We are only starting to see the very beginning of what can be achieved with NFTs. One of the most interesting use cases is membership benefits and loyalty programs: for example, the Dolce & Gabbana NFT drop includes not only digital artwork, but custom-made clothing and access to a year’s worth of fashion shows and exclusive events featuring the designers. Similarly, the Kings of Leon’s NFT album included perks such as front-row seats to the band’s concerts – and tickets for this year’s EthCC conference in Paris are being issued as NFTs.
NFTs are also used to represent positions in liquidity pools on decentralized exchanges, ENS names and a wide range of other assets and experiences.
The future of NFTs
As more and more collectors from outside the crypto community pile into the sector, expect to see more and more innovations and products that make the experience as painless and smooth as possible.
Ethereum’s high gas fees have prompted a wave of NFT collections to mint on other L1 or L2 networks with much lower fees, such as Polygon, Solana and BNB Smart Chain.
Meanwhile, aggregation tools such as Gem allow collectors and artists to minimise fees by bundling transactions, and custody and insurance solutions are also being developed to help collectors who are not Web3 natives.
Whether you are a Web3 native or not, one important requirement for every NFT owner is the ability to keep track of your digital assets and their value. In the same way that Skytale offers an integrated, easy-to-use dashboard for aggregating multichain crypto assets, we are delighted to announce that we are now extending this capability to NFTs as well as fungible tokens.
Our NFT tracking area is already live in Beta Mode and will soon be part of the Premium Subscription. Here’s where Beta users can find it: https://web.skytale.finance/welcome, after logging in via your e-mail or MetaMask.
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