At present, it is very difficult to find a clear definition for “NFT”.
In the most literal sense of the acronym, it is Non Fungible Token, and in this sense, the term “non fungible” refers to those unique characteristics and features that make an asset impossible to replicate. In other words, an NFT is an unrepeatable asset, irreplaceable by an equal, and extraordinary.
Perhaps it helps to reinforce the concept, to understand that it is a “fungible” asset. A good example might be currency: When it comes to currencies, a $1 bill may be replaceable by another $1 bill (or even by coins equivalent to that value).
But why do NFTs have such an impact on the artistic, cultural and entertainment world? (Although their terrain is becoming less and less limited. We’ll get to that).
Let’s try to go through the history of NFTs, from its past to the future (or what we can assume), passing through the present of this revolutionary technology that is generating so much curiosity. How can it be that “simple jpg images” cost so much?
But first, what are NFTs?
First of all, in contrast to cryptocurrencies, each NFT can be considered unique. They can consist of collectibles, gaming items, digital art, event tickets, domain names, and even contract ownership records for physical assets (and the list goes on and on).
But to understand how NFT technology works, we need to review what the Blockchain is and how it works.
In the traditional world when, for example, I want to buy a cup of coffee with my credit card, the bank has to guarantee that I have that money in my account. So, the Blockchain does this same job, but in a digital, decentralized, transparent and unalterable way. The blockchain keeps track of the transactions that are made in the different networks. So, a token is the representation of assets/money in the Blockchain.
Human beings, after meeting our basic/primary needs, seek to conserve value in other things, such as art. In the traditional world, it is normal for people seeking to accumulate value to buy works of art at exorbitant prices. But how sure can we be that it will not be duplicated/plagiarized?
Yes, the real owner of the work is only one. But the black market in art is a problem that has been causing headaches for collectors and artists for thousands of years. So, how to solve this security problem present in art?
Well, here it is important to remember what we talked about above about how the Blockchain works. This is a transparent record of operations and transactions that take place on the network. So, anyone could see who owns that token, who owned it before, and what the price is. In addition, there are really effective and secure tools today when it comes to protecting our digital assets. Also, NFTs can be verified by the blockchain, which gives them extrinsic value as well.
In the NFT universe, as in traditional art, there are overvalued, trends, and overrated artists.
A clear example is that of Steve Curry, an NBA player, who recently bought a Bored Ape at $USD 180,000 or 55 ETH (at the time). This is one of the most expensive collections, with the most prestige and the largest community. Curry put his pfp (profile picture) NFT as a twitter profile photo, which adds value to the collection and the founders.
Another case of popular projects are the “CryptoPunks” whose price goes up to approximately $USD 300,000 for each avatar. This is because they were one of the first NFT projects in the industry.
What we mean is, the value of NFTs (as much as in traditional art) is largely given by the community. It is also important the art, the utility, the rarity, the uniqueness of the NFT in question, and the sense of belonging to an “elite group”.
History of the NFT
Let’s go back in time to see when the first NFT was created, because as we can imagine, like all innovative technology, it was not conceived out of nothing.
Some believe that Colored Coins, created in 2012, may rightfully own being the first. As investor Andrew Steinworld shared on his Medium page:
“One could argue that Colored Coins are the first NFTs in existence. Colored Coins are composed of small denominations of a bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin (….).”
Later in 2017, a project founded by Dapper Labs on Ethereum called “CryptoKitties” was the first widely recognized implementation of NFT, released on the new ERC-721 standard for Ethereum. These digital cats became incredibly popular in the 2017 cryptocurrency boom, selling for up to 600 Eth (or an equivalent of $USD 172,000) at the time, attracting a huge amount of attention.
Since then, as we see in the infographic above, there have been many NFT projects with successful launch results. From Beeple’s $69 million NFT auction piece to Bored Ape’s Yacht Club collection, the NFT space has managed to reach many people, and has grown the massiveness and visibility of Web3. Creating an NFT is getting easier and easier (not so to make the project successful due to the sheer number of projects on the market).
At present, Ethereum and NFTs have a very close relationship with great plans for the future.
As we can see in the graph above, the big majority of NFTs projects use Ethereum Blockchain to create, store and distribute their NFTs. The Ethereum ecosystem (the second most used network after Bitcoin) is very favorable for the NFTs universe, being the first blockchain to ever support the ERC-721 standard.
Some competition for Ethereum
As interest in cryptocurrencies continues to grow, NFTs offer a unique onboarding opportunity for those who don’t understand the technical intricacies that make cryptocurrencies work. For many, it is easier to “get” NFTs than to fully understand the Bitcoin network because of their relationship to the artistic universe and also, to the workings of video games and the purchase or acquisition of digital assets in those arenas.
In addition, the success of projects such as CryptoKitties and CryptoPunks inspired other Blockchains to invest more in the NFT infrastructure and further expand the functionality and access of NFTs across the blockchain. While Ethereum remains the Blockchain of choice for most things NFT-related, there are many other ecosystems emerging such as Solana, Polygon and Avalanche who are rapidly innovating, generating competition for Ethereum when it comes to choosing where to deposit an NFT project.
Another example of networks born out of necessity is Flow, developed by Dapper Labs, who originally deposited their CryptoKitties project on Ethereum but migrated to this new network. Flow is a new developer-friendly blockchain that also supports the popular NBA Top Shot collectibles.
What does the future of NFTs look like?
There are more and more implementations and use cases for NFTs. Whether in the art industry, gaming, music, real estate, etc., NFTs are not going unnoticed and are advancing at a frenetic pace. But, some questions need to be asked about the future of the NFT ecosystem.
It is necessary to talk about how to solve the heavy dependency on metadata hosting servers and platform development. Whether it is necessary to preserve the decentralized status of NFT markets to fulfill the promise of Web3 is also something we need to discuss.
And we cannot forget that the security factor is also something important to address, being that hacking systems are getting stronger and stronger and the famous scams abound in this universe.
And what about copyrights for NFT creators/artists and the possibility of eliminating intermediaries in the process of selling artistic pieces?
We can say then, that although NFTs are still in their infancy, it is clear that they will continue to play an important role in the world we live in today and where we are going.