Non-Fungible Tokens, or NFTs, have been experiencing a boom in 2021, which has led to over half a billion dollars in trading volume over the past 30 days, according to DappRadar. Though a lot of this trading is done for the purpose of speculation and with a profit motive instead of due to true belief in the space and its collectible items, it signifies the legitimization of this asset class and foreshadows a bright future for blockchain technology.
Non-Fungible Tokens, or NFTs, are unique assets that are minted and stored on the blockchain. They can be thought of as trading cards, where there is only a certain amount available, and users can buy and sell them to one another through marketplaces. They are non-fungible because every single NFT is unique, as opposed to something like cash, where every dollar is equal and interchangable.
The first major NFT platform that arose was CryptoKitties, which came out in December 2017, and allowed users to buy and sell digital artworks of kittens. Today, it is a relatively small percentage of NFT trading volume, and it has been taken over by other projects.
Today, the largest NFT project with over $281 million in trading volume over the past 30 days is NBA Top Shot. This is a platform, built on the Flow blockchain, that allows users to buy and sell NBA “moments.” These moments consist of videos of NBA stars having some sort of highlight moment, such as making a dunk. They can be thought of like trading cards that have pictures instead of videos. The platform has exploded to over 300,000 users since its release in late 2020.
The largest Ethereum-based NFT, which is the second overall, is CryptoPunks, which allows users to trade pictures of over 10,000 unique collectible characters. They are responsible for $108 million in volume in the past month.
To the average person, these pictures and videos may seem interesting, but definitely not worth the tens of thousands of dollars that people are asking for them. And, to an extent, they are right, as a lot of the current NFT trading is based on pure speculation. Instead of buying an NBA moment as a collectible item, many users are buying them in hopes that their valuation will increase, similar to how people have bought other assets, like sneakers or Beanie Babies, in hopes that their value will increase.
The best example of this can be seen in an NFT artwork sold at auction for over $69 million, making its artist, Beeple, the third-richest living artist in the world. This title should belong to a household name, but instead goes to Beeple because he was the first to take advantage of this space. After he sold his work, he admitted that the NFT space appears to be a bubble, and investing in NFT artwork is incredibly risky due to many eventually becoming worthless.
When everyone is buying collectibles for the intention of selling them instead of keeping them as a novelty, they are bound to be overvalued and highly speculative, which is what some think that we are seeing in the NFT space.
However, others argue that these NFTs are the next wave of art, and users can have the chance to own the next Picasso by buying a CryptoPunk or NBA moment. These NFTs represent something that has never been done before, true digital ownership of a piece of art, and as such have significant value.
Fortunately for the long-term future of NFTs, they are good for more than just artwork. There are many real-world use cases for NFTs, and they can be revolutionary to traditional industries. For example, MetisDAO is using NFTs as a “passport” to keep track of a user’s reputation and collaboration history within their ecosystem. Furthermore, Enjin Coin is building a platform that will allow users to have video game items as NFTs. This means that a user could have a sword in a game like Minecraft, and transfer it into another video game like Fortnite, which has never been done before. One of the use cases with the most potential is the storing of official documents, such as housing titles, birth certificates, and identification. This would allow anyone to virtually hold their most important documents and have all the benefits of a blockchain, such as privacy and verifiable legitimacy.
Even though a digital picture may not always carry a valuation in the millions of dollars, or have half a billion in trading volume, this current boom in NFTs represents a significant victory for blockchain technology. It has brought user adoption and awareness of these platforms, and will lead to more users being comfortable using blockchain wallets like MetaMask, and sending transactions to smart contracts. The future use cases of NFTs will continue to develop the space and legitimize the industry beyond speculative trading of digital artwork, and help bring about the future of the internet. And who knows, maybe these NFTs will be the Picassos, Da Vincis, and Michaelangelos of the future.
By Lincoln Murr