Monolith Reflects: how NFTs are helping crypto go mainstream
There’s no denying it: the cryptocurrency space has experienced explosive growth in 2021. While much of the mainstream attention has focused on Bitcoin, Ethereum’s fast-growing ecosystem has also been placed under the spotlight as interest in the technology has grown. Without a doubt, the most notable development of the year has been in the NFT space. Catching the attention of major musicians, sports players, celebrities, world-famous art galleries, and news publications, non-fungible blockchain-based assets had their first mainstream moment in 2021. Soaring prices in the NFT market have led some to point to a bubble, but true believers say that the technology is now on the cusp of mass adoption. In this feature, we’ll explain how NFTs will add to the incoming crypto tidal wave.
NFTs go mainstream
NFTs, otherwise known as non-fungible tokens, have been around for some time now. The earliest examples of NFTs appeared on Ethereum as early as 2016, and they predated the ERC-721 format that’s popularly used for the assets today. But while they’ve existed for almost as long as Ethereum has, it was only in 2021 that the wider world started to catch on to the technology. Arguably the biggest driving force behind this change was Beeple, whose “Everydays: The First 5,000 Days” NFT was sold as the first digital-only art auction at Christie’s in March. The auction gained widespread media attention when it closed at $69.34 million, making Beeple the world’s third most valuable auctioned living artist. While many were puzzled by the value proposition of tokenizing a JPEG file and eye-watering sums attached to pieces like Beeple’s, others started to see promise in the possibilities.
After the landmark Christie’s sale, the auction house also sold works by the NFT artist FEWOCiOUS and a collection of Larva Labs’ CryptoPunks. Similarly, Sotheby’s has featured NFTs for the first time, including the likes of Pak and Bored Ape Yacht Club, as well as early Ethereum projects like Curio Cards and MoonCats. Both Christie’s and Sotheby’s have team members who have become immersed in the NFT community, building a bridge between the traditional art world and the new blockchain-based art movement. Major artists from the fine art world like Damien Hirst have also taken an active interest in the space. Hirst launched his own project called “The Currency” that invites collectors to choose between an NFT and physical piece of art earlier this year; at the time, he said that he thought art that could be viewed on smartphones would outlast galleries. It’s clear that NFTs are moving beyond a fringe niche; they are gaining the approval of the traditional art world.
While digital art catalysed the NFT boom and still occupies most of the space today, the technology has also caught the attention of many leading musicians. Ethereum natives like 3LAU and R.A.C. have built loyal crypto-aligned communities by tokenizing their music, and other superstars like Aphex Twin, Grimes, Eminem, and Jay-Z have experimented with the technology. Although the music industry is yet to adapt the technology en masse, artists are beginning to understand the disruptive potential of using smart contracts to sell their work directly to fans.
Aside from digital artists and musicians, many celebrities have also minted their own NFTs as the space has gained traction. The vast array of recognisable figures and institutions taking an active interest in the technology has increased exposure, setting the stage for adoption outside of the cryptoverse. For every rapper or influencer that’s engaging with NFTs, there’s an audience of young digital natives that’s ready to support their work.
Many celebrities have dropped their own NFT collections in recent months, but adoption has not been limited to minting alone. On the same day Jay-Z announced his Sotheby’s drop, Jay-Z indicated that he’d bought a CryptoPunk by changing his Twitter avatar to Punk #6,095. Gary Vaynerchuk, an entrepreneur turned influencer and NFT enthusiast, has said he owns over 50 Punks. The NBA player Stephen Curry bought a Bored Ape, and Paris Hilton has appeared on The Tonight Show with Jimmy Fallon and CNBC to explain the value of tokenizing unique assets.
With so many influencers of today evangelizing NFTs, the wider world has begun to pay attention to the space. The visibility of influencers — and the assets they collect — on social media has accelerated the trend. Moreover, the public nature of the blockchain allows influencers, public figures, collectors — anyone, really — to showcase their assets. Thanks to NFTs, it’s easier than ever for anyone with an Internet connection to share their interests and tastes with their online following.
NFTs as a gateway
While Ethereum has been running since 2015, NFTs have acted as the gateway for many people to enter the ecosystem. Creators such as digital artists have found that they can use NFTs to monetise their work for the first time. NFTs create a symbiotic relationship between artist and fan: the artist gets to earn revenue by minting tokens of their work, and the fan gets to show their support for the artist by proving ownership of the same piece. For many creators, NFTs are a way to earn from their art and build a closer relationship with their fans by directly selling their work on the blockchain.
NFTs have also become an accessible entry point to crypto because anyone can tokenize anything. There’s no limit to what you can mint as an NFT, whether it’s a piece of music, animation, film, meme, photograph, or just about anything else. You can create anything as an NFT and the blockchain is permissionless, so you don’t need to ask anyone to do it. It’s as simple as connecting a wallet to OpenSea, uploading the asset, and minting the piece through a simple interface. Similarly, while the user experience has some way to go before it can compete with traditional e-commerce marketplaces, buying an NFT only takes a few clicks, some ETH, and the desire to become part of the tokenized economy. Creating and buying NFTs is getting easier than ever, which has helped adoption.
NFTs can be thought of as an emerging asset class, but they differ from almost every other type of asset in the world today. In the traditional finance markets, assets like stocks are made available to institutions long before the public gets a look in. By the time a company is listed on NASDAQ, the biggest part of the upside is already priced in, and institutions have profited. NFTs turn this model on its head. From CryptoPunks to Bored Ape Yacht Club and Art Blocks, every successful project has grown out of a small community of passionate enthusiasts. Like Bitcoin and Ethereum itself, NFTs are a community-first asset class that started at the grass roots with a small group of believers. If decentralisation is a global movement, NFTs encapsulate the culture of the phenomenon.
Crypto’s fun niche
During Ethereum’s early years, much of the excitement surrounding the promise of the network focused on DeFi. However, few crypto natives envisaged that NFTs would onboard the mainstream first. Rather than yield farming, liquid staking and flash loans, many first time Ethereum users have initially been drawn to NFT collecting and trading. There’s a simple reason for this: NFTs are the fun niche of crypto. When you buy an NFT, you get a unique asset that no-one else owns. It might be an avatar, a generative piece, or another cool visual that you can show off to your friends. You can’t do that with ETH or an ERC-20 token because all you’re getting is the coin, and they’re interchangeable with one another anyway.
As NFTs have become intrinsically linked with various forms of art, they reflect their owners’ tastes more than anything else. While NFTs have a monetary value determined by the open market, their cultural value is what gives them significance. Collectors buy pieces that speak to them and they can present them through their online galleries in the Metaverse, connect with other like minded fans, and build an identity that’s utterly their own.
Carving an identity
The power NFTs have in giving people their own online identity has been demonstrated by the trend of NFT “avatars”. Apes, ducks, cats, skeletons and more have seen wide adoption on social media within the NFT community as participants in the movement seek to establish an identity and connect with others who align with their interests. This is made particularly easy by distinctive artworks that feature similar characters that only slightly differ in their traits.
As the NFT space has grown, it’s experienced speculative mania that’s drawn comparisons to previous market bubbles. Many pieces have soared in value in recent months. For the digital natives who have been early to adopt these assets, rare, sought-after pieces have their own “flex” value attached to them. When you buy an NFT, you can prove you’re the owner and show it off on your social media profiles. That’s particularly powerful for pieces that accrue value: either you were early, or you paid a premium to claim ownership.
An art renaissance
While much of the frenzy during this year’s so-called “NFT summer” involved avatar projects that often felt like derivative copypastas, NFTs have laid the foundations for what some are calling a digital art renaissance. At the heart of this shift is the generative art niche, a new form of programmable art that’s written by code and lives immutably on the blockchain.
Generative art projects like Autoglyphs, Fidenza and Ringers have soared in value this year, and tokenizing these pieces on the blockchain makes them immutable and verifiable. When a collector buys a generative piece, they don’t know exactly what will be generated until the script is run and the piece gets wrapped as an NFT. While generative art has existed in other forms for decades, the power of the blockchain is opening up the possibilities of the movement like never before. Other digital artists like FEWOCiOUS and XCOPY have also forged successful careers thanks to NFTs, giving credence to the concept of a new cultural revolution.
Gaming is next
While NFTs have mostly been associated with art to date, there’s another space that could benefit from the technology and usher in a wave of new users: gaming. NFTs have already entered the gaming space through trading card games like Gods Unchained, Parallel, and Sorare, but the full potential of crypto gaming has not yet been realised. The play-to-earn format of NFT games is a new paradigm that’s only possible in Web3. As the NFT-based game Axie Infinity has shown, this model has huge disruptive potential by empowering gamers.
Moreover, NFTs offer a way to create in-game items that gives people true ownership of their assets. If you truly own an asset, you can also trade it, which is another way value goes back to the player of the game. The crypto gaming space is still in its infancy, but if it takes off in the same way as digital art has done, it’s sure to bring many new users into the space.
The future of the Metaverse
Like crypto gaming, the Metaverse is still in its early phases. The Metaverse is a futuristic online realm encompassing 3D worlds, social interactions, virtual reality, and likely much more that hasn’t yet been imagined. The decentralised economy is well on its way to forming a core part of this world.
In the Metaverse of the future, Internet users may explore online spaces with their own 3D character. They’ll have their own virtual land that houses their digital art and pets, and they’ll wear digital clothing by real-world fashion designers. Each of these assets will need a way to prove ownership, which is where NFTs come in. The trend is already playing out through games like Decentraland today.
The advent of virtual reality will expand the possibilities of the Metaverse, and NFTs will become central to this new world. The growth of NFTs in the Metaverse helps millions of Internet users claim ownership of their online identity — much like ENS domains and CryptoPunks are doing for early Ethereum adopters today.
In conclusion, it’s clear that NFTs are in the early stages of their development as an asset class. However, the explosion of innovation and adoption throughout this year has shown the huge promise of the technology. The rapid adoption of on-chain digital art has highlighted how NFTs can act as a catalyst for onboarding new crypto users. Throughout this year, NFTs have also empowered creators and blossomed vibrant new communities. While crypto has always been a powerful community-based movement, NFTs strengthen the culture and unite users in a way like never before. In bringing the community together through common interests, they also create a way for users to establish their own identity in an open and verifiable manner. With crypto and the Metaverse growing at rapid speed, there’s little doubt that NFTs will be one of the biggest drivers for mainstream adoption.