There’s a wild new asset in town. If you still think that digital currencies are the most innovative investment vehicle on the scene, you’re going to be in for quite a surprise. But then again, if you aren’t into speculative and disruptive things, chances are you wouldn’t even be a subscriber of Edge.
NFTs, or non-fungible tokens, are a special type of “cryptographic tokens” (basically, digital assets) which represent a range of unique (tangible or non-tangible) items. Ownership is proven through the tokens, thereby preventing people from having “counterfeit” digital copies of the asset.
Each of these collectibles can always be traced back to the original issuer through a distinguished information system, that is easily verifiable.
NFTs are, as the name suggests, non-fungible, meaning they cannot be directly exchanged with one another. To better understand this concept, think of airline tickets. If you buy it under your name, you’re the only one allowed to use it for the flight. The difference? In this scenario, you can sell your plane tickets to someone else through an online ledger.
In case this isn’t already blowing your mind, let’s dive in a little further.
What Kind of NFTs Are Out There?
This concept may be complex for those who are not as… digitally inclined, so here’s an example including one of our personal favorite financial celebrities: Mark Cuban. Coming a long way from his simpler days as a tech mogul and sports team owner, Cuban is experimenting with NFTs and having a great time doing it. There is currently a bid of almost US$8000 for one of his Dogecoin tweets. Yes, you read correctly. Mark Cuban is selling a verified ownership token of a tweet.
While “assets” like a tweet need to be minted into metadata, other NFTs are a little more distinguishable, such as Cryptopunks. In 2017, “Creative Technologists” Matt Hall and John Watkinson decided to create unique cyber characters generated on the Ethereum blockchain. They limited the number of total characters to 10,000 and ensured all characters were completely unique; there are no two the same.
Interestingly enough, anyone with an Ethereum wallet could claim their own Cryptopunk for free. Once all the punks were swooped up, a thriving secondary market ensued where they proceeded to get bought and sold.
As if large banks such as JPMorgan Stanley embracing cryptocurrency isn’t groundbreaking enough, Visa has just taken a leap into the NFT craze.
The payments processor company stated that they purchased a Cryptopunk, costing them nearly US$150,000 in ethereum.
There are merely thousands of Cryptopunks in existence, making them scarce, and often very valuable.
Because Cryptopunks are NFTs, they cannot be duplicated, with originals being permanently tracked.
“We think NFTs will play an important role in the future of retail, social media, entertainment, and commerce,” says Cuy Sheffield, head of crypto at Visa, said in a blog post. “To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT.”
The purchase was facilitated by the federally chartered digital asset bank, Anchorage.
Sheffield said CryptoPunks have become a “cultural icon for the crypto community.”
“With our CryptoPunk purchase, we’re jumping in feet first,” he said. “This is just the beginning of our work in this space.”
NFTs have no intrinsic value, not unlike art. Therefore, these digital assets seem to only hold value based on how rare they are and how much the next person is willing to pay for them.
I can feel Warren Buffett staring at me disapprovingly all the way from Nebraska.
Crypto Meets Trading Cards
One of the most notable NFT launches to date is the NBA Top Shot.
This blockchain-based platform allows sports fans to buy, sell, and trade numbered renditions of officially licensed video highlights.
The National Basketball Association (NBA), the NBA Players Association, and Dapper Labs entered a joint venture to create NBA Top Shots, which releases collectibles that consist of famous highlights and sports plays. Each of these is considered an NFT and has a unique proof of ownership.
“This takes the traditional collectible into a modern, global era,” Dapper Labs CEO, Roham Gharegozlou, told The Action Network. “All markets are immediate and international. No longer do you have to wait for a card to be graded, or delivered, or fear of forgeries.”
According to Gharegozlou, Top Shot is a “revolutionary new experience in which jaw-dropping plays and unforgettable highlights become collectibles you can own forever.”
These products are often described as virtual cards that contain NBA highlights. Morphing in the principles of cryptocurrency with a futuristic sports trading card market, the NBA cuts their highlights and lets Dapper Labs decide how many copies they will print, and how they are going to sell them.
Much like regular trading cards, these highlights get bundled into “digital packs,” which sell as NFTs on the official NBA Top Shot website. The price of each pack depends on the clout of the player involved, the quality of the highlight, and how exclusive the card is.
In true NFT fashion, your purchase of a digital pack from NBA Top Shot lands in your encrypted highlight wallet, with coded proof on the blockchain that you are the sole owner of this NFT. You can showcase your collection of highlight reels or, of course, re-sell them within the Top Shot Marketplace.
Did you know? According to data from Action Network, 5 sales on the 24/7, global, peer-to-peer marketplace have been worth over US$20,000. A Lebron James highlight recently sold for upwards of US$71,000. There is even a highlight card of the Rookie of the Year Ja Morant dunking over Aron Baynes that is currently being offered for US$100,000 on the open marketplace.
A Few Key Aspects of NFTs to Take Away
To help wrap our heads around this, we decided to define a few key characteristics of NFTs. They are:
- Non-interoperable: Certain NFTs like Cryptopunks and Cryptokitties are playable on their own respective games. Trading cards such as Blockchain Heroes, or Gods Unchained, are also playable. However, these “assets” cannot be used interchangeably, and can only be used within their own respective games.
- Indivisible: NFTs, unlike Bitcoin, cannot be divisible into smaller denominations. They only exist as a whole item. You can’t own a Cryptopunk’s arm alone, you have to own the character outright.
- Indestructible: All NFT data is stored in a blockchain via smart contracts. Tokens cannot be removed, destroyed, or replicated. Token ownership is immutable, meaning collectors of these assets actually own their NFTs. This is in opposition to things such as songs or albums from iTunes, where you pay for a licensing fee to listen to the music but don’t actually own the song.
- Verifiable: As touched upon earlier, every NFT has historical ownership data stored on a blockchain. This can be traced back to the original creator, allowing them to be authenticated without third-party verification.
NFTs Aren’t as New as You May Think
Although just breaching the headlines now, the history of NFTs traces all the way back to the ancient year of 2014. People first realized they can incorporate assets into blockchain with the creation of Colored Coins. Although dismissed by true crypto enthusiasts, this led to the creation of Counterparty: a peer-to-peer financial platform that had numerous projects and assets, such as card games and meme trading. Many of these games had their own “currency tokens.”
Many other games launched on Counterparty in the following years: Spells of Genesis, More Trading Card, Force of Will, and Rare Pepes, to name a few. Each game utilized their own digital characters and currencies.
Rare Pepes is an exchange of memes featuring a frog character. These memes eventually found their way into the complex, versatile Ethereum platform. Ethereum provided the various technical standards for different types of tokens on its network to allow their interactions to flow properly.
As if the origins of these digital assets weren’t novel enough, in March of 2017, a project by the name of Peperium was announced to be a “decentralized meme marketplace and trading card game (TCG) that allowed anyone to create memes that live eternally on IPFS (InterPlanetary File System) and Ethereum.”
The Rare Pepe Meme Directory is the meme exchange which satisfies the demand of unique digital items (in this case, frog memes). In addition to existing on the blockchain, there are actual “experts” that certify the rareness of the pepe memes. It’s safe to say that there was a dedicated following for NFTs long before they showed up in the mainstream this year.
Perhaps one of the more prominent NFT releases was Cryptokitties.
Cryptokitties surfaced to the “mainstream” of crypto assets in 2017. This blockchain-based virtual game allowed users to adopt, raise, and even trade virtual cats. On a blockchain, of course. Gaining mass media attention, people were making substantial profits trading these digital animals.
Vancouver-based company Axiom Zen is to credit for the creation of Cryptokitties which, thanks to the massive 2017 bitcoin bull market, surged in popularity, and well, trading volume. People began to realize the true power of NFTs after investors (including Google Ventures and a16z) shelled out $15 million dollars for Dapper Labs, a company spun out by Axiom Zen.
Where Does It End?
Seemingly, it doesn’t. There are nearly too many different types of NFTs and notable NFT transactions to highlight within one article. For your benefit, we are going to briefly touch upon a few innovations of NFTs that we particularly enjoyed, or at least found intriguing.
- Musical artist Grimes (also, wife of Elon Musk) put up several pieces of her artwork for digital auction, netting $6 million in sales in a single day.
- Logan Paul hosted an inaugural launch in the space, selling $5 million worth of NFTs, including a limited number of rare digital Pokémon card images.
- Blockchain marketplace and gaming platform, Axie Infinity, hosted the sale of a virtual piece of land for a record breaking $1.5 million worth of Ethereum.
- An NBA TopShot video highlight, showcasing a famous Lebron James slam dunk clip, recently sold for a record $387,600.
We would love to hear your take on this fascinating new wave of asset trading, and any of your favorite transactions or NFT assets to date.
Shoot us a message on Instagram and we will be happy to share your story!