MMXX Capital
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MMXX Capital

What are NFTs?

NFTs have gained global media attention with market value growth of >20X in less than a year. NFTs first launched in 2015, but didn’t experience significant growth until 2020–2021, with market value of $28.2 million in 1Q 2020 to $3B+ in 2Q 2021.

NFTs are non-fungible tokens which means that every token is unique and non-interchangeable. This stands in contrast to Bitcoin, which is a fungible token and is interchangeable, one for another. NFTs allow for digital files or physical objects to be represented on the blockchain, thus ensuring authentication through a tracked digital signature. While NFTs typically reside on the Ethereum blockchain, it is important to note that any blockchain is theoretically capable of implementing NFTs. The ability of NFTs to validate ownership through a certificate of authentication has the potential to play an essential role in the coming digital era due to the fact that conventional digital assets are far easier to duplicate than physical assets. NFTs can secure digital assets so as to transform them into near equivalence with physical assets.

Decentralizing Art and Collectibles

Art and Collectibles are two of the more challenging items to authenticate and price in the modern world for several reasons. However, NFTs can revolutionize transactions involving these types of assets through authentication of age, as well as ownership and price histories. This information plays a vital role in the determination of current market price. NFTs solve a problem that artists and creators have faced for decades — the ability to verify that their work is authentic. Artists can now create an NFT by uploading their artwork to a website like opensea.com or rarible.com as a supported file PNG. The website incorporates the artist’s work into the blockchain, including specific details of the work and creator, and a certificate of authenticity. On the buyer side of the equation, NFTs protect the buyer from forgeries through a certificate of authentication, along with other data benefits such as prior owner and price histories. For individuals looking to possess a digital art NFT, ownership can come with exclusivity and certain usage rights which, in the absence of an NFT, can be challenging to utilize and enforce.

In terms of Total Addressable Market (TAM), the “global collectible market” in 2020 encapsulates circa $370bn+ of value and is expected to exceed $520bn by 2028. Global collectibles encompass a range of physical items, including stamps, coins, books, timepieces, sports memorabilia, autographs, and cars. Importantly, the value of collectibles is positively correlated with the motivation to produce forgeries. NFTs directly solve this problem for buyers and sellers looking to transact at any time.

Additional NFT Markets

Currently, the two primary use cases for NFTs are global collectibles and gaming markets. NFTs have the potential to expand into multiple domains such as the music/movie industry, shared ownership, insurance policy contracts, virtual items, real estate, cars, gold-backed NFTs, event tickets, and more, because of the security and benefits that blockchain technology offers. As noted previously, global NFTs sales have skyrocketed in early 2021 to over $3bn and based on our assessment of these additional market segments, as well as further penetration into existing collectible and gaming use cases, there exists significantly more sales/value potential over the next few years.

The future of gaming has the potential to utilize NFTs as the revenue model for the Metaverse. The Metaverse is a virtual space within a digital world such as games, social media, and virtual reality. Gamers and users of the Metaverse will be able to take digital items with them when they leave one game or a digital world for a different one. For example, a gamer would be able to take one item/asset from Minecraft and bring it into Roblox. The global gaming market was valued at $173bn and is expected to grow to $314bn by 2026. NFTs are gradually penetrating the gaming market, with ~$8m+ being spent per week and ~$10m+ on the Metaverse.

MoonCat NFT; an interesting example

MoonCat NFTs were introduced in 2017 by Ponderware and were trading at highs until about mid-March of this year. There are 25,344 MoonCats plus an additional 256 unique Geneses of MoonCats. Only 96 Genesis of cats exist today, and it’s uncertain whether the remaining 160 of 256 will ever be released due to concerns with bot farming.

After rediscovery and heavy activity in the Twittersphere, all MoonCats were claimed within a few hours. MoonCats are the second oldest NFT series after CryptoPunks. Since July, MoonCats have increased in value by over 400%, averaging roughly 1.15 Ether today. However, selecting the correct NFT is critical as some MoonCats have sold for over $500K in USD value. Critical factors that affect NFT pricing are rarity, utility, and tangibility. With Mooncats averaging 1.15 Ether, why did Logan Paul purchase a “Pure White Grumpy Genesis” MoonCat NFT for 160 Ether (~$522K USD)? Many more factors affect the price of a MoonCat: year/mined number, rarity, facial expression, color, eyes, body position, and more. This makes Mooncats somewhat hard to value today as there is no clear fundamental guide to valuation that investors can align around.

How to create an NFT

Anyone can create an NFT, and it only takes a few steps on any online NFT marketplace such as Opensea.io marketplace. However, you can also make them on rarible.com, nftically.com, and more, including the Coinbase NFT marketplace, which will be available soon.

Step 1: Go to https://opensea.io

Step 2: Click “Create”

Step 3: Connect your Ethereum wallet to OpenSea.io. (If you don’t have an Ethereum Wallet, please follow this link on how to create one with MetaMask — https://metamask.io/)

Step 4: Click the Image place holder square on OpenSea.io, where the MMXX Capital logo shows in the example below. Then select the image you want to create into an NFT from your file browser window. Then give your NFT a name and description. We will be skipping the “Collection” and “Supply” parts because we are making a one-off NFT and not a series or collection (such as MoonCats) in this tutorial. We will be creating this on the Ethereum blockchain. Requirements: JPG, PNG, GIF, SVG, MP4, WEBM, MP3, WAV, OGG, GLB, GLTF Max size: 100Mb

Step 5: Click “Create”.

Step 6: Done! Congrats, you just created your first NFT.

Step 7 (Optional): You can now “Sell,” “Edit,” or “Transfer” the NFT to your our wallet or friends’ wallets.

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