To fully understand the NFT phenomenon, we must first understand how it all started and for what purpose. In terms of market activity, NFTs have passed their May peak, but that doesn't mean we can easily dismiss the NFT craze by comparing it with the ICO craze of 2017. It turns out that there is more to them than meets the eye.
Why Was the First NFT Created?
An NFT cannot exist without its foundation — blockchain. After all, non-fungible tokens are digital files stored within a blockchain, giving them their unique properties as a new digital asset class. As an offshoot of Bitcoin's blockchain, one such blockchain that had the capability to store data was Namecoin, launched in 2011 by Vincent Durham.
However, it took three years for Namecoin to be used for minting the first-ever NFT. In cooperation with programmer Anil Dash, artist Kevin McCoy created the "Quantum" NFT in 2014 on the Namecoin blockchain. Their stated goal was to create a digital system that can protect artists from having their works pop up on the Internet without any accreditation.
Therefore, the first NFT was created to:
- Make digital assets easily tradable without mediators.
- Track digital assets so their origin and ownership change can be easily verifiable.
Blockchain technology provides those necessary features because it serves as a digital record across many computers. Then, if a record is changed, it has to be validated across every single computer on the blockchain network, which prevents forgery. After all, this is why Bitcoin became the digital gold that it is today.
Years following the creation of Quantum, anonymous user ‘sillytuna’ bought the NFT for $1.4 million at a Sotheby's auction in 2021. Here is what it looks like:
https://twitter.com/sillytuna/status/1403011184899629069
Interestingly, the same buyer sold a CryptoPunk NFT for an astonishing $11.8 million. This leads us to the broader exploration of the NFT phenomenon. For whom are NFTs intended, why are they so expensive, and is the NFT market sustainable?
What Is the Staying Power Behind NFTs?
From ancient times, people could be divided into two basic categories — the haves and the have-nots. The former used valuables and collectibles to gain social prestige over the other haves. We are seeing the same dynamic in the NFT space as well. It is largely dominated by whales and major artists and influencers, with the top spot held by Beeple (Mike Winkelmann). He documented his social media journey as a graphic designer within a single image, combining 5000 days of posting artworks. Titled "Everydays: The First 5000 Days," the NFT sold for $69.3 million.
EVERYDAYS: THE FIRST 5000 DAYS | Source: Christie's
Speaking of social media, the owner of Twitter, Jack Dorsey, sold the first-ever tweet he made for $2.9 million. The most expensive NFT after Beeple's had been bought recently for $11.7 million, called the Covid Alien and residing within the CryptoPunk collection. These exorbitant price tags played a vital role in filling news headlines, creating a frenzy of interest during lockdowns.
Moreover, the blockchain infrastructure for NFT marketplaces has only begun to mature relatively recently, following the popularization of decentralized exchanges (DEXs) like Uniswap and other DeFi protocols. NFT marketplaces belong within that ecosystem because many use Ethereum and its ETH native cryptocurrency to pay for minting and selling of NFTs.
Since then, NFT marketplaces have evolved into fully-featured NFT pipelines like NFTrade.com. Going beyond mere NFT trading, NFTrade allows users to multi-chain cross-chain transactions, farm NFTs, swap them via p2p escrowed trades, and have them gathered from multiple marketplaces into a single platform.
NFT Use Case Scenarios
As of now, NFTs are mainly used as digital artwork delivery mechanisms and tracking vehicles. This is demonstrated by the fact that, from April to June, NFT sales increased in the art arena by 99%, to 93k sales from the previous period's 23k. Overall, NFT sales reached a peak in mid-May, only to drop after the recent crypto crash that affected the entire market.
Daily NFT sales from January to June | Source: unfungible.com
However, the top-selling NFT artwork cannot just be any artwork. Instead, it usually has to have some cultural weight behind it. The creator of the piece itself is also an important factor as well, just as it is with the traditional art scene. After all, Beeple has long-established his social media presence prior to selling his record-setting NFT, thus building up considerable social capital before anyone even knew NFTs existed.
Not to be contained to just digital artistry, NFT flexibility expands into the following categories:
- Tickets — Mark Cuban of Dallas Mavericks plans to turn the game tickets into NFTs.
- Branding tools — NBA Top Shot is the foremost example of issuing NFTs as digital collectibles, capturing the best moments of the games. Likewise, Taco Bell made an NFT foray with its 25 NFTacoBells collection.
- Songwriters and artists can now directly approach their audiences and use NFTs for income. For instance, the Kings of Leon band has released their album "When You See Yourself" as a NFT, generating over $2 million in sales.
- Indie game studios can fund their projects. Bear Games studio made it happen by raising $100,000 in NFT sales for their game BEAR NAVY Vs. Pirates (BVP).
- Sometimes, NFTs can even be used to sell scandals. Azealia Banks and Ryder Ripps' NFT sex tape had been set for a $260 million price tag.
As you can see, NFTs draw their value from many different sources: cultural relevance, author's notoriety, rarity, fan base loyalty, social clout, funding cost-efficiency, etc. Thus, one could say that any cultural artifact codified into NFT is poised to gain a hefty price. With more people than ever partaking in cryptocurrencies and the digital space in general, we will likely see NFTs become a staple of our culture. Furthermore, as the Ethereum network hits the lowest cost in gas fees in six months, another obstacle is removed that was plaguing the space throughout the year.
