How Did NFTs Get Popular?
While non-fungible tokens have been around for a few years, most people didn’t know about them or invest in them until 2021. In fact, there was a 2,627% increase in sales volume between Q4 2020 and Q1 2021 when over $1.5 billion USD worth of digital assets were traded. By August, the craze was in full swing, when more than $3.4 billion USD worth of digital artwork was bought and sold on one marketplace alone.
How did they get popular? To understand the value behind NFTs, you must first understand their history and blockchain technology.
Bitcoin and the blockchain technology to support the cryptocurrency were created in 2009, but it took several years for the value of both to be recognized. Most understand the basics of the technology, how digital ledgers work, and how the quantity of bitcoin is tracked from wallet to wallet.
That being said, there is currently over 18 million bitcoin in existence and the number continues to increase on a weekly basis. Nothing differentiates one token from the next and while the collective values bitcoin as a whole, none of the crypto coins are unique.
How NFTs Are the Next Level of Crypto
NFTs are part of the evolution of cryptocurrency. Most are built on smart contracts through the Ethereum blockchain and are a step up from the generic tradable crypto. Every NFT (non-fungible token) is completely unique in its code and is tracked accordingly.
While these codes could be collectibles in and of themselves, NFTs are given further value when merged with digital art, gifs, music, trading cards, game pieces, or events that are bought and sold on the NFT market.
The Rise of NFTs
As with any technology, NFTs had humble beginnings with many people pointing toward “Colored Coins” as the first project to exist. Started in 2012, these coins allowed people to market assets based on small denominations of bitcoin (called Satoshi). Colored coins could then be redeemed for a variety of goods or services in the future.
While there were several small projects that continue to play with the idea of digital items on the blockchain, CryptoPunks was the first notable collection of crypto art that resembles how we see NFTs today. Created by John Watkinson and Matt Hall in June 2017, these 10,000 generated pixel art characters have continually grown in value within the NFT art world, due to their history.
In October 2017, CryptoKitties was launched. This blockchain game allowed people to adopt and raise cats, trading them based on their value. The hype surrounding this game not only allowed people to trade them for large profits, but it fueled the future of the NFT industry as a whole.
As more people discovered the crypto niche during the pandemic, new artists and companies began creating their own NFTs with new designs and utilities. The future opportunities these digital files can offer are endless and are only limited by our imagination.
How NFTs are Tracked
When a digital artist mints a new NFT, it is given a unique asset that is tracked on the Ethereum blockchain. When it is sold in an NFT marketplace, that transaction is recorded in the public ledger to let people know that the digital collectible has changed wallets, allowing us to track its ownership. These assets are tradeable but never interchangeable, giving each an opportunity to rise and fall in value on its own.
Once an NFT smart contract is made, it cannot be altered. Its full history will become publicly available, allowing people to track its movement over time. This also prevents “fake copies” of NFTs from flooding the market (although scammers will try) as the true authenticity of a piece can be verified by anyone in the world.
When NFTs are minted or transferred, gas fees must be paid to the Ethereum blockchain to edit the history on the digital file. Due to the mathematical proof needed in order for computers to complete each function, there is currently a large environmental impact caused by the NFT trade. This is expected to decrease substantially when Ethereum 2.0 is released, which will make the whole chain more sustainable.
Where Are NFTs Sold?
Non-fungible tokens are most commonly sold on NFT marketplaces like OpenSea or Rarible. That being said, some notable collections are sold through well-known facilities such as Sotheby’s and Christie’s auction house.
Each platform varies in its personal guidelines, the fees they charge, and the type of digital artists they allow to mint in their marketplace. Here are three of the most popular choices:
- OpenSea – OpenSea is the first and largest NFT marketplace in the industry. It was launched in December 2017 by co-founders Devin Finzer and Alex Atallah and currently contains a database of more than 34 million pieces of digital artwork. You can see our OpenSea Review to see more details.
- Rarible – Rarible was launched in early 2020 by Alexei Falin and Alexander Salnikov. The pair hoped to build the marketplace as a decentralized autonomous organization (DAO), allowing its users to make decisions on how the platform would run in the future. Check out our Rarible review for more information.
- MakersPlace – MakersPlace runs its platform like an art gallery. The company is very selective with the artists they allow to create on their platform, only working with a few new creators per month. While the platform does charge a 15% commission for all primary sales, the artists receive 10% royalties from every secondary sale of the digital assets they created. To learn more, check out our MakersPlace review.
How Much Are NFTs Worth?
The value of NFTs will rise and fall depending on a number of factors, including relevancy, artist fame, rarity, collection popularity, and utility. Here’s how:
- Relevancy – Many collections have gained value due to their relevance to the history and culture of both NFTs and the blockchain. For example, many people wish to buy CryptoPunks (pixelated avatars) as they are one of the first NFT projects on the market.
- Artist Fame – Digital art created by well-known artists and musicians will typically sell for more. For instance, in early 2021, Grimes sold $6 million worth of NFTs (mostly video clips) on Nifty Gateway. In March, the Kings of Leon became the first band to release an album as an NFT and earned over $2 million in sales. You can also purchase unique sports moments through collections like NBA Top Shot, which sells specific plays as digital tokens.
- Rarity – Whether an NFT is one of a kind or it is part of a collection but has unusual characteristics, many people value digital art with rare qualities. That being said, not everything unique has value. You should always do your research to see where the market is headed.
- Collection popularity – Some collections generate a lot of hype when they are released, often generating gas wars on the day they are minted. One popular collection that people like to buy is Bored Ape Yacht Club (BAYC). Not only do BAYC holders receive additional drops (such as Mutant Apes), but they also have special access to private discords and other perks. Creating the feel of an exclusive club will drive up the value of the assets, especially when celebrities also hold collection tokens.
- Utility – Some NFTs also come with utility. While some may be used as collector’s items (such as baseball cards) or used as pieces in games, others will allow access to special events or services. Those who have purchased VeeFriends NFTs, for example, will be able to attend Gary Vaynerchuk’s VeeCon in 2022, 2023, and 2024. Other tokens in his collection allow holders to have a one-on-one experience with the business influencer.
Most Expensive NFTs
Some of the most expensive (and well known) NFTs sold to date include the following:
- Everydays – Digital artist Beeple (aka Mike Winkelmann) sold his “Everydays: The First 5000 Days” collection for $69 million in March 2021. It is sold by New York-based Christie’s auction house.
- CryptoPunks #7523 – CryptoPunks enthusiasts know that aliens are the rarest species in the collection. Out of 9 aliens in the 10,000 avatars, one had a face mask, being dubbed by some as the “Covid Alien.” This NFT sold for $11.7 million in June 2021.
- First Tweet – The creator and CEO of Twitter, Jack Dorsey, sold his first Tweet for $2.9 million in March 2021. In the same month, Elon Musk put a Tweet of a song about NFTs up for sale, receiving bids for over $1 million, but later took the product off the market.
- Nyan Cat – Chris Torres sold his well-known “Nyan Cat” meme gif for 300 ether (ETH), which was approximately $600,000 USD at the point of sale in February 2021.
- Disaster Girl Meme – The famous meme of a little girl subtly smiling while a house burns sold for the equivalent of $401,718.
Are NFTs a Bubble?
Most investors agree that the recent price surge of NFTs is a bubble that will burst at some point. As we saw with ICOs in the 2017 hype, there was a huge amount of interest and a lot of money being invested and it all came crashing down. However, there were some projects from that period that stood the test of time and are an integral part of the ecosystem today.
It’s likely that something similar will happen with NFTs in the future. It is likely that most collections we see surging in price today won’t be around in 5 years. Collections like Cryptopunks, on the other hand, will likely only grow in popularity. What we are currently seeing is the early iterations of the metaverse and with the increase in popularity of play to earn NFT games and other implementations of the technology, the space will only grow with time.