Introduction
Non-fungible tokens or NFTs used to only be a topic among cryptocurrency communities, now they are being discussed in every corner of the internet and across the mainstream physical world. However, there still exists some mystery about exactly what NFTs are and how they work.
In this article, we aim to give you straightforward information on the subject and highlight some of the interesting developments that have taken place over the last few months that will help get you up to speed.
What Are Non-Fungible Tokens?
NFTs can be thought of as authenticity certificates for non-physical digital assets.[1] Investopedia defines them as “unique cryptographic tokens that exist on a blockchain and cannot be replicated” and they are different to cryptocurrencies because “they cannot be traded or exchanged at equivalency”.[2]
This means that the token of a digital artwork may not be sold for an equivalent piece, like you could not swap a Banksy original for another Banksy like for like.[3]
You may be thinking that NFTs are a completely new phenomenon, but they have in fact existed in some form for a few years amongst the bitcoin community. In their more recognisable use cases, the first NFTs of note can be traced back to 2017.[4]
That year saw Larva Labs launch CryptoPunks [5], 24×24 image pixels that were limited to 10,000 collectibles on the Ethereum blockchain, and CryptoKitties, the game which enables players to breed, raise and trade one-of-a-kind cats, by Dapper Labs[6].
Each NFT is stored on an open blockchain which means that anyone interested can see an immutable record of where they were created, sold and resold. According to a recent report by PwC, the technology has the potential to add $1.76 trillion to the global economy by 2030.[7]
The total trading of these tokens on the Ethereum blockchain (the second-biggest cryptocurrency by market cap after Bitcoin) reached $5.9bn in the third quarter of 2021– up more than six-fold from $782m from earlier in the year[8]
You can find NFTs being traded on marketplaces such as OpenSea which has surpassed $10 billion in all-time sales–after raising $100 million in venture capital in July 2021.[9]
Just How Important Are NFTs?
Right now NFTs are making serious headlines. Web 3.0 or Web3 is seen by some as only a buzzword but the underlying concepts are very powerful and NFTs, along with blockchain cryptocurrencies, are powerful parts of this new internet economy.
The sums of money currently involved in the market suggest that they are not a passing internet craze but something worthy of serious consideration by investors and big mainstream brands. More than $1.5B in NFT transactions were generated in the first quarter of 2021.[10]
The highest value sale of 2021 was for a piece created by Mike Winkelmann known as ‘Beeple”. It sold for $69.3 million at the auction house Christie’s. The work was titled “Everydays: The First 5000 Days” and represented a collage of photos the artist took daily since 2007.[11]
The collector who sold the Beeple work for millions originally paid less than $70,000 for it in October 2020.[12 ]
Summing it up, KPMG stated in their recent report that; “H1’21 saw an explosion of activity in the blockchain and crypto space. We’ll likely see this trend continue, with focus stretching across the crypto ecosystem — from cryptocurrencies and trading platforms to NFTs”.[13]
Where Are NFTs Being Used?
NFTs have raised interest among techies, content creators and buyers, bloggers, gaming enthusiasts and others. Because each token is unique they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate.
This enables artists and collectors to provide reliable proof about assets when selling them to buyers who can in turn have confidence that they own a genuine, one-of-a-kind piece.[14]
Some of the main uses of NFTs are for:
- Collectibles – gathering memorabilia has long been a passion for people. Artists, sports organizations and players have started launching their own card collections. According to Deloitte, NFTs in the sports media space are expected to generate more than US$2 billion in transactions in 2022. [15]
- In-game assets – esports and digital games players may now have ownership rights on some virtual items such as land or clothing.[16]
- Music – Kings of Leon became the first band to tokenize a music album and Grimes, the Canadian artist, sold a collection of music videos for $6 million.[17]
We are learning that almost anything can be tokenized. Graphics, video footage, memes, virtual property, tweets, fashion or luxury goods. Here are some other unusual NFTs that have been sold:[18]
- Jack Dorsey’s first ever tweet – $2.9 million[19]
- The Charlie Bit My Finger YouTube classic video – $760,000[20]
- A column in the New York Times – $560,000[21]
- An animated gif of the Nyan Cat – $590,000[22]
- A one-off Jacob & Co.digital watch – $100,000[23]
What’s Else Is Hot in the NFT World
In October 2021, CryptoPunk #9998 sold for $532 Million. There was some controversy around this as the buyer borrowed Ethereum cryptocurrency from other accounts to complete the transaction and then returned the image to its owner, thus paying the equivalent of $800 in fees. This led some to think of this as a potential publicity stunt.[24]
Other CryptoPunks went for genuinely huge sums – #3100, sold for $7.58 million, in March 2021, Cryptopunk #7252, generated 100% profit for the seller in August of $5.3 million and #7523, sold for $11.75 million, during a Sotheby’s auction. Visa Inc. bought a digital avatar via the purchase of CryptoPunk #7610 for $150,000.[25]
Edward Snowden’s NFT sold at auction for $5.4 million, or 2,224 ETH. the piece named “Stay Free” used pages from his US appeal court decision, exposing his violation of the US law. These were all arranged in such a way to create an image of his face.[26]
The Fame Lady Squad NFT project was advertised as the “first female avatar project of all time.” These female avatars were designed to be used to represent users on various social media channels. After significant investment into the 8,888 individual tokens, it was later revealed to have been a project founded by men in Russia.[27]
Miss Teen Crypto is a teenage crypto influencer who started by investing her pocket money into bitcoin and says Gen Z could make crypto go mainstream.[28]
Maliha Abidi is a 25-year-old Pakistan-born artist and neuroscience student aiming to help women and girls become better represented in the growing field of digital artistic assets. She has launched Women Rise, a collection of 10,000 NFTs representing the work of female activists, artists, coders and scientists.[29]
Gary Vaynerchuk, the serial entrepreneur and internet thought leader launched his own collection – VeeFriends. The aim is to build a community with access given to those who own a VeeFriends NFT.[30]
Twitter Spaces are a brand new way to have live audio conversations on Twitter. Spaces are ephemeral, live audio conversations encouraging open, authentic, and unfiltered discussions.[31]
You can check out the @OhhShiny Show described as “Bringing you the latest and greatest from the edge of the Metaverse” or @Farokh and @HunterOrrell that hosted @Shaq discussing charity work via Ethereum – an NFT Collection Rakes In $2M To ‘Impact The Lives Of Countless Kids In Need’.[32]
Bored Ape Yacht Club was launched in late April with unique collectibles on the Ethereum blockchain.[33] All 10,000 NFTs sold out within 12 hours at a price of 0.08 ether, or around $190. Membership of the club is granted by owning one of the ape profile pictures that now costs at least $200,000 each.[34]
Adidas revealed in December that they would be partnering with BAYC as part of their Metaverse strategy. In one of the most anticipated drops of recent months, the 30,000 NFT collection had a mint price of 0.2 Ethereum (CRYPTO: ETH), or around $790. The first 20,000 sold out in the pre-sale, raising $15.5 million for Adidas.[35]
Another sneaker brand taking a position in the community is Nike who acquired the makers of digital sneakers, RTFKT, valued at $33 million.[36]
Diversity And Equity in the NFT Space
A very important element of the NFT movement is democratization, especially when it comes to minority groups who can sometimes be overlooked in the mainstream art world gaining equity in the space. In 2018, just 1.2% of the global art auction market was produced by Black artists. [37]
Artists from ethnic minorities in their home countries and women can be empowered by the decentralised nature of NFTs, crypto and blockchain to cut out the middleman and monetise their work directly with buyers who otherwise they would not have contact with.
The potential is already showing – the average sales price of NFT art by African-Americans, for example, rose sharply 543% from $144 to $927 between January and November in 2020[38] This was made up of 58 artists selling 513 pieces.[39]
In an interview with CoinDesk, the black artist Andre OShea has described how his career had accelerated over 2021 thanks to his activity with NFTs selling 3 pieces in 24 hours in March. He told the publisher: “As a Black artist, NFTs mean leveling the playing field and taking the keys away from traditional gatekeepers in the art world. It is also a way for me to uplift my community through creativity.”[40] Lana Denina is a black female Canadian artist who earned over $300,000 last year, she said; “I don’t know if I got lucky. It was a big success for me and my partner. We worked a lot on this project, and we were really happy.”[41]
Conclusions
It can be seen that this is a fast-moving space fuelled by creativity and no shortage of investment. The US Infrastructure bill has added digital asset reporting – similar to cash reporting over $10,000 for transactions of digital assets – it is estimated to generate $28 billion in revenue over 10 years.[42] JPMorgan representatives stated in November 2021 that the market is worth $7 billion and monthly sales are now assessed at $2 billion – a 5-fold increase over the year. [43]
While they have been around for a while, non-fungible tokens have started generating interest from outside the crypto community, this year, since the Beeple sale at Christie’s. The record-breaking sales that made headlines encouraged more players and companies to develop projects around NFTs, focusing on art collections, gaming, luxury goods etc.
Although, at first, NFTs were associated with crypto community members, nowadays more and more investors, art lovers and collectors want in on the game. This means that the market isn’t restricted to those who already have crypto wallets, but to new users also.
Names like Elon Musk, Snoop Dog, Shawn Mendes, Paris Hilton and John Cena have been associated with the NFT phenomenon, and maybe you could be next?
Sources
[1] “What is a non-fungible token (NFT)?” Coinbase
https://www.coinbase.com/learn/crypto-basics/plp-what-is-nft
[2] “Non-Fungible Token (NFT) Definition”, Investopedia
https://www.investopedia.com/non-fungible-tokens-nft-5115211
[3] “NFT’s explained: Everything you need to know about the internet’s confusing, expensive asset class”, by Stuart Marsh, March 20 2021, 9news
[4 ] “What is an NFT? Non-fungible tokens explained”, Jazmin Goodwin, CNN Business
https://edition.cnn.com/2021/03/17/business/what-is-nft-meaning-fe-series/index.html
[5] “10 things to know about CryptoPunks, the original NFTs”, April 8 2021, Christies
https://www.christies.com/features/10-things-to-know-about-cryptopunks-11569-1.aspx
[6] “All You Need to Know About CryptoKitties”, Crypto Vantage
https://www.cryptovantage.com/non-fungible-tokens/cryptokitties/
[7] Time for trust: How blockchain will transform business and the economy report, PwC, 2020
[8] “What are non-fungible tokens and how do they work?” Tim Bradshaw, November 30 2021, Financial Times
https://www.ft.com/content/852b7961-51ee-43a3-8caf-f39bb479655c
[9] “Leading NFT Marketplace Opensea Surpasses $10 Billion in All-Time Sales”, Bitcoin.com, article by Jamie Redman, November 2021
https://news.bitcoin.com/leading-nft-marketplace-opensea-surpasses-10-billion-in-all-time-sales/
[10] NFTs Engaging Today’s Fans in Crypto and Commerce report, Visa,
https://usa.visa.com/content/dam/VCOM/regional/na/us/Solutions/documents/visa-nft-whitepaper.pdf
[11] “Beeple sold an NFT for $69 million”, by Jacob Kastrenakes, The Verge
https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million
[12 ] “What is a non-fungible token (NFT)?”, by Amr Khalil, Medium
https://amr-khalil.medium.com/what-is-a-non-fungible-token-nft-a9f9d9930ff7
[13] Pulse of Fintech H1’21 report, KPMG, 2021
https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/08/pulse-of-fintech-h1.pdf
[14] “NFTs And Their Role In The “Metaverse”, Georgia Weston, December 24 2021, 101 Blockchains
[15] From trading cards to digital video, Deloitte, December 2021
[16] “Exploring the Popularity of NFTs and Its Impact on Esports and Gaming”, David Thompson, November 2 2021, Tech Times
[17] “Music NFTs Have Gone Mainstream. Who’s In?” by Samantha Hissong, march 9 2021, Rolling Stone
https://www.rollingstone.com/pro/features/music-nfts-timeline-kings-of-leon-grimes-3lau-1138437/
[18] “From NFTs to Virtual Fashion: A Look at the Year in the Metaverse”, December 23 2021, TFL
[19] “Jack Dorsey sells his first tweet ever as an NFT for over $2.9 million”, by Taylor Locke, March 22 2021, CNBC
[20] “’Charlie Bit My Finger’ video fetches $760,000 at NFT auction”, May 24 2021, France 24
[21] “Why Did Someone Pay $560,000 for a Picture of My Column?”, by Kevin Roose, August 12 2021, The New York Times
https://www.nytimes.com/2021/03/26/technology/nft-sale.html
[22] “Nyan Cat Gif Sold At Auction For $587,000 In Cryptocurrency”, by Matthew Hart, February 22 2021, Nerdist
[23] “The First Watch Nft Fetches $100,000 At Auction”, by Patrick Mcgraw, March 2021, High Snobiety
https://www.highsnobiety.com/p/jacob-co-nft-watch/
[24] “Why this CryptoPunk NFT sold for $532 million. Sort of”, by Daniel Van Boom, December 19 2021, c|net
https://www.cnet.com/news/why-this-cryptopunk-nft-sold-for-532-million-sort-of/
[25] “Visa Buys NFT of Digital Avatar With Mohawk for $150,000”, by Natasha Abellard, August 23 2021, Bloomberg Wealth
[26] “Edward Snowden’s NFT Self-Portrait Sells for $5.4 Million in Charity Auction”, by Alyse Stanley, April 16 2021, Gizmodo
https://gizmodo.com/edward-snowdens-nft-self-portrait-sells-for-5-4-millio-1846703456
[27] “Our Story”, Fame Lady Squad
https://www.fameladysquad.com/our-story
[28] Episode 179: Miss Teen Crypto on Connecting Gen Z to Meaningful Crypto Education, Crypto Current podcast, May 2021
[29] “Day of the Girl is critical, but support is needed year-round, say campaigners”, by Georgina Quach, 11 Ocotober 2021, The Guardian
[30] “Vee Friends NFT Collection: All you Need to Know”, by Harpreet Kaur, December 19 2021, Crypto Bulls Club
[31] “What is Twitter Spaces? – Bring your Twitter conversations to life with audio”, by Jacqueline Zote, September 8 2021, Sprout Social
https://sproutsocial.com/insights/twitter-spaces/
[32] “Shaq Gives Back’ NFT Collection Rakes In $2M To ‘Impact The Lives Of Countless Kids In Need”, by Samantha Dorisca, December 29 2021, Afrotech
https://afrotech.com/shaquille-oneal-gives-back-nft-collection-charity
[33] “The insane Bored Ape Yacht Club NFT collection, explained’, by Daniel Van Boom, Jan 2 2022, c|net
https://www.cnet.com/how-to/the-insane-bored-ape-yacht-club-nft-collection-explained/
[34] “Adidas reveals new NFT project with Bored Ape Yacht Club”, by Maghan Mcdowell and Kati Chitrakorn, 17 December 2021, Vogue Business
https://www.voguebusiness.com/technology/adidas-reveals-new-nft-project-with-bored-ape-yacht-club
[35] “Adidas ‘Into The Metaverse’ NFT Drop Sells Out, Nets $23.5 Million: What Investors Should Know”, Chris Katje, December 18 2021, Benzinga
https://www.benzinga.com/amp/content/24687725
[36] “Nike just acquired a virtual goods company as it accelerates its metaverse play”, Matthew Kish December 14, 2021, Business Insider
https://www.businessinsider.com/nike-acquires-rtfkt-as-it-accelerates-metaverse-play-2021-12
[37] “How These Black Creatives are Cashing in On NFTs”, by Keisha Morant, POCIT
[38] “Celebrating Black Crypto Art Beyond February 28th”, by Devon Moore, November 24 2021, Consensys
https://media.consensys.net/celebrating-black-crypto-art-beyond-february-28th-b5edeb5642b
[39] “Fear of Missing Out? Here’s How Black Artists Can Capitalize On the NFT Craze Before It’s Too Late”, by Finurah Contributor, November 21 2021, Atlanta Black Star
[40] “These Black Artists Say NFTs Help Them Monetize Their Work”, by Sandali Handagama, April 5 2021, CoinDesk
[41] “Black Artist Makes $300,000 In NFTs Hopes To Inspire Others To Create In The Digital Space”, India Monee & Justin Thomas, blAckamericaweb.com
[42] PwC Annual Global Crypto Tax Report 2021, PwC
https://www.pwc.com/gx/en/insights/pwc-annual-global-crypto-tax-report-2021.pdf
[43] “The NFT market is now worth more than $7 billion, but legal issues facing the nascent sector could hinder its growth, JPMorgan says”, Matthew Fox, November 19 2021, Market Insider
