NFTs — the bricks in the walls of Web3
An Introduction to NFTs: Part 1
In 2021, the usage of the word NFT has been widespread across the vast landscape of the Internet. It is hard to find a young person who is unaware of this term.
Headlines of digital monkey drawings selling for millions span the articles shared on Facebook — oh-so-wild times indeed!
It is thus understandable that NFTs are often mentioned in confused breaths or statements that condemn and cast doubt on their speculative nature. As with the case for news in general, the headlines are often sensationalised, which holds especially true in this social media age. As opposed to lengthy explanations of NFT technology, flashy and possibly misleading articles are often able to attract more clicks.
Truthfully, the NFT ecosystem is something the world has never seen before. By understanding the specifics and potential of NFTs, it is easy to rebut the common misconceptions and misunderstandings about this space.
Part 1 : In the first of a three-part series aiming to provide insight into NFTs, we will provide a closer look at the NFT ecosystem, defining what they are and current public misconceptions.
Part 2: Next, we will do a dive into the endless potential that NFTs have to offer in terms of utility.
Part 3: In our final piece, we will ponder the cultural significance and rising prominence of NFTs in the digital arts scene.
A Brief History of NFTs
The first-ever NFT, Quantum, was minted by Kevin McCoy on the 3rd May 2014, as part of a presentation of putting digital art on the blockchain. He coined it “monetised graphics”, which interestingly enough, lived up to its name — subsequently selling for USD $1.472M at a Sotheby’s auction in June 2021.
Next came Cryptopunks, which launched on the Ethereum network in June 2017. It was a collection of 10,000 unique digital characters, and basically a free mint — minters only needed to pay the gas fees. From something that was essentially free, they have come a long way. At the time of writing, the lowest priced punk for sale sits at 48.95 ETH (~USD $96,284). Cryptopunks also regularly grace the catalogues of auction houses like Christie’s and Sotheby’s. Furthermore, the highest recorded sale of a punk happened only recently on the 12th of February 2022, when a rare Cryptopunk sold for 8,000 ETH (USD $15.752 million at current prices).
Cryptopunks, along with other NFTs such as Beeple’s Everydays: the First 5000 Days (Which sold for USD 69.3 Million) and later Bored Ape Yacht Club (BAYC), have been widely credited with starting the NFT craze that has transcended societal norms of art collection.
Another project to bring eyes onto NFTs is CryptoKitties. Launched in 2017, they saw a meteoric rise in popularity. Labelled as “Digital Beanie Babies”, the news was buzzing with headlines about the tremendous profits made by players and traders.
All this led up to the 2018–2021 explosion of demand and projects within the NFT ecosystem, especially on the Ethereum chain. The rise of OpenSea was supported by numerous projects springing up everyday. Since then, Ethereum has become home to renowned projects with colossal market caps such as BAYC, Azuki, and CloneX. In 2021, the Solana ecosystem where STEPN calls home began thriving. Like STEPN, the fast transaction speeds and low gas fees make the blockchain prime for numerous crypto apps.
What exactly is an NFT?
Examining the words that make up the abbreviation NFT (Non-Fungible Token) gives us a clear idea of what it actually is. Fungibility refers to something that is capable of being freely exchangeable and ultimately, indistinguishable from another part. Take for example a stack of ten $100 bills — any of these 10 bills can be used to make a payment of $100 at a restaurant, regardless of which bill is chosen.
The same goes for trading cards with 1,000 exact copies printed. These items are fungible. Non-fungible items, on the other hand, are unique, cannot be replicated and are distinguishable from one another. For example, there will only ever exist one true copy of the Mona Lisa. Even if replicas existed, nobody in their right mind would trade the true copy for it. The same goes for 1/1 trading cards, or assets like houses and cars. So how do NFTs support this line of thought?
NFTs are digital data stored on a blockchain. By being on the blockchain, NFTs are verified and tamper-proof.
Metadata such as images or specific traits may be attached to the token. So, while two STEPN shoes may look the exact same and have the same stats, they are separate assets precisely because they have a different token address and a code unique to each.
When you are buying an NFT, you are buying the code behind the JPEG. Often, however, there is much more than just a pretty picture. NFTs can be used in an incredible variety of ways. This is also known as utility — essentially, the use case of NFTs.
NFT use cases
Just like STEPN, NFTs can be used as crypto-assets in web3 apps and games. Interestingly, blockchain technology means that NFTs can be transferred and used between games that support them. For example, some NFTs are designed to be cross-game assets to be used in multiple games. Coming with different stats like power and velocity, it is up to the game developers to decide how they want to integrate these NFTs.
Also, NFT mints by tech companies can double up as seed funding rounds. This way, it is possible to reward early investors by token emissions from the NFT. Tokens may be used to pay for the company’s services or products, thus driving its demand.
Utility projects also include metaverses, where your NFT could be virtual property or playable avatars. Projects add utility to their tokens by finding use cases for them, such as the marketplace integration to purchase NFTs. Shredded. Some have introduced e-commerce platforms which accept discounted payments in tokens.
NFTs also offer tremendous potential for creatives and makers. A whole new world of 1/1 Art is thriving, with plenty of artists building a loyal fanbase here. Musicians are putting their music on the blockchain, such as Daramola’s Supply Chain project. NFTs allow creators to bypass the middleman and offer their content on their own terms, without having to absorb exorbitant fees.
The community aspect of NFTs is also deeply under-valued. Decentralised Autonomous Organizations (DAOs) may require holding a certain NFT to get in. They may be where people exchange valuable fresh information, or network to gain a solid footing within the space. At higher levels, holders stand to rub shoulders with influential people. Bored Ape Yacht Club holders can proudly assert being in the same community like Justin Bieber and Paris Hilton.
It is clear that the actual use cases for NFTs are plenty, far more than mere JPEGs. As long as people innovate, new forms of utility will continue to be regularly introduced.
First, we must acknowledge that when it comes to NFTs, there is a potential bubble waiting to burst. The market is filled with euphoria, where empty-vessel projects are a dime a dozen. With this enters a lot of speculative money hoping to become the next “crypto millionaire”, but when unforeseen events happen and the optimism turns to fear, volatility follows. We will often hear wise traders advising investing in projects that add actual real-world value, which rely less on fickle market sentiment to do well.
The next point is that these projects (that have actual value) do exist. NFTs may be broadly categorised into high-level collectibles, utility-based projects, or both. All of them provide value in two different forms.
Collectables like Bored Ape Yacht Club in their earlier days and Okay Bears provide little utility with their NFTs. Yet, they enjoy a strong position at the top of the ETH and SOL NFT ecosystem, commanding tremendous volume and valuation. Branding and culture driven projects are often credited for being the ones that breakthrough into the mainstream, achieving viral brand recognition through billboard ads in bustling cities.
On the flip side, the utility that NFT technology provides is a technological revolution. Moving forward, we may see things like identity and travel documents, or even property deeds becoming NFTs. Unforgeable, tamper-proof, instantly updated documents solve a lot of modern-day problems.
Essentially, NFTs open a whole new world for humankind; our next frontier of progress. The technology is already here, it is up to us to innovate and re-shape the parameters of what is possible.
NFTs are indeed a potentially revolutionary innovation and the world has barely scratched the surface of the utility that it brings to civilisation as a whole. A major barrier to mainstream adoption is the general misunderstanding surrounding it. The responsibility of showing the full potential of NFTs to the world thus falls on crypto-natives.
We will continue to strive through our initiative Realms to broad base the ecosystem to as many users as possible via the introduction of new games into the STEPN verse.
STEPN recognises this, being in a position where Web3 newbies make up a healthy part of the player base. By offering a simple and straightforward onboarding process, the team aims to enable as many people as possible to join in, and take their first step into Web3.