2021: The Year of NFTs, Part 2 — +1785% Return Later.
Record sales, some COVID-19 and celebrity fuel, and the challenges ahead.
Exactly 3 months ago, I shouted from the rooftops on how Non-fungible Tokens (NFTs) would become the latest crypto trend to follow and invest in. Meanwhile, as the hottest craze of 2021, they’re burning a prominent mark into the crypto world’s relatively young history. According to a research report by NonFungible.com, the NFT market grew 299% in 2020 and an article by The Fintech Times about the report observes that “NFTs are primed to become a leading emerging asset class for the Virtual Economy in the years ahead”. Although the exponential growth of the NFT market in 2020 was impressive, it couldn’t prepare us for the remarkable leap it has made in the first quarter of 2021 as the market cap of major NFT projects jumped 1,785% since that original post.
But what has fueled the NFT heat, what concerns have emerged as NFT popularity balloons, and what should be considered in order to buy and sell NFTs safely?
A quick recap: What is an NFT?
NFTs are tokenized versions of a non-fungible asset that is unique, rare and indivisible. They can be used to represent a variety of assets such as virtual collectibles, in-game items, digital artwork, virtual assets, real estate, and much more. NFTs are bought and sold on marketplaces such as Nifty Gateway, MakersPlace, SuperRare, OpenSea,Decentraland, and Rarible to name a few.
For those still feeling a little lost, click here for an in-depth breakdown about NFTs and what makes them so appealing.
Extraordinary NFT sales in 2021
Last year, we saw record-breaking sales as Bitcoin-code-inspired artwork was sold for over $130,000 and a blockchain-based trading card of Paris Saint-Germain forward Kylian Mbappé sold for $66,850. But those figures have nothing on recent NFT sales. Here’s a list of a few eye-popping NFT sales in the past few months:
Jack Dorsey, Twitter co-founder and CEO, recently sold his first Tweet, “just setting up my twttr,” as an NFT for $2.9 million on March 22.
The original famous Nyan Cat, an animated cat with a Pop-Tart body and rainbow trail, was sold as an NFT for approximately $580,000.
A self-portrait digital artwork by humanoid robot Sophie was sold as an NFT at auction for $688,888.
Canadian musician and artist Claire Elise Boucher, known professionally as Grimes, sold $6 million worth of digital art as NFTs.
An authentic Banksy artwork was bought by a group of “art and NFT enthusiasts”, physically burned in a Brooklyn park, and then resold as an NFT for 228.69 ETH (roughly $380,000 at purchase).
Christie’s Auction House sold American artist Mike Winkelmann’s (known as ‘Beeple’) NFT digital collage “Everydays — The First 5000 Days” for $69.3 million.
What has fueled the 2021 NFT heat?
Increased interest in NFTs and their entrance into the mainstream is due to a pile-up of previous successful NFT projects and many other factors. However, two aspects stand out that have contributed to the recent acceleration of this immense popularity: the impact of COVID-19 and the influx of celebrities getting involved in the NFT world.
Two aspects stand out that have contributed to the recent acceleration of this immense popularity: the impact of COVID-19 and the influx of celebrities getting involved in the NFT world.
Global confinement as a result of the COVID-19 pandemic has created voids in social interaction and has forced many to seek new ways to sell. Loneliness has crept into the hearts of many as national lockdowns eliminate traditional peer communication and engagement. In response to this, many have turned to immersing themselves in experiences and communities in the virtual world, with many gamers spending more time and money playing in virtual realms. Besides this, NFTs have opened new revenue streams and ways of selling to artists and creators. Now they can sell in a virtual environment without breaking any social distancing rules. Furthermore, idle speculators have been spurred into seeking to capitalize on NFTs as their traditional sources of income are reduced or die out.
NFTs have opened new revenue streams and ways of selling to artists and creators.
Celebrity involvement has definitely played a key role in spreading the NFT excitement and piquing mainstream interest. People are paying attention as news headlines about artists such as Kings of Leon, John Cleese and Lindsay Lohan moving in the world of NFTs, or of basketball legend Michael Jordan and Hollywood icon Will Smith investing in Dapper Lab’s NBA Top Shot, pop up frequently. Furthermore, the Christie auction of Beeple’s artwork and the use of work by famous artists (such as Banksy) in NFT sales has brought in visibility from a variety of channels. Even Saturday Night Live channeled a rap skit and parody with Eminem to explain the NFT phenomenon to the mainstream. All the talk about celebrity involvement and extraordinary NFT sales figures mean that NFTs are receiving an unavoidable spot in public dialogue. Besides art and music, various industries from gaming to sporting icons are enjoying the fruits of NFT’s soaring popularity.
Emerging concerns and controversies surrounding NFTs
Is the NFT hype just a bubble? The crypto world is characterized by waves of trends, hypes and bubbles, which can sometimes end tragically. The 2017 ICO boom is a prime example as many who invested heavily are today left saddled with useless tokens. The NFT surge is showing similarities with the 2017 ICO boom and critics express concern that we’re in the midst of a fragile speculative bubble. Beeple told Business Insider that NFTs are an “irrational exuberance bubble” that will “absolutely go to zero”, and Robert Norton (chief executive and co-founder of Verisart) observes: “We’re in a frenzy of speculation. I don’t know how long these prices will be sustainable. we’re living in a moment of collective hysteria.” However, others such as art collector and blockchain investor Jehan Chu are more enthusiastic. Chu told Reuters: “What we’re seeing right now looks like a bit of a bubble, [… but] at the end of the day, it’s very clear that there is a sea of change going on in terms of how society and how consumers think about digital goods and it’s pretty astounding where this is going to lead us.”
NFTs involve complicated transactions and executions of smart contracts in the minting, bidding, selling and transferring process, which is reflected in high gas fees from simple transactions.
Growing awareness of NFTs has also been accompanied by concerns and debate over the environmental impact of cryptocurrency proliferation. Bitcoin mining alone is estimated to generate around 37 million tonnes of CO2 every year, a carbon footprint that is on par with entire countries. NFT transactions require an increasing amount of electricity and computational power as marketplaces jump from 200 transactions a day to 5,000. NFTs involve complicated transactions and executions of smart contracts in the minting, bidding, selling and transferring process, which is reflected in high gas fees from simple transactions. Due to concerns over environmental impact, several artists are dropping out of NFT plans. According to Cointelegraph, digital artist Joanie Lemercier cancelled his second Nifty Gateway drop after becoming aware of the impact of the platform’s sales. However, the exact figures of NFTs’ carbon footprint remain elusive due to gaps in calculations. Offsetra and CryptoArt.wft are examples of projects and platforms dedicated to calculating energy usage and CO2 emissions of cryptocurrencies, but only apply to Proof-of-Work blockchains (such as Ethereum and Bitcoin) and apply various assumptions so their results are not entirely accurate. Although the environmental concern is real, many are aware that it is an issue and are creating or searching for solutions. Ethereum has big plans to switch from a Proof-of-Work to Proof-of-Stake model, which would make it more environmentally friendly. Furthermore, Palm, a new Ethereum technology and environmentally friendly NFT ecosystem and scaling solution, has been released. ConsenSys’ research and development claims Palm will be 99% more energy-efficient, reducing computing power, costs and carbon footprint. Besides this, platforms like Nifty Gateway are pledging to go carbon-negative by purchasing carbon offsets and others are approaching the issue with ideas for renewable and clean energy as solutions.
Ethical, equity and security concerns have also emerged. NFTs have attracted many artists and creators as blockchain technology provides authenticity, which should solve counterfeiting and fraud issues. However, artists are being exploited and NFTs appear to be facilitating art theft with a rising number of cases where works have been tokenized and sold as NFTs without the creator’s permission. Artists have also voiced concerns over works appearing that are not exact replicas, but very similar to their original art. This also opens the question as to whether minters of NFTs based on popular works, such as comic book characters, have profited without the permission of the underlying artist or copyright holder. The Burnt Banksy art can be considered an example of such a case. In response to such concerns, online marketplaces are developing procedures to address the potential for infringement. As an example, OpenSea’s Terms of Service invites rights holders to submit complaints and states the site “will take down works in response to formal infringement claims and will terminate a user’s access to the Services if the user is determined to be a repeat infringer.” Despite this, the relative anonymity of crypto transactions can make it difficult to enforce regulations or investigate whether an NFT was minted by its original artist or copyright owner.
The relative anonymity of crypto transactions can make it difficult to enforce regulations or investigate whether an NFT was minted by its original artist or copyright owner.
What to consider in order to buy and sell NFTs safely
NFTs can be a true win-win for the creators, sellers and buyers. But caution and care should be taken to ensure that NFT transactions are implemented with clear and transparent terms.
For those issuing and selling their own NFTs, it’s critical to ensure that the item or work associated with the NFT is unique, authenticated, and that they own the necessary rights to reproduce and distribute it. It’s also important to work with reputable technology companies who help to tokenize the item in a transparent and secure manner, and use reputable marketplaces to sell the NFT on. Another factor to consider is the high price of transaction fees, which may have creators and sellers spending a small fortune on transactions that nullify any profit from token sales.
It’s critical to ensure that the item or work associated with the NFT is unique, authenticated, and that they own the necessary rights to reproduce and distribute it.
For buyers, it’s crucial to check if the NFT ownership is recorded on the blockchain to ensure that it’s not a fake. An item sold on a website could claim to be an NFT, but hasn’t actually been tokenized or is tied to a different blockchain. For example, they could sell you an image or a tweet that they claim has been tokenized, then delete it. The first “NFT rug pull” was demonstrated in December 2020, when Eli Krenzke bought an NFT of one of James Prestwich’s tweets, which Prestwich promptly deleted. It’s also necessary to be wary of counterfeits and frauds. Here’s a cautionary tale: an NFT artist named Pest Supply earned a net of 512 Ether (roughly $1 million) by selling Banksy imitations as NFTs on Rarible.
The moral here is for NFT buyers to be wary, to seek out reputable participants and platforms that offer artist verification to buy from. Finally, buyers need to understand and practice how to protect the collectibles in their digital wallets, since theft occurs differently in the virtual world compared to traditional methods (pickpockets or burglars). Veterans and beginners alike need to fully comprehend the importance of keeping private keys safe and taking measures to ensure the security of their digital assets during transactions. The likes of NGRAVE ZERO are perfect solutions for this.
Veterans and beginners alike need to fully comprehend the importance of keeping private keys safe and taking measures to ensure the security of their digital assets during transactions. The likes of NGRAVE ZERO are perfect solutions for this.
Furthermore, it’s vital for those who want to purchase NFTs to remember the real use case and value of collectibles that NFTs represent. In the heat of the recent NFT mania, many are buying NFTs as tradable assets they want to capitalize on. Their assets become meaningless if not to be bought and sold, causing profit to overshadow the impressive underlying technology of NFTs and their real value as collectibles. Many financial experts have urged caution when investing in NFTs since the current surge in interest in NFTs may not last forever even though the market is currently booming. Some great advice from Nadya Ivanova, chief operating officer at foresight business L’Atelier BNP Paribas: “As ever, the golden rule is to only invest however much you are comfortable with losing.” If you’re purchasing an NFT, make sure the collectible is something you really admire and enjoy, so that it won’t lose value to you even if its monetary value never increases. Another thing to recognize is that buyers receive their collectibles in a digital wallet and while they own the unique token, others may have copies of the item. For example, although someone can own a tokenized digital artwork, the image file can still be downloaded off the internet.
In the heat of the recent NFT mania, many are buying NFTs as tradable assets they want to capitalize on. Their assets become meaningless if not to be bought and sold, causing profit to overshadow the impressive underlying technology of NFTs and their real value as collectibles.
So why would you still want to own an NFT? To put it in terms of physical art collecting: anyone can buy a Van Gogh print, but only one person can own the original. And with blockchain’s inherent reliance on cryptographic private keys, that’s exactly what NFTs are all about.
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About the author: Ruben Merre is a repeat tech entrepreneur, polyglot, life-long learner and founder and CEO of NGRAVE, the digital asset security company behind “ZERO”, the most secure cryptocurrency wallet in the world. Since 2018, Ruben and his team have partnered up with the top tier in nanotechnology, cryptography and hardware security, as well as thought leaders such as Jean-Jacques Quisquater, famous cryptography professor and second reference of the bitcoin paper. The result: a true end-to-end solution for managing digital assets, at maximum security (EAL7, highest security certification in the world), and an intuitive user interaction.
