CRAZY! NFTs are really loud. NFT marketplace OpenSea has done $2,000,000,000 USD in volume so far in the month of August 2021, crossing the transaction volumes of Etsy and averaging at 70% of eBay transaction volume. The clipart of a rock just sold for 400 ether, or about $1.3 million, late Monday afternoon this week. The transaction marks the latest sale of EtherRock, a brand of crypto collectible that’s been around since 2017 – making it one of the oldest non-fungible tokens (NFTs) on the block. This is 2nd in series of “What Is NFT?” posts, where I deep dive into the genesis of NFTs and potential road ahead for this mania.

This NFT mania started earlier this year with artists like Beeple selling an NFT at Christie’s auction house for $69 million, famous Meme creators making millions off their original pictures, and NBA Top Shot gaining traction in the sports community. Let’s uncover what is NFT / NFT meaning, how to create an NFT, NFT examples, and reality check on NFT crypto coins.

What is NFT?

According to the Wikipedia “A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable.” Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.

We experienced the hype of NFTs recently, but the real origins of NFTs started in 2014 around the peak of Tumblr culture, when a raucous, wildly inspiring community of millions of artists and fans was sharing images and videos completely devoid of attribution, compensation, or context. That is when Anil Dash – current Glitch CEO, and McCoy had hacked together a first version of a blockchain-backed means of asserting ownership over an original digital work. Exhausted and a little loopy, we gave our creation an ironic name: monetized graphics.”

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“Monetized graphics” tied ownership of an original digital work to the Namecoin blockchain. Dash and McKoy popularized the idea over the following years, but concluded in retrospect that they were a bit ahead of the times since the idea didn’t catch on for a number of years after their initial proof of concept. Again with the launch of Ethereum in mid-2015, reinitiated fresh development to the NFT sector, with a project called “Etheria” launching only 3 months after the Ethereum network went live.

Ξtheria is a virtual world in which players can own tiles, farm them for blocks, and build things. The entire state of the world is held in and all player actions are made through the decentralized, trustless Ethereum blockchain. Etheria was essentially the first blockchain based “metaverse”, allowing users to buy one of the 457 “plots of land” within the digital universe, but like the monetized graphics created by Dash and McCoy, the idea didn’t really gain much traction. In fact, most of the plots remained unsold until the NFT boom in March of 2021 (more than 5 years later), when all plots were sold for a combined $1.4 million in less than 24 hours!

NFTs have an impressive evolution as shown below, with many innovative projects like,

• CryptoPunks project, an Ethereum based collection of 10,000 NFT cartoon characters that was created in 2017 by a company called Larva Labs. In June of this year, a CryptoPunk (#7523, titled “Covid Alien” by the owner) sold for a whopping $11.8 million (800 ETH) at a Christie’s auction.
• Decentraland – a metaverse first introduced in 2018 and allowed users to buy digital land and also set up businesses on the land within the digital community. Within a few months, the project’s “in-game” economy was worth approximately $20 million and continues to exist and grow to this day with people setting up everything from art galleries to casinos within the digital world.
• CryptoKitties, a blockchain-based game allowing players to adopt and trade virtual cats, is another notable example since it was considered at the time to be “the dApp that broke Ethereum”.
• TopShot, which tied NFT infrastructure with the vast and lucrative sports memorabilia industry. NBA Top Shot has produced over $700 million in total sales in less than a year, according to CEO Roham Gharegozlou. This is a staggering amount of sales for a product that the NBA hardly put any marketing effort behind– it was mostly organic interest from the overlap in fans of crypto and sports.
• Recently, artists like Beeple leading the charge into the world of fine art on the blockchain and the Top Shot project bringing the tech to the mass market.

ICOs -> DeFI -> NFTs

Like ICOs in 2017-2018 and DeFi in 2019-2020, the NFT sector is in full hype mode for 2021, with existing projects and new developments dominating the current narrative of the entire crypto industry. Now NFTs and DeFi duking it out for the Ethereum killer app title

The work by an artist Beeple is probably the most well known at this point and has also been quite a catalyst for the rest of the sector. Beeple (whose real name is Mike Winkelmann) is a graphic designer who has been building an astonishing collection of work over the last 15 years of his career by working with companies like Apple, Coca-Cola, Louis Vuitton, Nike, and Sony. Next to this impressive resume, he built a collection of work called “Everydays” where he created a new digital work every day for more than 5000 consecutive days, and then went on to sell some of the work through Christie’s Auction House, with one piece fetching more than $69 million. Although there have been a number of projects that brought the masses to the NFT sector, Beeple is often credited with bringing the market to the mainstream through this record sale.

On the other hand, Beeple is certainly not the only artist bringing the tech to the masses. A number of other designers like Virgil Abloh (of fashion brand Off-White) and high-end design houses like Louis Vuitton and Gucci have capitalized on the boom, releasing collections of work tied to their fashion brands.

Next to these, celebrities in music, films, and sports have released their own collectibles for their respective fan bases. Tom Brady (the legendary NFL quarterback) announced back in April that he is working on a platform called Autograph that will function as a marketplace for NFT sports collectibles. Last month, he announced that the marketplace will be partnering with Lionsgate and Draftkings as well, so this will surely be an interesting platform to watch as it grows and reaches the enormous audience of sports fans in the US and beyond.

Of course, we’d be remiss to skip over NBA Top Shot’s contribution to bringing sports fans to the NFT industry. Developed by Dapper Labs, the creators of Cryptokitties, NBA Top Shot seems to have appeared overnight with their platform that allows users to trade tokenized “moments”, or digital clips of gameplay that use NFT technology to function in a similar fashion as baseball cards have for decades.

Additionally, and unlike most other NFT marketplaces, users of NBA Top Shot don’t need to have any background in crypto to be able to use the platform since everything can be done in the dedicated app. This kind of user experience is incredibly valuable to the continued proliferation of the tech and we will likely see many future platforms follow in their footsteps.

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The latest craze in this sector has been led by a game called Axie Infinity, which is a Pokemon-inspired online game that allows users to collect, trade, and battle their digital pets called “Axies” that are tied to NFTs on the Ethereum blockchain. Like Cryptokitties, Axie Infinity has put enormous pressure on the Ethereum network due to the incredible demand for the game and its collectibles. In fact, the game hit one million users and crossed the $1 billion mark in sales just this week. Though the game was developed back in 2018, it soared in popularity over the last few months with the rest of the NFT market, mostly due to the ease of use for the players and the in-game economy that connects to “real-world” assets via blockchain technology.

With the success of these games, video game companies have not been able to ignore the movement. Ubisoft, one of the largest video game development companies in the world, has been experimenting with the tech for a couple years and has hinted at a number of future use cases within existing video-game franchises that will likely come to market soon. Additionally, Gamestop recently announced that they will be building an NFT platform to support the video game industry, and despite fairly limited information following the announcement, the video game and crypto industries are certainly excited. That being said, we’ll dive in a little deeper to this topic in the third part of this series as we look to the future of NFT tech.

So at this point, you’re probably curious how you can learn more and get involved, especially after reading about digital art going for tens of millions of dollars and digital cats wreaking havoc on crypto’s core infrastructure, so let’s take a break from the “what” and talk about the “how”, specifically, where would you start if you wanted to read more and potentially even buy your own NFT.

Like nearly all other forms of digital assets, NFTs are bought and sold on marketplaces, and a few specific platforms are leading the pack. Websites like OpenSea, Rarible, and Nifty Gateway are the best places to browse the endless collections of work that have been created (usually referred to as “minted”) by artists, designers, and companies. These sites allow you to link an external crypto wallet like Metamask that will function as the “home” for the NFT. Because these digital goods have the same technical underpinnings as most crypto tokens, you will actually buy the NFTs with Ether or a stablecoin and then store the NFT in your Ethereum wallet.

Of course, buying and selling isn’t the only thing you can do on these sites. All of these platforms allow you to track when the asset was minted, who owns the asset and who the previous owners were (if any), what the price history has been, and what other assets might be related as part of a larger collection. On that note, many NFT collections are spread across multiple platforms, so the website Nonfungible.com is a great reference for tracking data across the various websites that cater to the sector.

Another point to consider is that new NFTs are created constantly, and if you’re looking to make speculative bets on the asset values rather than just collecting the work for its aesthetic appeal, it’s often wise to buy into the artwork before a collection is discovered by the masses. Of course it should go without saying, but this is definitely one of the riskier bets in the crypto industry and NFTs really function more as collectibles than investments, but if you wanted to get ahead of the hype train, look to “release calendars” for scheduled sales of new assets (usually called “drops”). The aforementioned marketplaces all advertise new collection drops on their home pages, but you can also refer to resources like NFTcalendar.io for a consolidated view of drops across the various platforms.

So as we learn more about the NFT sector, we start to see the nearly endless opportunities to leverage this technology across a multitude of industries. Next week, we’ll explore some of the proposed use cases for this sector, which includes everything from digital assets in the metaverse to authentication for event tickets and even ownership of physical assets. In the present day, NFTs are mostly a novelty, but the power of the tech is going to transform the way we interact, invest, and innovate for years to come.

The NFT Evolution Timeline & Recent Projects

The typical creator NFT evolution timeline goes something like: Single NFTs (art, music) –> NFTs with continuous value –> personal tokens –> community tokens run by DAOs –> ?. Check the Messari tweet on this below

Recently, the wildly popular social media app, TikTok, just announced an integration with a music NFT platform called Audius (ticker symbol AUDIO). The coin moved 86% immediately following the announcement. Unfortunately we didn’t have any tokens, but we think this is an impulse that will spark a larger uptrend in this asset and dips are for buying!

It is very clear that this development fundamentally increases the value of this project, and we are considering taking some trades on it if prices fall back down a bit! We must admit, it’s always difficult in one’s mind to buy something that moved so hard and so recently. But, looking at the charts, there is a good value area to set limit orders and patiently wait for the price to come to YOU near a secondary volume point of control that is starting to form near $2.25.

As this NFT trend becomes more popular, developers will continue to leverage the tech to build out current industries as well as transform those that haven’t been revolutionized yet. Today, we’ll explore how the present is inspiring the future and speculate on where the tech might be used over the coming years and decades.

One of the most dominant trends in NFTs has been the incorporation into the video game industry, and while it has already proven useful and popular, the technology is far from mature. Many video game companies have already started the process of incorporating the tech into their existing infrastructure, so it’s likely that this trend will become a dominant part of the industry in the very near future.

Ubisoft and Activision/Blizzard, two of the most dominant video game development companies, have both stated publicly that they are looking into leveraging NFT tech for upcoming developments, and this will most likely take the form of in-game items. This means millions of gamers worldwide (who may or may not already own crypto) will now be getting involved in the crypto economy. This is a huge win for our industry.

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This paradigm does already exist to some degree in a game called EVE Online, which is a Massive Multiplayer Online Role-Playing Game (MMORPG) that allows players to build nuanced futuristic empires and go to battle against other “countries”. The in-game currency for EVE has actually been bought and sold between players using fiat currency despite the developers threatening to ban those that do so. The takeaway point though is that we will see MMORPGs in the future have similar systems that also include marketplaces for in-game items that are likely to be backed by NFT tech. Though it may seem like a sci-fi speculation akin to a Black Mirror or Twilight Zone episode, this theoretically could create an entire industry of people that work full-time jobs in the gaming metaverse that actually pay for their life in the “real world.”

Along the same lines, the metaverse (or online universe) is beginning to take shape with companies like Facebook expressing interest in building out complex online worlds for people to interact within. Projects like Decentraland have been building this idea for a few years, but we’ll likely see the idea come to mainstream attention in the next decade or less. As a mirror to the physical world, many aspects of the metaverse will involve digital ownership of “real estate”, commodities, collectibles, etc. and it’s likely that the majority of these goods and associated services will be facilitated by blockchain and NFT tech.

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An interesting subsector of the metaverse is the NFT-backed avatar collections like Cryptopunks and Bored Ape Yacht Club. Most, if not all of these collections include thousands of iterations of similar artwork that have various combinations of attributes that may be shared between large portions of the collection or can be exceptionally rare. These collections are currently one of the largest catalysts of the NFT market, with unique and rare examples trading for enormous sums on the secondary market, mostly due to scarcity.

Although the collections may seem like a bit of a fad for now, the subsector is driving some awesome innovations. One of the collections that was released recently called “Save the Martians” appears to be similar to many of the other collections on the market, but the team behind it is working on some interesting features that appear to be unique to the project. Most notably, the developers are working on building a mechanism to make the collection “deflationary” by allowing owners to merge two (or more possibly) NFTs together and create a new, unique NFT with properties from the two that were merged.

It’s anyone’s guess as to how long this trend of NFT avatar collections will last, but continued development in the industry is surely indicative of some degree of staying power.

NFTs Evolving Beyond Digital To Physical World

Now at this point, most of what we have covered exists almost entirely in the digital world, but the power of NFTs is also beginning to work its way into the physical world for a number of applications. Admittedly, most of the applications are in the very early stages of development and adoption, but the use cases for NFTs are absolutely worth paying attention to.

The US Patent Office has issued sportswear brand Nike‘s patent for its blockchain-compatible sneakers dubbed “CrpytoKicks.”

The patent outlines a system whereby blockchain can be used to attach cryptographically secured digital assets to a physical product, in this case a sports shoe.

It seems Nike‘s platform will also track the ownership and verify the authenticity of sneakers using the blockchain-based system. When you buy a pair of the “CryptoKicks,” you’ll also receive a digital asset attached to a unique identifier of that shoe. As a result, there is digital scarcity of the digital assets, as their production is effectively tied to the production of real sneakers.

Another most compelling of these applications involve the authentication of legitimacy, similar to a Certificate of Authenticity that will often accompany a good that is typically expensive and/or scarce. Companies like Rolex, Burberry, Louis Vuitton, etc. are beginning to include NFTs with their products to guarantee that the product is real, as well as providing proof of ownership for sale on the second-hand market. This application may not see wide adoption within the consumer goods industry since most products aren’t typically counterfeited, but it’s definitely valuable for the high-end sector of the market that includes watches and handbags that may be worth as much as the average annual salary in the US.

On a similar note, NFTs are also already being used by producers and suppliers of consumable goods to verify the sourcing and path to the consumer, especially for high-priced consumables like champagne, caviar, wagyu beef, and sushi-grade fish. Next to this, the tech can be used to verify ethical sourcing of items that are often associated with corrupt industries like diamonds and other gems, precious metals, etc.

Looking even further down the road into more speculative territory, we might eventually see NFTs leveraged for various government and corporate issued identification and access credentials. Theoretically, NFTs and blockchain-based identification could be used in the same way as RFID key tags and digital signatures to allow access to confidential locations or documents! It is only a matter of time until this more efficient and transparent mode of authentication replaces existing technology.

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Last but not least, NFTs may find a place within the industries that depend on ownership verification, especially with fractional ownership. This development will likely be one of the slower moving adopters of the tech since agencies that control deeds to properties and titles to vehicles are almost always government controlled, but incorporating blockchain-based verification of asset ownership via NFTs would be an enormous shift in efficiency for these applications.

NFT-based deeds for real estate would disrupt entire industries associated with transfers of ownership since it would negate the need for tomes of paperwork and multiple weeks of information transfer between various stakeholders. Next to this, selling a vehicle would be significantly more efficient since the transfer of ownership would only take as long as the confirmations on the blockchain network that the NFT title is native to (i.e. seconds).

Additionally, the issuance of digital fractional ownership contracts would be similarly streamlined, which would revolutionize the buying, selling, and trading of timeshare properties and group investments in real estate, vehicles, art, etc.

In Summary..

The tech behind NFTs guarantees trust that something is what it appears to be (or claims to be), and since the economy of our world is entirely based on trust, the applications for this are endless.

Naturally then, what we imagine this to be used for today is likely only the tip of the iceberg for the applications of the technology. Very few people would’ve guessed that the majority of the world population would have a cell phone when the phone was invented in the early 1900s, and the internet itself was dismissed by many as a novelty. The fact that blockchain-based verification is already getting into its stride is a solid indication that the tech will only proliferate from here.

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