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What are Non-Fungible Tokens NFTs

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DappRadar

Learn more about an industry with huge growth potential

Updated: 04.05.21

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 can also show you have lifetime tickets for your favourite band.

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

Gamified Investment

One of the first tangible use cases to employ NFTs was through gamified investment such as CryptoKitties and CryptoPunks. 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 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.

The beginnings of the CryptoPunks story is fascinating as it appears what occurred was a mass experiment to gauge people’s interest in NFT ownership. When creators Larva Labs launched CryptoPunks in June 2017, they released 10,000 NFTs with proof of ownership tied to the Ethereum blockchain for free. Each one was algorithmically generated meaning no two characters could be alike with some having traits rarer than others. More importantly, there will never be more than the original 10,000 CryptoPunks. 

Instantly, two things should spring to mind. Scarcity – The fact that only 10,000 punks have been and will ever be created. Furthermore, the traits given to each punk define their market value. Not all that dissimilar to the physical examples given previously. Thinking about the value of Bitcoin is also a good precursor for understanding CryptoPunks further as bitcoin has been set to a finite amount, therefore, justifying its value increase over time. 

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. Amongst all the hype it’s important to remember that as the first collection CryptoPunks are considered the OGs of the industry and that alone commands a value.

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.

Music & Pop Culture

As outlined above NFTs have a real world use case in the form of digital ownership. The instances above refer to digital collectibles and stores of value such as artwork or a uniquely scarce NFT items. But the scope for their usage goes much wider and is being explored in more detail currently.

One industry ripe for change is the entertainment and music sector. For years creatives and musicians have complained about unfair wealth distribution. NFTS have the ability to put power back into the hands of the creators and big name artists are already jumping on board.

Eminem, Don Diablo, The Wkend, Aphex Twin, Kings of Leon and, Snoop Dogg to name a few have already premiered their own NFT collections in 2021 and the list keeps growing. In all cases the artists delivered more than the normal music album or video to their fans and instead delivered complete audio visual experiences. Don Diablo for example sold the first-ever hour-long concert NFT for 600 ETH, or at the time of writing approximately $1.2 million. Snoop Dogg dropped a photo collection ‘A Journey with the Dogg’ which brought together Snoop Dogg’s memories from his early years. Even the organisers of the now infamous FYRE festival got in on the act!

Another way the music industry is being disrupted is by NFT platforms like Euler Beats. Euler Beats is an on-chain music NFT project with 27 original tracks, and 120 copies per track. 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.

Another use case came when the creators of a viral Youtube sold the original as an NFT. Minecraft: The Last Minecart created in 2011 is the first viral video created by Sam Gorski and Niko Pueringer, Founders of Corridor Digital. This 1-of-1 unique digital collectible sold on NFT marketplace MakersPlace for 16.29 ETH or approximately $35,000 at the time of writing. The short film holds the honor of being the first in a collection of viral video NFTs to be released by Corridor Digital and appeared to open the floodgates to more viral artwork sales.

Meme’s have always been a popular way to carry a message. Now the owners of the original images are cashing in on their legacies. Zoë Roth, now 21, became an internet hit when she was pictured aged four standing in front of a burning building with a devilish smirk on her face. Now, the woman in the viral meme has sold the original photograph for $473,000.

Digital Collectibles

The Wax blockchain has been going from strength to strength recently as a wave of new digital collectibles hit the primary and secondary markets. The self-proclaimed ‘King of NFTs’ has been keeping a relatively low profile amidst weekly million-dollar NFT sales on Ethereum. Instead, Wax has been going about its business in a very planned way. They have even diversified away from brand-affiliated digital collectibles into music, with a collaboration with the indie band Weezer. Which arguably showcases whats possible for musicians with NFTs in the future.

Every primary NFT sale launched on WAX sold out immediately, most of which contained more than 100,000 NFTs each. Plus, secondary market sales continue to surge.

A brand-affiliated release through Wax in 2020 was the Kogs collection. Kogs is a clever play on the 1990s physical collectible POGS. Nowadays, while many are worthless, there are a few that have significant value. Moreover, Kogs isn’t just another NFT app. Users can collect and trade them as with other NFTs but these digital collectibles can also be used as playable game pieces in the beta Kogs game. They are also usable within the RFOX games ecosystem to unlock special features and functions.

World famous collectible card manufacturer Topps is to debut their Major League Baseball (MLB) Series 1 NFT collection on the Wax blockchain after multiple successful launches with Wax in 2020. The release will include base cards, iconic throwback designs, motion animated sets, and more. Standard packs will be priced at $5 and contain 6 cards, premium packs will cost $100 and contain 45 cards. These premium packs have a much higher chance of containing rare or legendary cards.

Wax’s approach of low-value, high-volume NFT collectibles appears to be starting to make waves to a wider audience. The appeal of affordable, and in some cases familiar collectibles is resonating and it will be interesting to see if Wax can continue to build on this success and add more high-flying dapps to their arsenal. 

Another NFT project that has exploded on the scene in 2021 is NBA Top Shot along with the specific blockchain it operates from – Flow. NBA Top Shot has become the largest NFT market by sales to date. NBA Top Shot attracted mainstream basketball fans and professional players alike and generated over $500M in total marketplace transactions and over 4 million sales since going live in late 2020. For comparison, CryptoPunks, which launched in 2017, has just over $300M 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.” Roman was correct.

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. 

Vegas Plaza inside Decentraland

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.

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. 

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.

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.

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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