Non-fungible tokens (NFTs) embarked on one of the most extraordinary events in the history of emerging decentralized businesses in 2021. In June 2021, the volume of NFT trading was $2.5 billion. It increased tenfold over the following six months, with total NFT sales reaching a staggering $23 billion by December 2021. In comparison, the entire NFT trading volume in 2020 was just $100 million.
To understand the incredible success story of NFTs, we must examine their trajectory over the past year. This post will describe the NFT frenzy and what lies ahead in a chronological order.
Laying the groundwork
Cryptocurrency historians often dispute whether there was a single event that precipitated the emergence of NFTs in the crypto world. While there is no definitive explanation, the $69 million sale of Beeple’s NFT paintings sent tremors across the worldwide market. People saw an increase in NFT initiatives with eye-catching titles in newspapers and online sites. Furthermore, with their limited succession of algorithmically-generated treasures, the majority of these NFTs reinvented the nature of artwork.
In August 2021, CryptoPunks, one of the first NFT generative art projects on Ethereum, achieved $1 billion in total sales. In December, a single CryptoPunk collectable sold for $10 million, making it one of the most valuable NFT collectibles. The Bored Ape Yacht Club is another famous NFT series that has just surpassed the $1 billion mark (BAYC). These initiatives grew in popularity thanks to the active assistance and promotion of NFT influencers.
NBA star Stephen Curry, for example, paid $180,000 for a BAYC, while hip-hop artist Eminem paid $500,000. The broad NFT influencers’ group includes Reddit co-founder Alexis Ohanian and comedian Steve Harvey, as well as Mark Cuban, owner of the Dallas Mavericks. There are also a number of anonymous NFT influencers on social media, such as Artchick, EllioTrades, and Gmoney, who assist generate interest in these initiatives. Individuals, however, are not the only ones that are optimistic on NFTs.
Several large corporations are using NFTs to diversify their investing strategy. Visa, the global payments behemoth, purchased a CryptoPunk NFT for $150K in August 2021. Adidas, the well-known sports company, paid $156K for a BAYC NFT in September 2021. Furthermore, some of the most popular NFTs were sold by the approximately 300-year-old auction houses Sotheby’s and Christie’s, which had NFT sales of $100 million and $150 million, respectively.
NFT collectibles, on the other hand, are not the sole assets driving mainstream crypto acceptance among retail and institutional investors. NFT-based play-to-earn games have significantly aided the expansion of the crypto industry in 2021. Southeast Asians flocked to NFT games like Axie Infinity during the COVID-19-induced lockdowns and employment losses. Earnings from NFT gambling have assisted a large population in putting food on the table.
The above examples indicate that NFTs have evolved into a cultural phenomenon with a wide range of applications and uses. On the one hand, NFTs are used to augment people’s monthly income. NFT collectibles, on the other hand, develop as a status symbol for the rich population. As a consequence, users are increasingly using their NFTs as profile photographs (PFP) on various social media accounts to display their collections. So much so that Twitter, which has previously considered NFT verification badges, has now devised a solution on Twitter Blue.
Using blockchain technology, NFTs are exploring previously uncharted terrain of digital ownership and asset provenance. These verified virtual assets are the foundation of the growing metaverse that spans several blockchain networks. However, if NFT initiatives are to be sustainable in the long term, they must solve a number of difficulties.
Sailing in a harsh seascape
At the moment, a few NFT initiatives are displaying signals of insecurity. Developers of the hugely profitable Pudgy Penguins NFT, for example, squandered all treasury monies but failed to execute on the stated plan. As a consequence, via its decentralized governance system, the Penguins community voted out the original members.
Aside from that, NFTs feature wildly fluctuating floor prices, with speculators bidding up the price even under illiquid market circumstances. Last year, for example, a clip-art rock NFT with no specified purpose had an absurd floor price of $2.2 million. Some speculative investors have a propensity to exaggerate a price measure for no cause or explanation, which may be harmful.
This instability in the NFT industry comes as no surprise. While NFT technology and concepts are innovative, the NFT industry is still in its infancy. Things may be somewhat unsteady at this early stage of growth. However, NFT initiatives may be successful if they concentrate on three key factors: innovation, community, and ecosystem.
The most important job for every NFT project is to concentrate on original design and diverse utility for its consumers. Furthermore, the first-to-market NFT initiative will always have a competitive advantage in terms of generating value. Unfortunately, although it is simple to make copies of the original (forks), it does not necessarily convert into a successful project.
The iconic Ethereum-based CryptoPunks from Larva Labs, for example, is the inspiration for PolygonPunks on the Polygon network. Despite its popularity, many people see PolygonPunks as a “derivative collection” that may endanger purchasers’ safety. This is why, in response to a request from Larva Labs developers, the NFT marketplace OpenSea delisted PolygonPunks.
The strength of the community is the second defining feature of a successful NFT project. A truly decentralized enterprise with a close-knit community will go a long way toward ensuring its success. As proven above, the Pudgy Penguins and CryptoPunks communities are strong enough to safeguard the projects’ history. Furthermore, interoperable NFTs aid in the formation of communities across blockchain networks, hence strengthening them.
Another crucial thing to examine is the blockchain on which the NFT is hosted, since each network environment is unique. Ethereum, for example, has very high gas costs, with NFT whales controlling more than 80% of the blockchain’s NFTs. Blockchains such as Binance Smart Chain, Solana, and Tezos, on the other hand, have low gas expenses. Furthermore, many of them are carbon-neutral networks, which attracts a large number of ecologically conscientious NFT artists.
If NFT initiatives concentrate on the attributes listed above throughout the development phases, the majority of them will be successful in the long run. But how will the NFT environment look in the near future?
There is hope for NFT-based initiatives on the future
Without a doubt, 2022 will be a year of mind-boggling NFT innovation and development. As a consequence, we may witness a gradual spread of hitherto unimagined NFT application cases.
One example is the use of NFT-based financial products that include tokenized insurance, real estate, bonds, loans, and commodities. NFTs may enable new forms of collateralized lending or rent, as well as assist companies in acquiring funding. Furthermore, NFT derivatives may become quite popular this year. As a result, players may trade their in-game NFT assets such as automobiles and guns on the futures market, increasing liquidity. Furthermore, Bluechip NFT Indexes may enable new investors to engage in the most successful NFT initiatives. NFTs are also used for fundraising efforts by a number of charity groups and businesses. Although a few NFT projects currently provide the aforementioned services, they are still immature and underdeveloped. Significant advancements and diversity in common use-cases have yet to reach the public.
As the year proceeds, the value and uses of NFTs will broaden, disrupting a wide range of sectors. The success of the NFT industry, on the other hand, will be heavily reliant on how fair, transparent, and secure NFTs are. According to Game Theory, random numbers are the essential building blocks of every fair and secure system. For ordinary system operations, most blockchain networks, including most NFT protocols, rely on random numbers.
They are first employed in cryptographically produced public-private keys and digital signatures. Second, randomization in input and output programs assures that all players in NFT-based games have a fair opportunity. Finally, random numbers are essential for hash power and Proof-of-Work consensus systems.
As the NFT business grows, developers will need large collections of random numbers for their projects. However, as American mathematician Robert Coveyou put it, “the production of random numbers is too critical to leave to chance.” According to Turing Award recipient Donald Knuth, “random numbers should not be created using a technique selected at random.” To generate random numbers, rigorous study and sound science are required.
If everything goes as planned, NFTs will have a bright future.