JOIN THE M6 DAILY BULLETS NEWSLETTER: Each day is filled with an overwhelming amount of information spread across various sources. Get curated news and research content directly in your inbox.
Introduction to NFTs
Non-fungible Tokens (NFTs) have been a hot topic in 2021. What are they, and how are they changing the blockchain landscape?
‘Non-fungible tokens are digital assets that represent different objects like collectibles, art, and various in-game items.’ NFTs are usually traded online, mostly with cryptocurrencies, and are encoded within a smart contract on a blockchain. NFTs essentially transform various digital works of art and collectibles into verifiable and one-of-a-kind assets that can easily be traded on the blockchain.
To understand the concept better, we must first learn what the words ‘fungible’ and ‘non-fungible’ mean.
When something is non-fungible, it means that it is unique and can not be replaced with something else. If you have a one-of-a-kind trading card and trade it for another one, you will have something completely different. You can think of rare coins, limited-edition pairs of Jordans or even Pokémon cards.
Non-fungible items have unique properties, which means that even if you took pictures of the item, there would always be only one original. Non-fungible tokens create scarcity among available assets and even come with a certificate of authenticity. NFTs can take the form of tweets, GIFs, virtual trading cards, video game skins, and virtual real estate, to mention a few.
On the other hand, Bitcoin and other cryptocurrencies are fungible. If you trade one bitcoin for another, you will have exactly the same thing. Another perfect example is when you have a $100 bill; you can swap this bill for two $50 bills, and the value will be the same.
History of NFTs
Inspired by Leonidas’ Twitter Thread.
It is only recently that NFTs have become quite popular, even though they have been with us for some time. Unfortunately, we cannot highlight every NFT that has ever been created, but we can explore how these digital creations have evolved with time:
Terra Nullius (August 7, 2015)
Terra Nullius has been recorded as the first-ever NFT on the Ethereum network. This NFT allowed users to engrave a message but lacked a transfer function. Terra Nullius’s smart contract details are still available at https://etherscan.io/address/0x6e38A457C722C6011B2dfa06d49240e797844d66, and is tradeable at https://opensea.io/collection/terra-nullius-v2.
Etheria v1.1 (Blockplots) (October 29, 2015)
Etheria was the first NFT on the Ethereum network with a transfer function and allows users to own ‘tiles’ on a map. This NFT has a limited supply of 457 pieces, and its contracts can be followed at https://etherscan.io/address/0x169332ae7d143e4b5c6baedb2fef77bfbddb4011, and is also tradeable at https://blockplots.eth.link/.
PixelMap (November 17, 2016)
PixelMap represents a board of pixel images stored on-chain and individually customizable. It is a limited collection of 3,970 pieces and can be traded at https://opensea.io/collection/pixelmap.
Million Ether Homepage v1 (December 13, 2016)
Million Ether Homepage was inspired by the Million Dollar Homepage and has a limited supply of 10,000 pieces.
Ethereum Name Service (March 10, 2017)
Ethereum Name Service is a collection of secure and decentralized domain names. These names are tradeable at https://opensea.io/collection/ens.
Curio Cards (May 9, 2017)
Curio Cards is a unique series of art collectibles cards made by 7 different artists. The collection has 29,296 pieces of art which can be traded at https://opensea.io/collection/curiocardswrapper.
Lunar Token (October 20, 2017)
Lunar Token allows users to own a plot on the moon. There are 400 pieces that can be traded at https://opensea.io/collection/wrapped-lunar.
CryptoCats (November 12, 2017)
CryptoCats are collectible 8-bit cats. It is their rediscovery in March 2021 that triggered the NFT archeology movement that we have today. Wrapped CryptoCats can be traded at https://opensea.io/collection/wrappedcryptocats.
CryptoKitties (November 23, 2017)
CryptoKitties allows users to collect and breed digital cats. The project has a limited supply of 60,000 pieces and was the first ERC-721 token. Users can trade these NFTs at https://www.cryptokitties.co/search?include=sale.
Types of NFTs
Inspired by Chris Dixon’s Twitter Thread.
Art NFts are one of the most common types of modern NFTs. You can think about a collection of Bored Apes and Punks. Lovers of digital art are no different from lovers of physical art. Some of the things that art NFT lovers want in such pieces are status, aesthetics, the social aspect, and patronage.
The music industry has been termed as unfair to artists as most of the money is taken by record labels, marketing channels, and streaming services. Music NFT projects like Arpeggi Labs, Sound, and Royal are now popping up and allowing artists to control their art. Music NFTs allow artists to create a collectible and listeners to join a small audience of superfans.
These are digital tickets that make access widely interoperable and low friction. Such NFTs can be used to provide digital access to video lessons or a private discord server.
Virtual goods are common items in the gaming world, where Web 2.0 gamers spend almost $40 billion every year. However, these virtual goods remain part of the company instead of ownership being passed to the players. Another sad thing is that these objects are not interoperable. Game NFTs from games, like Axie Infinity, allow users to own NFTs based on their achievements as they play.
They represent a model where a token is redeemed for physical products. A perfect example is where high-end collectors keep their collections in a vault. Redeemable NFTs are digital representations of such collections that can be traded and showcased digitally, reducing intermediaries and friction.
Cases of personal data being compromised have been the order of the day in web 2 era. Better ways of identifying yourself, such as Sign in With Ethereum, are being fronted. Systems like ENS are making identity easily interoperable across different platforms. NFTs will make it easy to reveal things like credentials, reputation, and records selectively.
Web 2.0 Databases
The use of decentralized data stores and cryptographic methods allows people to extend NFTs to any data stored in a centralized Web 2.0 database. Think about your entire social graphs or even your viewing preferences. These NFTs allow you to switch from one world to another seamlessly.
Anyone can tokenize and sell their work, as evidenced by how Twitter’s founder Jack Dorsey created an NFT of the first-ever tweet. With so much interest being raised on the NFT landscape, expect questions like, are NFTs a bubble? How much are NFTs worth? These are hard questions to answer but as long as people continue exploring the infinite possibilities, expect the NFT world to grow.