NFTs have become so popular that reputable companies, celebrities and investors are mentioning or talking about their NFTs. But what are NFTs anyway? Investing in cryptocurrencies is slowly maturing and new trends continue to appear regularly showing that they can become the next big thing in the crypto world. In the ever-evolving world of cryptocurrency, the technology behind the Non-fungible Tokens (NFTs) quickly took shape as a passive investment method. Is it a meme or does it have an idea of the future of NFT and could it change the way we invest money? We go deeper into this topic.
What are NFT actually?
NFT means Non-fungible tokens and is unlike replaceable tokens. A fungible token is a fungible asset. Bitcoin for example, they all have the same value and are thus interchangeable i.e. fungible. An example of a non-fungible token is a digital work of art. You can own two quasi-identical digital artworks, but each is still unique. The crypto artist gives an example josie. Your 21 artworks “Forward Together – Bitcoin Edition #1/21” to “Forward Together – Bitcoin Edition #21/21” may look the same, but due to the respective Blockchain totally unique.
The blockchain is a decentralized database with a very special mechanism that makes it possible to clearly assign ownership and assign participants. All participants are connected. Due to the decentralization of the blockchain, this database of owner information is not stored in one location, but with each participant in the network. The “owners” are ultimately transactions that go back and forth between network participants and can have a different value.
Regarding blockchain, we recommend our article on how blockchain works in more detail.
The history of non-fungible tokens
Although NFTs have only recently become a global hype, they are older than you might think. The earliest references to NFT can be traced back to 2012 and are referred to as Colored Coins.
Colored coins consist of small denominations of a bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin. The coins are used to represent various tangible assets and have multiple use cases, such as stock investments, digital collectibles, or the ability to spend one’s cryptocurrency. The colored coin system had fundamental problems, but they nevertheless opened the door for further experimentation and laid some of the foundations for NFTs.
In 2016, memes discovered blockchain and made significant contributions to the development of NFTs. Rare Pepes are images of Pepe the Frog, a cartoon character created by illustrator Matt Furie. These are made on the crypto platform counterparty, powered by a Bitcoin blockchain. In 2017, the Rare Pepes made their way to Ethereum, an open-source distributed system that provides the creation, management, and execution of decentralized programs on its own blockchain. The project Pepper was announced on Reddit and, like Counterparty, would be offering special crypto tokens that can be used to purchase the frog memes.
In October 2017, the first modern NFTs conquered the market. the Crypto cats is a blockchain-based virtual game that allows players to adopt, raise and trade virtual cats. The kittens took to the mainstream media and made hundreds of thousands of dollars in profits. The CryptoKitties paved the NFT path, but they could not have done so without the previous projects that laid the foundation for building unique digital assets. The CryptoKitties are still popular today and have also become significantly more expensive with the rapid increase in the value of the Etherum currency Ether (ETH).
Types of NFTs
What are NFTs in practice anyway? Lots of stuff. The most popular NFTs are still works of art, especially digital art collectibles. One of the most popular NFT art series are the cryptopunks, which are among the first modern NFTs with the Cryptokitties. On December 9, 2021, a first-generation CryptoPunk sold for a whopping 2,500 Ether, which has an equivalent value of $10,256,825.
NFTs also have applications in the gaming world. The game Illuvium is a strategy game on the Ethereum blockchain with its own cryptocurrency $ILV. The game is often touted in the crypto community as the first triple-A game. It is suitable for both casual gamers and hardcore gamers. Players should be able to collect game content that they can sell to other players for $ILV and the in-game cryptocurrency can then be exchanged for ETH. The game should have its own NFT market.
However, NFTs can also find application in the real world. There are already companies in the US using NFT technology to sell real estate. Other assets, such as jewelry, are also sold as NFTs, as a blockchain can help prove legal ownership when sold. Blockchain digital certificates of authenticity for valuables such as diamonds, rare wine bottles, gemstones and other luxury goods are already provided by the company Everledger offered.
But there are also bizarre uses for NFTs. The CEO of Twitter Jack Dorsey sold his first tweet from 2006 as an NFT for $2.9 million to Bridge Oracle CEO Sina Estavi for charity. With its bid, Estavi wanted to highlight the importance of NFTs for the future of the crypto and technology world. In addition, he wanted to encourage charities to get involved in the crypto space. Incidentally, only a digital copy of the tweet has been sold. So Estavi was not given rights to delete the tweet.
How to make an NFT
Surprisingly, creating an NFT is not complicated and there are platforms where one can get guidance through the whole process. NFTs are built and backed by a specific blockchain, with Ethereum NFT being the most popular. In addition to Ethereum, two other crypto blockchains, Flow and Binance, are also commonly used to create NFTs. One needs a crypto wallet and cryptocurrency, mainly Ether, to make transactions. NFTs can then be sold via smart contracts for cryptocurrency or fiat and the transfer is recorded on the blockchain.
What are NFTs worth?
On March 11, 2021, the perception of NFT profitability changed significantly. The digital artwork Every day – The first 5000 days, by artist Mike Winkelmann, also known as Beeple, was sold as a non-fungible token for 42,392 ether, the equivalent of USD 69.3 million. The artwork is a collage of 5,000 different Beeple digital artworks and was purchased by Vignesh Sundaresan, a cryptocurrency investor and founder of the Metapurse NFT project. Sundaresan is currently exhibiting his newly acquired artwork at a museum in the Metaverse.
If you’re interested in the Metaverse topic, you’ll find exciting articles here.
Especially after the sale of Beeple’s artworks, the market exploded. Of course, not all NFTs are worth as much as Beeple’s massive artwork. However, the value of an NFT still depends on supply and demand, as we know it from the real world.
On November 15, 2021, there was another significant increase. Musician Post Malone bought a BoredApe NFT for the equivalent of $750,000 and sparked a brief NFT boom.
Criticism of NFTs
One of the biggest criticisms of non-fungible tokens has nothing to do with the concept of NFTs, but with how they are used. From sports leagues like the NBA to celebrities and other entertainment companies, they all sell forms of NFTs. Fans of these groups often feel that the NFTs being sold have no resale value, but only exist to profit from the non-fungible token hype. Miracle recently came under fire for promoting a new NFT series from the hero Chakra via the Twitter account of the late Marvel founder Stan Lee. A limited number of images will be sold, all of which must be “unique”. Marvel does not specify whether these images differ only in the blockchain or are also visually unique.
Gaming publisher Ubisoft also recently announced in-game NFTs Ghost Recon: Breakpoint install Fans were not very excited about this news and accused the publisher on Reddit of only offering the non-exchangeable tokens out of greed. Reddit also laments that the NFTs have no value as they cannot actually be exchanged for convertible cryptocurrency.
Criticism of NFTs has also recently increased for their environmental hazard. The carbon footprint of some NFTs is equivalent to that of the average EU citizen over a two-month period. The reason for this is the large energy consumption of the non-fungible token, especially in the creation of the token and the blockchain that governs the sale.
Conclusion
The principle of NFTs is interesting and shows a lot of potential, unfortunately it is not without flaws. Tracking digital transactions using the blockchain may find more and more areas of application in the future. Whether NFTs have a future in their current form is still in the stars. NFTs are often sold from identical works of art that differ only in the blockchain, so they are often “technically” different, but not visually. Currently, the non-fungible tokens appear to be more of a status symbol than a source of investment. It is difficult to say whether these symbols really hold their value. As more companies jump on the NFT hype, the market becomes more diluted. So it will be difficult to say which NFTs will really add value.
Cover image by Alexander via adobe.stock
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