What are NFTs?
Cryptocurrency’s booming NFT market makes little sense at first glance. Nobody in their right mind would shell out millions of dollars for an nft, yet, this is happening every day. As it turns out, there is much more to NFTs than meets the eye, and some of these NFTs are only beginning to realize their fair valuations.
Today, I’m going to explain what NFTs are. I’ll also give you an overview of the NFT market and I’ll tell you about a few NFT related cryptocurrencies and projects to keep on your radar.
Before we dabble in digital tokens, there’s a truth that needs to be spoken. I am not a financial advisor, and any NFTs you see in this post are there for illustrative purposes only, and should not be interpreted as a sign of support for that NFT or artist.
Definition
NFT stands for non-fungible token and describes a unique digital asset on a cryptocurrency blockchain. They are permanent, cannot be replicated, cannot be counterfeited, and are proven owned.
Permanent
NFTs are permanent because unlike unique digital assets in online games like RuneScape, they continue to exist so long as the blockchain the nft exists on continues to operate. It doesn’t matter if the games they’re used in cease to exist.
Non-replicated
NFTs cannot be replicated because they are created using smart contracts, which are essentially self-executing computer applications that cannot be modified once they’ve gone live. Depending on the conditions of the smart contract, it can allow for the creation of one or multiple NFTs of the same or similar kind.
Non-counterfeited
NFTs cannot be counterfeited because the cryptocurrency blockchains they exist on are almost always publicly viewable and transparent. This means that anyone can check if an NFT came from the smart contract belonging to the person who created it, or from a different smart contract made by some imposter.
Proven ownership
The openness of cryptocurrency blockchains is also what makes ownership of these NFTs something provable. You’re easily able to see which wallet address is holding the nft token you’re looking at. Although NFTs also cannot be divided into smaller fractions, there are a few developers who are working to make that possible.
History
NFTs have technically been around since 2012 when colored coins were introduced to bitcoin. Now without getting into the weeds, colored coins made it possible to add special attributes to specific BTC coins. A BTC coin could be colored to represent things like currencies and expensive works of art.
Today, NFTs exist on multiple blockchains, though mostly on Ethereum. This is mainly because smart contract blockchains like Ethereum do a much better job of minting and managing unique digital assets than BTC.
You’re probably familiar with erc20, which is Ethereum’s fungible token standard that makes it possible to create stablecoins like USDT and other tokens that have identical features.
If that flew over your head, fungible means that there’s no difference between say the 100 USDT in my wallet and the 100 USDT in someone else’s wallet. Each USDT token is interchangeable.
Now, by contrast, erc 721 is ethereum’s non-fungible token standard. This makes it possible to create unique digital tokens that have the four properties that I mentioned a few moments ago. There are also other non-fungible token standards on ethereum, notably erc998, which makes it possible to bundle multiple erc-721 tokens together, and erc-115 which lets you combine erc721 and erc20 tokens.
Interestingly enough, many popular NFTs like CryptoKitties and CryptoPunks were created before the erc721 standard was introduced in January 2018. The developers created their own custom smart contracts to make punks and kitties, which you probably know have been selling for hundreds of thousands of dollars a pop.
The NFT market
If you want to get a sense of just how big the NFT market is, look no further than nonfungible.com. Here you’ll find the trading volumes for most major NFTs, such as CryptoPunks, Decentraland, CryptoKitties, etc.
If you go to the market history tab on nonfungible.com, you can see an all-time sales volume of over 18 billion dollars across these different nft markets and categories. While I wasn’t able to find up-to-date statistics on the actual market cap of all NFTs on non-fundable.com, you can check their 2021 year-end report here.
There is no doubt the NFT market is growing, but even with this impressive growth, it has a way to go before it becomes a visible slice of the pie of the global collectibles market, which was valued at 372 billion dollars in 2020.
NBA topshot
Still, something tells me that the NFT market cap is much much larger than 330 million dollars. For starters, there’s NBA topshot which was first announced back in July of 2019 and only went live in October 2020. NBA top shot is a collaboration between the NBA and Dapper Labs, the company which created CryptoKitties.
NBA topshot is built on dapper’s flow blockchain and allows users to buy sell and trade various basketball-related NFTs, including digital sports cards and even video clips of historic plays in basketball. NBA top shops recently reported that they had bagged over 230 million dollars in nft sales.
NFT market statistics compiled by paradigm co-founder Matt Huang revealed that 60 million of these sales took place between mid-January and mid-February, with another 40 million dollars over other NFTs being sold during that time.
CryptoPunks
CryptoPunks were also on that list of top sellers, and if you’re unfamiliar with crypto punks, let me bring you up to speed. As I mentioned earlier, CryptoPunks have been around since 2017, when a total of 10,000 unique punks were created by two ethereum developers. Believe it or not, these were given out for free, and anyone with an ethereum wallet address was able to claim a randomly assigned punk. Some of which are rarer than others. Naturally, this created a secondary market to trade these punk NFTs for thousands of dollars afterward.
Why are people buying NFTs?
And now, for the question of the hour, who is buying these NFTs and why? Well, why would anyone drop 50 grand to buy a 1999 first edition Charizard? Because it’s the coolest thing ever?! In all seriousness, though, the short answer is that humans like to collect things and have been doing so since the dawn of time.
From a purely economic standpoint, when something is scarce or unique, it makes it open to having a fat price tag regardless of whether it has any objective utility or value. Just ask that Italian guy who sold the banana he duct-taped to a wall for 120 thousand dollars.
Blockchain domains
That said, some NFTs do have objective utility and value. The best example of this is blockchain domains. Unlike regular web domains, blockchain domains cannot be censored or taken down because they’re hosted on a decentralized blockchain instead of a centralized server. Some blockchain domains, such as those ending in .crypto, also have no renewal fees, meaning you just pay a one-time purchase fee and that domain is yours for life.
Most importantly blockchain domains make it possible to accept cryptocurrency payments without a complicated wallet address. Now, given how much regular website domains have sold for in the past, buying and holding an uncensorable payment-enabled blockchain domain with a highly searched word or phrases like hotels.crypto, or flights.crypto, sounds like an objective value proposition.
Hype
Even though some of these NFTs have objective utility and value, it still doesn’t justify the astronomical price tags you see for many of these. This just proves that most of the interest around NFTs going on right now is being caused by hype, also that most of the people currently buying NFTs have very deep pockets and probably too much free time on their hands.
If you want to go shopping for NFTs, your best options are Rarible and OpenSea. You’ll find just about every single kind of NFT on these sites, including art, blockchain domains, virtual land, digital trading cards, and other collectibles. But if you want to browse tweets as NFTs, or even mint your own tweets as NFTs, you can do so using Valuables.
The negatives
Before you go off and do something impulsive, there are a few things you should know about the NFT market. First, unless you’re buying an NFT from a well-known artist, it can be really hard to tell whether the NFT you’re ogling has any real value. In theory, you can check this by reviewing the selling history of that NFT to see if there’s any demand for it. However, many sellers are minting NFTs and then buying them from themselves using other ethereum wallets that they own. This creates an artificial selling history and gives you the impression that the NFT you’re interested in has some market value.
There are also a lot of sellers on NFT marketplaces pretending to be museums and art galleries. Sometimes, they’re even marked as a verified seller because they link to a dummy account on Twitter. These fake museums and art galleries sell high-quality images of semi-famous artworks they found on google as NFTs for a pretty profit.
Besides the risks I just pointed out, there are a few others to keep in mind. The NFT market is clearly in a bubble, and unlike the crypto market, there’s going to be little to no support on the way down. This is mainly because the NFT market isn’t liquid and there’s also no definitive way to tell what the fair value of any NFT is.
Where do you find NFTs?
A safer alternative to NFTs is the tokens that power their various marketplaces. Not surprisingly most of these NFT project tokens are in bubble territory as well. Both Coinmarket cap and Coingecko have designated tabs for NFT project tokens.
A few NFT projects I’ve been watching are Audius, Chiliz, chiles Decentraland, and Theta. I won’t have time to go into these projects in detail here so I’ll just give you the elevator pitches.
Audius
Audius is a decentralized music streaming platform, as many of you will know, musicians have been getting squeezed by record labels and streaming platforms for years, if not decades. This pandemic certainly hasn’t helped things either. Audius makes it possible for artists to stream directly to listeners while keeping the lion’s share of the money they make.
If Spotify’s market cap is anything to go by Audius, has a very bright future ahead of it. Audius only launched in September 2020 and already has more than 5 million active users. The only problem is that the audio token has some brutally bad tokenomics. It has a gargantuan supply of one billion, a 7% annual inflation rate, and only 5% of audio’s initial supply was airdropped to artists and fans on Audius. The other 95% has been allocated to the team and private investors, which is not good.
Chiliz
To be honest, the tokenomics of the Chiliz’s chz token aren’t much better than audio, but the value proposition is just as good. Holders of the chz token can purchase fan tokens for sports teams such as FC Barcelona, which has a fan token called FCB. Holders of Chiliz’s fans tokens have a say in how their respective sports teams are managed.
Most of these tokens are traded on the chiliz exchange against chz. Chiliz has been expanding like crazy when it comes to partnerships and adoption, and there’s much more to Chiliz than these fan tokens.
Decentraland
In contrast to Audius and Chiliz, Decentraland’s Mana token has some fairly robust tokenomics, which is part of why I’ve been keeping a close eye on the project. Decentraland is a decentralized virtual world powered by the Ethereum blockchain. In Decentraland, you can buy, sell, trade, and even create NFTs that can be used within this virtual world.
As you might have guessed, the real deal on Decentraland is its limited plots of virtual land, which have sold for over six figures in the past. Most of the might in Mana’s tokenomics comes from the fact that it’s burned to buy land and burned when paying for fees for other marketplace transactions. Mana token burns will only grow as it continues to onboard users and secure new partnerships like the recent one with Atari, that will bring virtual cryptocurrency casinos to Decentraland.
If that’s not convincing enough, consider the fact that Grayscale has recently incorporated an investment trust for the Mana token. Can you guess which other nft project greyscale has opened a trust for? That’s right, Theta!
Theta
Theta is a decentralized video streaming protocol that will likely rival youtube the same way Audius is likely to rival Spotify. If you think that sounds ridiculous, you probably don’t know that theta has partnerships with Google, Samsung, and recently partnered with Sony’s European arm.
To top it all off, Theta token probably has the best tokenomics of any NFT related project. Theta has a fixed supply, no inflation, and 100% of that supply is also technically in circulation.
Conclusion
The NFT market has been really hot lately and seems to be showing no signs of cooling off. There’s only a matter of time before that bubble bursts, and I can’t wait for it to happen. Why? Because the projects with real value (like KogeFarm of course!) are the ones that will survive, and it won’t just be blockchain domains that survive the crash. However, some NFT art will also survive the purge and will likely be displayed in one of cryptocurrency’s many virtual worlds, but this is a bet I’m not making!
If you have any other questions about NFTs, please stop by the KogeFarm Telegram or Discord communities, where you’ll always find someone willing to help you out.
