NFTs have become so popular that reputable companies, celebrities and investors are listing or talking about their NFTs. But what are NFTs anyway? Investing in cryptocurrencies is slowly coming of age and new trends keep emerging regularly and show potential to be the next big thing in the crypto world. In the ever-evolving world of cryptocurrency, technology is behind Non-fungible tokens (NFTs) quickly took shape as a passive investment method. Is it a meme or has the idea of the future of NFT and can it change how we invest money? We take a closer look at this topic.
What is NFT anyway?
NFT stands for Non-Fungible Tokens and is opposed to fungible tokens. A fungible token is a fungible asset. Bitcoin for example, all have the same value and are therefore interchangeable, i.e. fungible. An example of a non-fungible token would be a piece of digital art. You can own two almost identical pieces of digital art, but each is still unique. The crypto artist provides an example josie. Your 21 artworks “Forward Together – Bitcoin Edition #1/21” to “Forward Together – Bitcoin Edition #21/21” may look similar, but due to the respective Blockchain completely unique.
Blockchain is a decentralized database with a very special mechanism that makes it possible to clearly assign ownership and assign participants. All participants are networked with each other. Due to the decentralization of the blockchain, this database of information about owners is not stored in one place, but with each participant in the network. The “owners” are ultimately transactions that go back and forth between network participants and may have a different value.
On the subject of blockchains, we recommend our article on how blockchain works in more detail.
The history of non-fungible tokens
While 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 called colored coins.
Colored coins consists of small values of a bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin. The coins are used to represent different tangible assets and have multiple uses, such as stock investments, digital collectibles or the ability to use one’s cryptocurrency. The colored coin system had fundamental problems, nevertheless they opened the door for further experimentation and laid part of the foundation for NFTs.
In 2016, memes discovered blockchain and made a significant contribution 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, Rare Pepes found its way to Ethereum, an open source distributed system that offers the creation, management and execution of decentralized programs in its own blockchain. The project Peperium was announced on Reddit and, like Counterparty, was supposed to offer special crypto-tokens that could be used to buy frog memes.
October 2017, the first modern NFTs conquered the market. that Cryptokitties is a blockchain-based virtual game that allows players to adopt, raise and trade virtual cats. The kittens became mainstream media and made hundreds of thousands of dollars in profits. CryptoKitties paved the NFT path, but they couldn’t have done it without the previous projects that laid the groundwork for building unique digital assets. CryptoKitties are still popular today and have also become significantly more expensive with the rapid increase in the value of the Ethereum currency Ether (ETH).
Types of NFTs
What are NFTs in practice? A lot of things. The most popular NFTs are still works of art, especially digital art collectibles. One of the most popular NFT art series is CryptoPunks, which is among the first modern NFTs with Cryptokitties. On December 9, 2021, a first-generation CryptoPunk was sold for a whopping 2500 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 aimed at 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 crypto can then be exchanged for ETH. The game should have its own NFT market.
However, NFTs can also find real-world applications. 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 upon sale. Digital blockchain certificates of authenticity for valuables such as diamonds, rare wine bottles, gems and other luxury goods are already provided by the company Everledger offered.
But there are also bizarre applications for NFTs. The managing director of Twitter Jack Dorsey sold his first tweet from 2006 as an NFT for $2.9 million to Bridge Oracle CEO Sina Estavi for a good cause. With his bid, Estavi wanted to highlight the importance of NFTs for the future of the crypto and tech sphere. In addition, he wanted to encourage charities to get involved in the crypto space. Incidentally, only a digital copy of the tweet was sold. So Estavi received no rights to delete the tweet.
How to create an NFT
Surprisingly, creating an NFT is not complicated and there are platforms where you can get guidance on the whole process. NFTs are built and supported by a specific blockchain, with the Ethereum NFT being the most popular. Besides Ethereum, two other crypto blockchains, Flow and Binance, are also commonly used to create NFTs. One needs a crypto wallet and cryptocurrency, primarily Ether, to make transactions. NFTs can then be sold for cryptocurrency or fiat via smart contracts and the transfer recorded on the blockchain.
What are NFTs worth?
On March 11, 2021, the perception of the profitability of NFTs changed significantly. The digital artwork Everyday – The first 5000 days, by artist Mike Winkelmann, aka Beeple, was sold as a non-fungible token for 42,392 ether, equivalent to $69.3 million USD. The artwork is a collage of 5000 different digital artworks by Beeple 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 are interested in the Metaverse topic, you will find interesting articles here.
Especially after the sale of Beeple’s artwork, 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, sparking 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 sell all kinds of NFTs. Fans of these groups often feel that the NFTs sold have no resale value, but only exist to capitalize on the non-fungible token hype. Marvel recently came under fire for promoting a new NFT series of the hero Chakra via late Marvel founder Stan Lee’s Twitter account. A limited number of images must be sold, all of which must be “unique”. Marvel does not specify if these images differ only in the blockchain or are also visually unique.
Game publisher Ubisoft also recently announced in-game NFTs Ghost Recon: Breakpoint to install Fans were not very excited about this news and accused the publisher on Reddit of only offering the non-fungible tokens out of greed. Reddit also laments that the NFTs have no value since they cannot actually be exchanged for redeemable cryptocurrency.
Criticism of NFTs has also increased recently due to their environmental hazard. The carbon footprint of some NFTs is equivalent to that of the average EU citizen over a period of two months. The reason for this is the large energy consumption of the non-fungible token, especially when creating the token and the blockchain that regulates the sale.
The principle of NFTs is interesting and shows great potential, unfortunately it is not without flaws. Tracking digital transactions using 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 seem to be more of a status symbol than a source of investment. It is hard 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 hard to say which NFTs will really add value.
Cover image by Alexander via adobe.stock
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