How NFT is changing the world
By: Husnain Babar, as a part of the Blockchain Article Series of The Boston Post
In October, when the Facebook and Instagram application was launched on smart devices, a small icon appeared on the bottom of the screen, “From Meta”. This is because Facebook has reinvented itself as Meta and Zuckerberg is betting the future of Facebook and social media on the Metaverse. However, Facebook does not own the Metaverse, and it does not fully exist yet. Though it has become widely accepted that the Metaverse is the future, it is widely debated whether this will be a positive or dystopian future for humanity. The phrases NFT and Cryptopunks have been trending since the beginning of this year. Many have dubbed it to be a fad and ignored its ever-growing dominant presence. NFT stands for non-fungible token. Non-fungible means irreplaceable and that there is only one of the digital assets. It initially started on the Ethereum (ETH) blockchain but is now available across different blockchain platforms. Artists from all around the world started to sell their digital art using the platform. The NFTs are not limited to just art but include pictures, videos, GIFs, and memes.
Initially, many of the headlines surrounding NFTs consisted of the outlandish pricing of the items, questioning whether spending tens of millions of dollars on something you could easily screenshot or download is worth it. The popular question appeared to be ‘Why would you pay for an NFT?’
“When humans have enough abundance, the next frontier is to create value in things that have no inherent value.” - Jonny Harris
The value that is placed in the NFTs appears to be directly linked to the human psyche of ownership. Some of the most infamous purchases include the screenshot of the first Twitter post being sold for nearly three million USD, the NYAN Cat for 600,000 USD, and Beeple’s ‘Everydays: the First 5000 Days’ at 69.3 million USD. Beeple is a popular American digital artist and the particular piece consists of a collage of 5000 original artwork by him. Since 2007 he has created one piece of art every day and he received a huge payday at the end of all this labor. This is a huge milestone for NFTs and showed the world that they are a force to be reckoned with and be taken seriously as opposed to a fad. However, the prices of the items mentioned above come nowhere near the most expensive NFTs sold.
Just like the art culture, NFTs are a collector's item with increasing value and investment. For some digital artists NFTs are contributing as an additional source of income. During his summer break, 12 year old Benyamin Ahmed made 290,000 GBP after creating a series of NFTs called Weird Whales. His father is a software developer and when his two sons Yousef and Benyamin were at five and six, he taught them coding. "It was interesting to see all of them hatch, as they appeared on my screen slowly generating," said Benyamin after using his program to make 3,350 Weird Whales.
One of the earliest NTFs released on the Ethereum blockchain is Cryptopunks dating back to 2017. They consist of 10,000 generated characters and no two are alike. In 2021, the price of the collectibles skyrocket and the pixel-based avatars have sold for millions of dollars. CryptoPunks was developed by Lava Labs and started as an experiment. At first, the creators, Matt Hall and John Watkinson considered turning them into a game or an application for smart devices. Since the 10,000-pixel characters are auto-generated, each one contains numerous different attributes. Originally inspired by the punk movement in London, now some of the most popular CryptoPunks consist of aliens, apes, and zombies.
The creators kept 1000 for themselves and put the rest out there for free.
In late August this year, the Cryptopunks hit a billion USD in total sales. Recently, CryptoPunks made headlines once again when one avatar sold for over 532 million USD. Though CryptoPunks hold value in the sense that they are like the early edition trading cards of NFTs, there was still speculation as to why it sold for half a billion USD and questioned whether it was an attempt to cover up criminal activity, or a security breach. Lava Labs was quick to explain that this was done with FlashLoans. “In a nutshell, someone bought this punk for themselves with borrowed money and repaid the loan in the same transaction. The highest price a CryptoPunk has sold legitimately is at 11.8 million. The avatar was the Covid Alien NFT.
Where do you keep NFTs and how do you buy them?
Euromoney explains that blockchain is a system of recording information in a way that makes it difficult or impossible to change, or hack. The blockchain is a digital registration of transactions that is present, visible, and copied onto all computer systems on the blockchain. NFTs are kept in the blockchain and some other similar crypto wallets such as Metamask trust wallet. Though it made its debut on the Ethereum blockchain, it is now transferable to the Solano (SOL) blockchain as well. It is not possible to buy NFT with fiat currency like the USD, and has to be bought using ETH or SOL cryptocurrencies.
In a nutshell, the demand and price can depend on the number of discord members of the NFT series, and its increasing value would depend on its uniqueness.
To buy NFTs you have to go to the particular NFT website and connect a digital wallet or blockchain wallet. Following the minting process, it will be visible in your wallet. The minting process takes approximately 24 hours and the owner can see the actual face of the NFT. To sell their NFT, the user can choose large auction websites such as OpenSea. Once the owner connects their wallet to the auction sites and puts the NFT up for sale, it will be transferred to the new owner’s wallet automatically once the transactions are completed.
Another unique factor regarding NFTs is that once they come on to a marketspace such as OpenSea, the history of when it was minted, when it was sold, to whom it was sold, and how much it was sold for previously is visible.
How are NFT prices determined?
As of the second quarter of 2021, the sales volume of NFTs were at 1.25 billion USD. At the time, it is safe to assume that even the critics who claimed that there is no inherent value in NFTs, acknowledged that they will last. In the third quarter of 2021, the sales volume of NFTs shot up more than eight fold the sales volume of the previous quarter at 10.7 billion USD.
When it comes to determining the value of NFTs several attributes come into play. Numerous celebrities and corporations have released their own NFTs. The identity of the issuer or creator does play a significant factor in determining their inherent value. For instance, Youtuber Logan Paul has made five million USD from selling 3,000 NFTs. Corporations are also jumping onto the NFT trend. Recently Disney has announced that they will be releasing their own NFTs titled Golden Moments which will include golden statues of their characters. Early November, they released NFTs for The Simpsons. Other popular characters that were included in Golden Moments include Elsa, Wall-E, Iron Man, and other characters from Pixar, Walt Disney, and Marvel.
Another determining factor in value is the rarity of the NFT. Lucky Maneki is a collection of 14,159 NFTs that were modeled after the Japanese lucky cat. Though there are many generated traits, some come with certain mutations that will make it more valuable. In regards to scarcity of NFTs there is a reason as to why the footage of NBA Top Shots were sold for hundreds of thousand dollars a piece. Similarly the CryptoPunks with more distinctive attributes are worth more as well.
Although the NFT sales that make headlines are for millions of dollars, the average price is at 120 USD.
It is accepted among the crypto community and NFT enthusiasts that even if an NFT you bought does not increase in value, it will not be decreasing from its original value either. A good determinant as to choosing which NFTs to buy would be the ‘hype’ around it. This again includes how many mainstream figures or artists promote it, and how fast it sold out when it first came out.
NFTs in Gaming
There are opposing views when it comes to NFT in the gaming industry. Regardless, it is clear that NFTs are the biggest change to the monetization of video games since micro transactions. Micro transactions or ‘freemium’ is a business model used by game developers that charge people for virtual items when the game is free to download. EA Games CEO Andrew Wilson called NFT “the future of our industry”. The play-to-earn concept that has been in fruition for the past few years. It is when players pay in cryptocurrency to play the game and collect items from within the game. The unique and collectible items can be transferred to other players or be held on to until it increases in value.
Earlier this month, Andrew Wilson informed investors that players would want to see NFTs in the popular game FIFA of EA Games. It is expected that within the next two years, numerous games will implement NFTs into their players’ gaming experience. The benefits will include players possessing more control over their skins, characters, weapons, and virtual lands according to Coinmarketcap. This means that gamers can then make money off the time they spent in the game. Overall it can make the gaming experience more vibrant and personalized for the players and it would be profitable for the developers.
The most popular play-to-earn game is Axie Infinity and players in developing countries are making a decent wage. There are free NFT Games as well, but Axie Infinity which requires at least 300 USD to start playing as of November 2021. However they have a profit sharing scheme as CoinMarketCap put it, which allows players to keep 50 to 70 percent of their earnings instead of paying the initial cost.
There are perks to NFTs being present in the gaming industry to both the gamer and the game developer. The monetization and virtual economy of games will change drastically as a result. However, many popular gaming platforms have banned blockchain and NFT from its platforms, and some game developers have called the emergence of NFTs into gaming disruptive forces.
Speculations on the future of NFTs
One of the reasons as to why NFTs make sense relates to the certification and ownership aspect of the digital asset. Until now, digital art and data on the internet was nearly replicated, screenshotted, and used and the original owner did not have much control as soon as it was uploaded to the world wide web. Similarly, fine art certification and proof of originality was also duplicated and forged. NFT provides proof and the exact traceable history of the digital asset. NFTs will revolutionize conventional art and fine art in both negative and positive aspects.
Critics of NFT often point out the environmental effects of all the electricity that is used. Many of the NFTs will not become collectors items, etc., but will profit the fine art community just the same. Using blockchain technology, the authenticity of physical art can be traced and recorded as well. Even if the hype that surrounded NFT in 2021 dies down, the technology that is being used, or is created concerning it will stick around.