NFTs have been the most popular and trending topic in the market 2021, with sales of Non fungible tokens (NFTs) have grown from $41 million in 2018 to $2.5 billion in the first half of 2021.
Let’s make a step back, what are NFTs ?
From the basics, an NFT (Non-fungible Token) is a digital asset that is unique and irreplaceable. An NFTs worth is what someone is willing to pay for it. In short, we can also say it is a special kind of crypto asset. NFTs are used for digital art, sports collectibles, media, and more.
NFTs are cryptographically secured tokens with their history of ownership and current owners stored on a blockchain. They allow for robust primary and secondary markets for digital goods, cutting out middlemen and enabling creators to make the most of their work.
FUNGIBLE VS. NON-FUNGIBLE
Fungibility is when a good’s individual units are interchangeable and indistinguishable in value.
Currency like U.S. dollars are fungible. Every U.S. dollar is interchangeable and has the same value as any other dollar.
A Non-Fungible Token (NFT) or good has unique properties, making it have a different value from other similar tokens or goods.
A house with a terrace is valued differently and isn’t interchangeable with a house without a terrace. A terrace can be one of many different properties that make houses non-fungible and be worth different values. Similarly, a non-fungible token will have different artistic properties or other properties that render it unique from other tokens, giving it a unique value.
Cryptopunks is an NFT collection of 10,000-pixel art “punks”, with no two punks being the same.
The different attributes of varying rarities make certain punks rarer and more highly valued.
While the scarcity of attributes tends to dictate valuations, aesthetic and subjective preferences of investors and collectors can also influence valuations. For example, there are 78 punks with the “buck teeth” attribute and 259 punks with the “hoodie” attribute, “hoodie” punks are worth triple the value of “buck teeth” punks.
Mighty Minters – THE BLOCKCHAIN PLATFORMS HOSTING NFTS
Most of these blockchains use proof-of-stake consensus, which consumes significantly less energy compared to proof-of-work. Ethereum with a market cap of 526 billion is the most popular used blockchain and is set to transition to proof-of-stake sometime next year. Tezos has a dedicated NFT community and was one of the first non-Ethereum NFT platforms. Other platforms are Flow (FLOW), Solana (SOL), Avalanche (AVAX) or Polygon (MATIC).
EXPLORING ETHEREUM TOKEN STANDARDS
Ethereum is the largest platform for NFTs, and NFTs make up a massive part of the network’s transfers and activity. ERC-721 tokens are the specific token standard of most NFTs on Ethereum.
Along with ERC 721 tokens:
- ERC-20 contract standard is used to make fungible tokens and is the most commonly used on the Ethereum network overall.
- ERC-1155 token standard was created by Enjin and can create both fungible and non-fungible assets.
- ERC-998 is an extension of the ERC-721 standard that enables NFTs to own NFTs and ERC-20 tokens.
Ethereum’s NFT token standards can interact with dapps (decentralized applications) also built on the Ethereum blockchain, allowing for seamless integrations. Etherum Name Services NFTs change your Etherum wallet’s name to a chosen “.eth” address for unique more easily remembered address names. These NFTs are bought for a yearly period of time, similar to web domain names.
An Open Sea of Secondary Marketplaces
Currently, there are a variety of secondary marketplaces to buy and sell NFTs. OpenSea has emerged as the dominant platform, with $1.9 billion of traded volume in November 2021. SuperRare is a platform with strict curation, where artists must apply and be approved in order to list their NFTs. Nifty Gateway is owned by U.S. crypto exchange Gemini, and features art collections by Grimes.
In the infographic from Visual Capitalist below, you can see the monthly sales statistics of the most popular NFT marketplaces.
Where NFTs are Today
DIGITAL ART, COLLECTIBLES, GAMING, AND MUCH MORE
NFTs can be more than just digital proof of ownership and can be linked with physical assets or benefits.
Kings of Leon’s latest album “When You See Yourself” was released alongside varying limited-time NFTs tied to physical assets and benefits. A $50 (£35.70) NFT gives owners access to a digital download of the music, a physical vinyl of the album, and access to digital goods. Six “golden ticket NFTs” give holders lifetime access to four front row seats at any of the band’s shows.
UK artist Damien Hirst’s NFT collection The Currency explores how people value NFTs and physical art. The Currency is a set of 10,000 unique NFTs, each with corresponding physical works created in 2016. The physical works are held in a vault in the UK, and NFT buyers have one year’s time (until July 27, 2022) to decide whether they will keep the NFT or the physical version, with the other version destroyed once the decision is made.
Currently, the NFT space has three key branches, each pushing innovation in unique ways:
Art and Digital Collectibles – From profile picture collections to generative art and collaborative music pieces, NFTs are enabling digital art to flourish. Whether it’s music or sports collectibles, there’s more than just visual art NFTs.
Gaming – The NFT gaming space is rife with innovation, as player ownership of in-game assets and purchases and play-to-earn models are being implemented and explored by various projects.
The Metaverse: Digital Identities and Spaces – NFTs are redefining digital ownership, identities, and spaces, tokenizing digital land in virtual reality, along with the 3D avatars that will represent their owners.
GOING BEYOND THE DIGITAL.
While NFTs have had their big bang moment, the boom is far from over. Along with these areas, NFTs are still being explored as a way to tokenize and enable the digital transfer of real-world assets like houses or physical art pieces.
Almost any physical asset or good can be tokenized for easier proof and exchange of ownership, while also opening up possibilities like fractionalization, collateralization, and utility smart contracts can provide.