Non-Fungible Tokens NFTs

Non-Fungible tokens or NFTs for short are unique digital items that are issued on a blockchain. In many ways, they hold similar qualities to items in the real-world. Think about physical goods like limited-edition trainers, collectible baseball cards, or the limited edition drops by clothing brands such as Supreme. 

Unique and distinguishable

These digital items are distinguishable from one another by a unique number.

That number or serial number for NFTs is a token ID, which is stored on the blockchain.

The serial number works in the same way as a barcode and the code corresponds to the information about that particular item: how it looks, its distinguishing attributes, the artist or organization that made it, and more.

Provably authentic

While physical goods deemed valuable such as designer clothing or specialized machinery often come with a certificate of authenticity. NFTs are the certificates of authenticity because the creation process or smart contracts that made them are publicly available for you to view.

Contract of ownership

Ultimately NFTs can be digital collectibles, game items, but also concert tickets or perhaps a digital key that unlocks a certain door. As a result you can look at NFTs as digital contracts of ownership. These tokens on the blockchain can prove that someone owns a certain piece of art or digital collectible, but they also show you have lifetime tickets for Kings of Leon.

At DappRadar we track the NFT sector through a lens of a complete industry overview, top sales, top collections, and NFT marketplace rankings offering users guidance in investment decisions.  Using the video below gives a quick overview of the data and how to use it to your advantage.

Digital collectibles

One of the first tangible use cases to employ NFTs was through digital collectibles such as CryptoKitties, CryptoPunks, and Topps GPK. In 2020 the sector saw a lot of activity but it really exploded in 2021. 

Users have regular opportunities to win NFTs as they are used as ‘sign up bait’ quite often during marketing campaigns. Furthermore, users can simply purchase NFT’s. CryptoKitties is an excellent example of this process with the added game mechanic of breeding new kitties using yours and others to create a new hybrid kitty. 

The premise of the game is to collect CryptoKitties and their traits, which determine how they look. Different CryptoKitties are not just random. Images are assigned to each Kitty serial number as a result of “reading” the traits or digital information of that CryptoKitty from the blockchain.

Another example worth looking at is CryptoPunks. CryptoPunks have been around for a long time. Before the big crypto bubble of 2017/18, and before CryptoKitties saw the light of day and congested the Ethereum blockchain with thousands of transactions.

CryptoPunks are 10,000 uniquely generated characters. No two are exactly alike, and each one of them can be officially owned by a single person on the Ethereum blockchain. Originally, they could be claimed for free by anybody with an Ethereum wallet, but all 10,000 were quickly claimed.

Now they must be purchased from someone via the marketplace that’s also embedded in the blockchain. Via this market, you can buy, bid on, and offer punks for sale.

What are they for?

The NFTs described above are intended for the pleasure of collecting and financial gain through the scarcity and uniqueness afforded to each collectible. CryptoPunks is focused on the collection and ownership of the rarest punks. Due to their unique and rare nature, those punks have risen in value exponentially in 2021 and appear to be becoming a new asset class in their own right and a tangible store of value. 

According to the  Dapp Industry Report for February 2021 CryptoPunks has been responsible for 79 million dollars in trading volume. Among the most expensive NFT collectibles from the collection three sold for more than 1 million dollars each. In March 2021 an alien punk sold for $7.560.000, setting a new record. 

CryptoPunks are bought in ETH, but the value of ETH didn’t move that much. On February 1st it was $1300, then it peaked towards $2000. At the end of the month, ETH was $1500. During that same time, the value of these CryptoPunks NFT collectibles tripled.

These two examples provide easy-to-understand use-cases for NFTs but another entirely more complex system is emerging. Where NFTs are becoming very valuable, if not more valuable than real-world items.

Mainstream attraction

Another NFT project that has exploded on the scene in 2021 is NBA Top Shot. NBA Top Shot has become the largest NFT market by sales to date. NBA Top Shot attracts mainstream basketball fans and professional players alike and generated over $50M in total marketplace transactions since going live in late 2020. For comparison, CryptoKitties, which launched in 2017, has just over $38M in all-time sales.

NBA Top Shot card packs have been selling out in minutes and drawing the attention of influencers and major actors in the crypto space. In a recent Twitter thread, angel investor Romeen Sheeth called the demand for NBA Top Shot “insane” and said that with $30M worth of sales over the past 30 days, they’re “on pace to be the fastest-growing marketplace ever.”

Virtual Land

When it comes to virtual land, there is an increasing amount of options available. NFTs can be the proof of ownership over a unique piece of virtual land in for example Decentraland, The Sandbox, Cryptovoxels, and many other games and virtual spaces. 

In 2017, Decentraland raised $26 million in just over an hour with the promise of a virtual world where players could own land and build on it. Four years later that world is growing rapidly. Art galleries are opening up, games are added to the game world, and at the same time, people make money creating and selling digital fashion. Cryptovoxels and The Sandbox are seeing similar trends, where the demand for virtual land is extremely high.

Businesses earn real money inside the virtual world by selling items. Users can visit a shop in Decentraland and buy virtual items, such as a CryptoKitty, a piece of art for their virtual home, or a new outfit or accessory for their in-game avatar. When talking about virtual land – each piece of land is an NFT that represents a plot of land in the virtual world.

What makes each land NFT unique in this scenario is the location. The price of each NFT is also dependent on the market. Like real estate in the real world, the price differs by location. The higher the foot traffic around your plot of land or the proximity to another high-priced piece of land, the higher it can sell for. 

For those of you that have read or watched Ernest Cline’sReady Player One,’ you might be starting to put the pieces of the puzzle together and start realizing the world we observe there is not all that far away.

Art

The art world was ripe for disruption by blockchain and NFTs. Digital artists have long been searching for a way to leverage their hard work and most importantly get paid for that. Websites such as Pixabay offer artists the chance to produce work for attribution, but not financial gain.

Virtual worlds like Decentraland have exploded with activity from digital artists wanting to display their work in virtual galleries; giving viewers and potential buyers a new, interactive way to discover and buy art.

Digital artwork marketplaces like Rarible, SuperRare, KnownOrigin, and more recently Nifty Gateway have emerged where artists can tokenize their artwork into NFTs, auction them and allow users to bid or buy outright at a set price. If these users also happen to own virtual houses or even a gallery, they can put these up on their walls and have people experience their collection as well. One of the rising stars in this space is Beeple, who made a name on Instagram and now made millions through NFTs.

Another quite amazing benefit to the artists is that platforms like SuperRare offer a lifetime value to the creator. I.e the artist earns a percentage on every sale after the original first sale.

Rarible is one of the most notable marketplaces that caused a real stir in late-2020 with an innovative idea to deliver the RARI governance token to its community. Rarible effectively made its reputation by employing one key technique from the DeFi boom. 

Anyone selling or buying art on Rarible also earns some of the 75,000 RARI tokens which are distributed weekly to encourage activity and represent another form of asset or yield farming as kicked off in June 2020 with the launch of Compound’s COMP token. The move has encouraged people to use Rarible and start collecting crypto art, resulting in Rarible becoming a mainstay in the top 3 three marketplace dapp rankings on DappRadar.

Furthermore, dapps such as MullArt have arrived in 2021 and airdropped NFT marketplace creators, buyers and sellers with free tokens to promote their own NFT art project. More recently, Linsey Lohan launched her own profile on Rarible, selling her own creation ‘Bitcoin Lightning’ for just over $50,000. Portions of additional resales will go back to the actress, who has also announced she’ll donate it to “charities that accept Bitcoin.” She followed other celebrities that minted their first NFTs on the platform, including American billionaire Marc Cuban and rapper Soulja Boy.

More recently, digital artworks made by Beeple and the B20 token are at the center of attention as crypto art is seeing major growth. His artwork CROSSROAD sold on the secondary market for $6.6 million, as a result, the B20 token has seen a tremendous value increase.

At the same time, NFT marketplaces like SuperRare and Rarible have grown tremendously in the past 12 months. Currently, there’s a great interest in NFTs, and with it comes a new moment for crypto art to shine. The B20 token is one of the most interesting projects in the NFT space because it decentralizes ownership over multi-million dollar artworks that would not be available for most people. B20 is a token that fractionalized ownership over 20 digital artworks by Beeple, an American artist who’s currently one of the rising stars in modern arts.

Music

Like the art world, the music industry is also ripe for disruption as artists become increasingly squeezed by streaming and distribution platforms to the point where revenues can seem almost unobtainable. NFTs provide a way for artists to effectively self-release content and take the lion’s share of the profits for themselves and importantly have full control over the distribution, pricing, and marketing of the creative output. 

Most efforts in the industry now have focussed on the building of platforms similar to Youtube or Spotify that focus on the decentralization, distribution, and monetization of the music. Arguably, those platforms may end up being absorbed into current streaming giants such as Apple, Spotify, and Deezer as going toe-to-toe with them seems very much unlikely at this stage. 

On the other hand, NFTs are starting to make waves in the music industry as artists start to experiment with the idea and see how their fan base reacts. The Kings of Leon, DeadMau5, and 3LAU have all dropped NFT digital collectibles with Kings of Leon taking it even further.

Through their blockchain partner Yellow Heart, the rock band sold several limited and open editions of simple artworks. On top of that, they are selling a new album as an NFT as well. 

The band also auctioned four golden tickets, giving each of the token holders four, lifetime front row seats at every Kings of Leon tour. In addition, these super fans would get other benefits, including the possibility to hang out with the band themselves. The top auction sold for 89 ETH, or over $161,000 at the time. 

Another project that has caught the imagination of the sector is Euler Beats. When Euler Beats launched, they sold 27 master records for 0.271 ETH each. These master records were generated on the blockchain by the user, and therefore the buyer could never know what they would receive. From these master records, other buyers can purchase a maximum of 120 copies. The price of these copies increases with each edition sold. 

Sharding

Another development in the NFT space in 2020 has been sharding. Sharding is the process of breaking up an NFT into smaller bits. Creating the opportunity of fractional ownership of Non-Fungible Token.

The NIFTEX Platform enables the division of NFTs into fungible pieces conforming to the ERC20 standard. Those shards can be traded like any other ERC20 on the NIFTEX Exchange.

Fractionalization has many advantages. One is that it helps unlock liquidity for NFT owners, reduces the cost and access to valuable NFTs, and greatly improves the NFT market depth.At DappRadar we got so excited about the potential of sharding we built a dedicated tracking platform – ShardMarketCap.

ShardMarketCap allows users to analyze the shards of NFTs from the Niftex exchange.

Taking this idea further is Beeple and the B20 token. The digital artworks made by Beeple are at the center of attention as crypto art is seeing major growth. His artwork CROSSROAD sold on the secondary market for $6.6 million, as a result, the B20 token has seen a tremendous value increase. 

The B20 token is one of the most interesting projects in the NFT space because it decentralizes ownership over multi-million dollar artworks that would not be available for most people. B20 is a token that fractionalized ownership over 20 digital artworks by Beeple, an American artist who’s currently one of the rising stars in modern arts.

As NFTs became more valuable, the community simply found a way to allow more user access. It is this level of innovation that makes the blockchain, dapp, and NFT space so interesting to watch.

Games

The internet opened up all kinds of opportunities for gamers to make money playing games online and do what they love most. Nowadays there are professional gamers and content creators earning millions while there are plenty of stories of community members being hired by major game developers.

However, the majority of gamers will never earn a penny and will just spend money on their favorite hobby. Blockchain gaming has the powerful ability to change this and bring more power to the gamer.

Thanks to blockchain technology and the tokenization of game assets, game designers are now capable of assigning a certain asset to a certain player. With the tokens for these items in their wallet, players use, sell, or trade any way they want. The more time they spend in a game, the more valuable their acquired resources might become. 

In essence, a play-to-earn game is distributed freely, just like a free-to-play game. However, in the current blockchain gaming market, there are plenty of games that require an initial investment. Besides, some games are available for free but require users to invest before they are capable of generating value. 

With a couple of thousand users per day the current blockchain gaming market isn’t mature yet. We’re only in its infancy. In 2010 mobile gaming apps on iOS and Android generated only 816 million dollars.

Currently, the blockchain gaming market has to overcome all kinds of challenges in order to attract mainstream users. For many people obtaining any cryptocurrency is already quite a challenge, not to mention that users first need to identify themselves at an exchange before they can buy any cryptocurrency. 

Final Thoughts

The introduction of digital ownership through NFTs is truly exciting. Real digital ownership is around the corner and the world appears to be pivoting to a more digital life overall. In part, spurred on by the Covid-19 pandemic.

As more and more people need to protect themselves from the outside world might we live in digital habitats full time? If so, we will need things to do in these virtual worlds and NFTs can provide the perfect solution to real digital ownership.

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