Decentralized finance, or DeFi, is all the rage in Ethereum’s nook of the cryptoeconomy lately thanks to the recent memetic rise of “yield farming,” i.e. earning returns for putting your money to use in DeFi platforms.
Yet there’s another hot Ethereum sector that’s also been picking up lots of steam this year, and it’s the NFT sector.
Most folks who are crypto-savvy but don’t know much about NFTs, which go by names like non-fungible tokens, nifties, or crypto collectibles, may recognize the term from the CryptoKitties craze in late 2017, when Ethereum users invested in the franchise’s digital kitties in droves.
Since then, the NFT arena has exploded in activity, and 2020 has been something of a boom year for the scene. That’s evidenced by the fact the NFT market just reached its first $100 million in total sales in July 2020.
It’s an impressive early milestone that suggests the sky could be the limit from here for NFTs. To get a better sense of what this milestone means going forward, let’s dig into the basics of NFTs and just how far they’ve come so far.
The NFTs 101
What makes an NFT an NFT?
Let’s put it this way: there are fungible assets and non-fungible assets. Fungible assets are interchangeable with each other. $1 is effectively indistinguishable from any other $1, and the same is true for 1 BTC compared against another 1 BTC.
Conversely, non-fungible assets are things like artworks or land that are readily distinguishable. Non-fungible tokens, then, are blockchain-powered digital assets that are verifiably scarce and unique.
As Ethereum is the most popular platform for minting NFTs to date, the most popular NFT standard so far is Ethereum’s ERC721 specification, which was first published in January 2018. ERC721 tokens have become the most widely used NFTs ever since.
OGs: CryptoPunks & CryptoKitties
You can draw a straight line from where the NFT economy is today to two of the arena’s earliest hits, CryptoPunks and CryptoKitties.
CryptoPunks, which rolled onto the scene in early 2017, are collectible pixel characters that are capped at 10,000 units, all of which are visually unique to one another. These CryptoPunks were free at first, but collectors descended into a frenzy around the tokens after Mashable published a story on the project.
That spike of interest gave the NFT ecosystem inertia that continues to this day. The inertia was meaningful enough that CryptoPunks remain in vogue now, with some selling for as high as 60 ETH earlier this year.
Another key early NFT enterprise was CryptoKitties, which allowed players to breed and trade unique (and adorable) digital kitties. The project smashed through millions of dollars worth of sales in short order, and showed that secondary markets around NFTs were viable.
With all that said, CryptoPunks and CryptoKitties showed what was possible early on and inspired dozens of projects in their wake. Developers, entrepreneurs, and collectors have been building up the NFT economy ever since.
NFT Sales: $100 Million
According to NFT market history site NonFungible, the all-time USD volume of NFT sales on Ethereum was over $99.5 million at the time of this article’s writing. That means the $100 million milestone is all but certain to be topped in a matter of days.
Zooming out, then, it’s incredible how far the NFT economy has come so fast. As NFT expert and Polynexus Capital partner Andrew Steinwold noted in a recent issue of Bankless, this economy is practically a newborn.
“With December 2017 as our starting point, the NFT market has only been around for ~2.5 years, an extremely small amount of time compared to bitcoin (11 years) or traditional markets (hundreds of years),” Steinwold said.
Accordingly, the $100 million mark shows that NFTs projects really are onto something and are winning users over, even if things are still early and small relatively speaking.
Early Types of NFTs
People will be experimenting with NFTs for years to come, so the dust is hardly settled with regard to what kinds of NFTs can be built. Yet there have been some dominant types so far. The aforementioned Andrew Steinwold slots these types as follows:
- Collectibles (think CryptoKitties and CryptoPunks)
- Virtual worlds (think VR parcels in Cryptovoxels and Decentraland)
- Game assets (like Gods Unchained trading cards or Axie Infinity creatures)
- Cryptoart (as seen on platforms like SuperRare and Async Art)
- Culture tokens (e.g. virtual clothes for Cryptovoxels or a tokenized music album)
- Other (e.g. event tickets, memberships, real-world items, professional services)
Each of these NFT types is rife with unique possibilities. You can “breed” CryptoKitties to create new ones. You can host virtual events in Cryptovoxels, like the WIP Meetup. You can earn tokens as you battle your way through Axie Infinity, display your latest programmable Async Art piece on your Apple TV, and much more. And again, this arena’s just beginning.
Toward the Mainstream
CryptoKitties had a flash of breakout success in 2017, but the NFT scene and Ethereum have come along way since and are much better prepared to start making serious inroads to the mainstream.
Unquestionably, challenges remain. Ethereum’s general user experience (UX) is often cited as problematic, but this dynamic is getting better all the while with the rise of user-friendly smart wallets like Argent.
Another pain point is the acutely high transaction prices Ethereum has been facing lately.
The good news is that Ethereum’s layer-2 scaling solution ecosystem has never been more vibrant than it is today, and several scaling projects therein are on the cusp of more widespread deployments. As these efforts continue to roll out, the infrastructure for mainstream adoption falls into place.
With that said, NFT enterprises will have to keep building stuff people want, too. Some of these recent efforts have been directly catered to mainstream interests like professional sports in the interest of piquing regular folks’ attention.
Consider the example of Sorare, which is a fantasy football game that lets you collect, field, and trade tokenized versions of some of Europe’s biggest football stars. The game’s been on fire in the NFT sector in recent days, as evidenced by the fact it’s currently the top NFT project by volume on the week per NonFungible. It’s projects like this that are angling NFTs toward the masses as we speak, and they’re worth watching accordingly.
There are no shortage of great minds around the NFT space, so sometimes the hard part is keeping up with everyone’s output. But there are some individuals who definitely make the shortlist for NFT experts you may want to have on your radar. They include:
- Andrew Steinwold (Polynexus Capital, Zima Red)
- Jeffrey Zirlin (Axie Infinity co-founder)
- Josie Bellini (cryptoartist)
- Jason Bailey (Artnome founder)
- Jake Brukhman (CoinFund founder, edition1art)
- hex6c (Data scientist, cryptoartist)
- Hackatao (cryptoartist)
Now that $100 million in NFT sales has been topped, the next big round milestone will be $1 billion in sales.
There’s no telling when that could happen, but there’s a palpable feeling around the ecosystem that NFTs are only just beginning to ramp up. $1 billion and beyond seems all but inevitable at this point.
If you’re interested in learning more or even jumping in and trying NFTs for the first time, I recommend NonFungible as an analytics resource and OpenSea as an excellent all-around NFT marketplace. Try these sites out for fun, and you may just end up sticking around for a while!