NFT : To Buy or Not To Buy?

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Coinmonks

8 min readNov 2, 2021

As India(Bharat) prepares to celebrate Dhanteras (Considered to be an auspicious day to buy gold; Trivia : Indians bought 40 Tonnes gold worth a whooping ~ $ 3 Bn on a single day last year) and while the rest of the world is going gaga over NFTs, one of my friends inquisitiveness about this new investment instrument persuaded me to come up with a crisp analysis about the Pros & Cons of this investment opportunity.

Before we start digging into the probable upside and downside of investing in NFTs, let’s try and understand what exactly are NFTs, their origin, their features, popular NFT marketplaces etc.

What are NFTs?

NFTs are pieces of digital art that live on the blockchain network, which can come in several forms. Some of the most popular types of this digital artwork include memes, video clips, pictures, music, and even tweets.

Yes, you read that right — tweets published on Twitter can be turned into NFTs and sold. An important aspect of NFTs is that they’re non-fungible. Fungibility simply means that the commodity has more than one unit, all of which are the same and interchangeable, with each of its parts being indistinguishable from the other.

History of NFTs

The idea of NFTs emerged from what is called a “colored coin”, initially issued on the Bitcoin blockchain in 2012–2013. Colored coins are tokens that represent real-world assets on the blockchain and can be used to prove ownership of any asset, from precious metals to cars to real estate, etc. Colored Coins can further be used to represent a multitude of assets and have multiple use cases, including:

However, the history of NFTs and the man who first created one, Kevin McCoy, began on May 3rd, 2014. He minted his non-fungible token “Quantum,” way before the crypto art market exploded.

Quantum is a pixelated image of an octagon filled with denoting circles, arcs or other shapes which share the same center, with larger shapes surrounding smaller ones and hypnotically pulsing in fluorescent hues. As of today, the one of a kind “Quantum” art piece (2014–2021) is on sale for seven million dollars.

2014: Counterparty

In 2014 Robert Dermody, Adam Krellenstein, and Evan Wagner founded Counterparty, a peer-to-peer financial platform and distributed, open-source internet protocol built on the Bitcoin blockchain. Counterparty allowed asset creation and had a decentralized exchange, thus providing a way for users to create their own tradable currencies. It had numerous ideas and opportunities, including meme trading without counterfeit issues.

2015: Spells of Genesis on Counterparty

In April 2015 Counterparty partnered up with the team creators of Spells of Genesis. The Spells of Genesis game creators were not only pioneers for issuing in-game assets onto a blockchain via Counterparty, but they were also among the first to launch an ICO. The creators helped fund the development of Counterparty by introducing their own in-game currency called BitCrystals.

2016: Trading Cards on Counterparty

In August 2016 new trends began to emerge. Counterparty teamed up with Force of Will, a popular trading card game, and launched their cards on the Counterparty platform. Behind Pokemon, Yu-Gi-Oh and Magic, Force of Will was the 4th ranked card game in North America according to sales volume. Their entrance into the ecosystem, where they had no prior blockchain or cryptocurrency experience before, signaled the value of putting such assets on a blockchain.

2016: Rare Pepes on Counterparty

In 2016, memes entered the blockchain. In October of 2016, memes started to make their way onto the Counterparty platform. People started to add assets to a particular meme called “Rare Pepes.” Rare Pepes are a meme featuring an interesting frog character that has acquired an intense fanbase over the years. What started out to be a comic character named Pepe the Frog, has now steadily become an internet sensation as one of the most popular memes. By early 2017, with Ethereum gaining prominence, Rare Pepes started to be traded there as well.

2017: Cryptopunks

As Rare Pepes trading picked up, John Watkinson and Matt Hall, the creators of Larva Labs, created unique characters generated on the Ethereum blockchain. No two characters would be the same and they would be limited to 10,000. The project name, Cryptopunks, was referenced to an experiment with Bitcoin in the 1990s and can be described as an ERC721 and ERC20 hybrid.

ERC20, the most common Ethereum Token Standard, has rules that allow tokens to interact with each other, but is not the best for creating unique tokens. Enter, ERC721, which had a purpose to be the standard for NFTs on the Ethereum blockchain. ERC721 assists in tracking ownership and movements of individual tokens from a single smart contract.

CryptoKitties NFTs hit the ground running using ERC721. They are a blockchain-based virtual game that allows players to adopt, breed, and trade virtual cats using Ethereum.They exploded into popularity and landed features on major news stations including CNBC and Fox News. CryptoKitties was created by a Vancouver-based company called Axiom Zen and quickly went viral, earning funding from top investors due to their rise in users. Axiom Zen later spun off CryptoKitties into Dapper Labs.

2018–2021: The NFT Explosion

Between 2018 and 2021 NFTs slowly move into public awareness before exploding into mainstream adoption in early 2021.

The NFT market is more efficient and more liquid than incumbent methods of transferring assets. Numerous platforms have surfaced online, each hosting differentiators for creators and collectors alike. The main area of disruption is focused on limiting centralized fees where traditional art brokers, auction houses, often take up to 40%.

Features of NFT

Unique –Each NFT has a distinct attribute, which is often recorded in the token information. NFTs have distinct personalities, and no two NFTs are alike. An original image.jpg file, on the other hand, is identical to its duplicate, a.jpg file.
Digitally Scarce resource — The blockchain network is where NFT is kept. As a result, the certificate of ownership is available on different networks, allowing the owner of a digital item to be proven.
Indivisible — You can’t break most NFTs into smaller denominations, and you can’t buy or transfer a portion of them.
Ownership– The ownership of the asset transmitted is guaranteed by these tokens.
Fraud proof– They are easily transferred and unaffected by fraud.

NFT Marketplaces

OpenSea : OpenSea is the original peer-to-peer NFT marketplace, and far and away the largest. At the time of writing, it has a total trading volume of over $6.5 billion (according to analytics platform DappRadar), offering NFTs of everything from in-game items and collectibles, to artwork, music, GIFs, and more.
Axie Marketplace : NFT-powered video game Axie Infinity plays host to the second-largest NFT marketplace, with a total trading volume of more than $2.1 billion on Dappradar. It trades exclusively in Axies: cute, Pokémon-like digital pets which players can buy and trade on the Axie Marketplace. More about Axie Infinity in the upcoming article.
CryptoPunks/Larva Labs : One of the earliest examples of NFTs on the Ethereum network, CryptoPunks is a series of 10,000 randomly generated characters with a pixel art aesthetic and unique attributes. While they could originally be grabbed for free, the only way you can own one today is to buy one.
NBA TopShot Marketplace : One of the first NFT series to gain traction with the wider public, NBA Top Shot is a set of digital trading cards featuring NBA video highlight clips. Once you purchase a pack, clips are stored in your secure, encrypted blockchain-verified wallet, where you can view them or re-sell them on the NBA Top Shot Marketplace.
Rarible : One of the leading NFT marketplaces on Ethereum, Rarible is a community-owned platform that showcases a wide range of digital art and collectibles. It currently has the fifth-highest all-time trading volume according to Dappradar, with $210 million having changed hands.

Pros & Cons :

Conclusion

NFTs are fun. They offer you a way to own something on the blockchain that’s not a cryptocurrency. But as an investment, they should be looked at as highly speculative, extremely risky assets.

There’s real value in the blockchain and what it can do for humanity in the future, but the ability to sell relatively shaky “ownership” of digital assets to consumers isn’t where that long-term value lies.

If you want to take part in the blockchain and see these tokens as your opportunity to do so, by all means, go for it. But do so responsibly.

Buy low-cost NFTs with the mindset that you’re enjoying getting involved, not with the mindset that you’re going to get rich, because the floor could fall out of the market at any time.

Credits : Ethereum.org, Decrypt.co, Portion.io, Moneycrashers.com, Thedalesreport.com

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