Recently, Non Fungible Tokens (NFTs) have become all the rage in the digital collectibles world. However, the dramatic rise was soon followed by a huge drop in prices, leaving everyone wondering about the future of NFTs. What’s once been deemed as a disruptive force might as well turn out to be a fad.
A non-fungible token is a unit of data on a blockchain. Each NFT is a unique digital asset and is not interchangeable. NFTs live in the digital ledger and represent digital files such as art, audio, videos, items in video games etc.
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Below, we look at the chronology of the rise and fall of NFTs.
The origins of NFTs can be traced back to Colored Coins, made up of small bits of Bitcoin. The Colored Coins took advantage of the capabilities of Bitcoin. In a 2012 paper by Yoni Assia titled “bitcoin 2.X (aka Colored Bitcoin) — initial specs”, he mentions Colored Coins. According to him, Colored Coins are unique and identifiable from regular bitcoin transactions. But it didn’t take off because the scripting language of bitcoin was not conducive.
In 2017, John Watkinson and Matt Hall created unique characters on the Ethereum blockchain. Characters were limited to 10,000 and are unique. They called their project Cryptopunks as a homage to Cypherpunks, who experimented with the idea of cryptocurrencies in the 90s.
Project Cryptopunk helped NFT become mainstream. The introduction of Cryptokitties.com — a blockchain-based game where you can adopt, raise and trade virtual cats — furthered the popularity of NFTs. Some cats were sold for over $100,000, and it was all over the news. The launch of Cryptokitties coincided with the explosion of cryptocurrencies like bitcoin. The world started to take notice and realised the immense potential of non-fungible token. The blockchain tech had truly arrived.
The Cambrian explosion moment of NFTs soon followed. The non-fungible token ecosystem grew exponentially with the introduction of various infrastructures, marketplaces, games and collectibles.
The value of NFTs skyrocketed. Twitter CEO Jack Dorsey sold his first tweet for $2.9 million. Crypto.com launched an NFT platform to capitalise on the craze. An animated Gif of Nyan Cat fetched $500,000. Canadian musician Grimes (Tesla CEO Elon Musk’s partner) sold her digital art for over $6 million. Digital artist Beeple’s work sold for a price of $69 million, a new record for digital art. The NFT mania has sent the price of Ethereum (the main cryptocurrency used in NFT trades) soaring.
The digital world was in a trance. However, experts warned the NFTs could be the next Crypto bubble. Soon, the price of NFTs dropped by almost 70 percent.
NFTs are the prerogative of the ultrarich. In other words, NFTs are heavily propped. Since it’s not fiat money or backed by a tangible asset, the value of NFTs ride on the social contract. And once the mass hysteria around NFTs dies down, the snob value will no longer be sustainable.
According to crypto research site The Block, total NFT transactions stood at $196.4 million a week in February. NBA TopShot, an NFT trading platform, accounted for around 60 percent of the transactions. By March 28, weekly users on NBA TopShot had dropped 70 percent, leading to a 66 percent drop in overall NFT transactions, The Block found.
NFTs use the same blockchain technology and have heavy environmental costs. In a few instances, artists have refused to trade in NFTs owing to their effect on climate change.
Though the value is declining, it’s too soon to write them off as a fad since NFTs are intricately linked with cryptocurrencies.