In 2010, if someone had told you that internet memes, digital illustrations, and Twitter avatars would sell for hundreds of thousands of dollars, would you have believed them?
Well, these are non-fungible tokens, or NFTs, simply put. NFTs are propelling blockchains into uncharted territory riding cute kittens and pixelated punks. What may seem like a veil of speculation about useless collectibles is actually the cloudy horizon of fintech innovation. NFTs represent a turning point. Blockchain technology is now used to represent assets beyond the chain.
To understand the thriving and intriguing world of NFTs, the Cointelegraph Research team delves into this new space and presents the findings in the latest report “Nonfungible Tokens: A New Frontier.”
This report covers the history and development of NFTs, how NFTs are stored, traded and exchanged, how to mint an NFT and which platform to choose, how the NFT market works and how prices are formed, how to find new and exciting projects. of NFTs, how NFTs are regulated in various jurisdictions, how much energy is used when creating and commercializing NFTs, and what future awaits this emerging market.
How it all started
Bitcoin pioneer Hal Finney first mentioned a first version of the NFTs in 1993. He called them “Crypto Trading Cards”. In a discussion forum, Finney touched on definable scarcity, exclusive ownership, and provenance. These concepts are now the core of every NFT.
The idea of NFTs would not develop much until 2012, when Yoni Assia wrote about “colored bitcoins”, which eventually became “colored coins”. Built on the Bitcoin blockchain, colored coins created Semi-fungible tokens that were supposed to represent real-world assets, such as real estate, commodities, and bonds.
One of the first iterations of NFT, “Quantum”, was created in 2014 by Kevin McCoy and Anil Dash and presented at the New Museum in New York City. In 2015, the first Ethereum-based NFT called Etheria was thrown out in Devcon 1. It is largely considered to be the first truly non-fungible token.
The term “NFT” emerged in 2017. Although little known at the time, two very important NFT projects, CryptoPunks and CryptoKitties, were launched in 2017. This same year, the first NFT house was sold through Propy. This marked the first wave of popularity for NFT to be in sync with the crypto market cycle.
NFTs have become a booming market that expands year after year. For example, sales have grown up from just $ 41 million in 2018 to a staggering $ 2.5 billion in the first half of 2021, representing a 60-fold growth in three and a half years.
Even compared to 2020, the growth is staggering. Total sales in 2020 reached $ 340 million and in 2021 so far sales have already exceeded $ 9 billion, representing a growth of more than 25 times according to NonFungible.com data on NFT on Ethereum.
The rich, famous and influential began collecting or broadcasting NFTs in 2021. In May, the monthly sales volume reached $ 360 million. Soon after, a deep slowdown in the crypto markets briefly ended the NFT euphoria, causing daily volumes to drop significantly, a reduction of up to 90% from their highest levels. By July, NFTs rallied and once again hit record highs, strikingly reaching $ 2.6 billion in total volume in August on Ethereum alone according to data from NonFungible.com.
While Ethereum continues to dominate the NFT market activity, there is growing interest in alternative layer one blockchains due to their cheaper transaction fees and faster lock times.
Ethereum owns about 80% of NFT sales volumes in 2021, but only 37% of total NFT traders. This is a reflection of the higher average NFT valuations on Ethereum and the higher transaction fees. Flow and Wax have a large share of total merchants, 32% and 25%, respectively, but with significantly less volume. Its lower transaction fees enable lower priced NFT transactions and use cases for high volume applications such as games.
What categories are among the most popular?
A breakdown of transactions by popular NFT categories, discussed in section 1.3 of the report, reveals that early sales were dominated by collectibles such as CryptoKitties and CryptoPunks. In late 2019, the NFT games category increased in transaction count, as the player bases expanded in games such as F1 Delta Time, Gods Unchained, and Decentraland.
In mid-2020, the number of transactions that included sports and metaverse NFT projects began to increase as these platforms increased in popularity. Around the same time, artistic NFTs also attracted increased attention, peaking in January 2021 with Beeple’s record sale.
Although the overall share of collectibles transactions has declined, they still dominate total sales volume and lead projects by a significant margin. The art category follows behind collectibles in sales volumes, reflecting the equally high valuations in the art and collectibles categories.
Will NFTs survive the next cryptocurrency crash?
This year, there is more than $ 9 billion in NFT sales on Ethereum so far. Total NFT sales are expected to reach at least $ 17.7 billion by the end of the year as new entrants look to boost secondary market activity.
Historically, NFT’s dependence on cryptocurrencies has been quite high. NFTs declined in popularity during the 2018 cryptocurrency bear market and again in June and July 2021 when the cryptocurrency market reversed. The high interest in NFTs has coincided with the general uptrend in the digital asset market, which may indicate that NFT prices will fall if cryptocurrency prices fall.
This article is for informational purposes only and does not represent investment advice or investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not replace individual investment or any other advice.