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Contributed by this article Felix Zoo, co-founder of ARPA and Bella Protocol.
Non-Fungible Tokens (NFTs) embarked on a spectacular journey in 2021, unveiling one of the most significant episodes in the history of emerging decentralized industries. NFT trading volume was $ 2.5 billion in June 2021. It increased tenfold in the next six months, with total NFT sales reaching $ 23 billion by December 2021. In contrast, the total NFT trading volume for 2020 was only $ 100 million.
To understand the extraordinary success story of NFTs, we need to chart their course over the last year. This article will take a chronological approach to explain the NFT craze and what lies ahead of us.
Laid the foundation
Cryptocurrency historians often discuss whether a single event has led to an explosion of NFTs in the crypto domain. While there is no definitive answer, Beeple’s F 69 million sale of NFT art caused a huge stir in the global market. With headlines drawing attention in newspapers and web portals, people saw a sudden surge in NFT projects. Moreover, most of these NFTs redefined the nature of artwork with their limited range of algorithmically generated collections.
CryptoPunks, one of the earliest NFT-generated art projects on Ethereum, surpassed વેચા 1 billion in total sales in August 2021. The single CryptoPunk collection sold for $ 10 million in December, making it one of the most expensive NFT collections. Another popular NFT series that has recently crossed the 1 billion mark is the Board App Yacht Club (BAYC). These projects became very popular with the active support and promotion of NFT influencers.
For example, NBA player Stephen Curry bought a BAYC for $ 180K while hip-hop sensation Eminem bought another BAYC for $ 500K. The community of various NFT influencers ranges from Reddit co-founder Alexis Ohanian and comedian Steve Harvey to Dallas Mavericks owner Mark Cuban. There are also many anonymous NFT influencers on social media such as Artchick, Elliotrades And Gmoney, Who help increase interest in the project. But it’s not just individuals who are feeling the pinch about NFTs.
Some mainstream companies are adopting NFTs to diversify their investment strategies. Global payment company Visa bought the CryptoPunk NFT in August 2021 for K 150K. Adidas, a popular sports brand, bought the BAYC NFT in September 2021 for 156K. In addition, some of the most popular NFTs from the nearly 300-year-old auction houses Sotheby’s and Christie’s sold, recording NFT sales of $ 100 million and $ 150 million, respectively.
However, NFT consolidation is not the only asset for retail and institutional investors to adopt mainstream crypto. NFT-based play-to-earn games have contributed significantly to the growth of the crypto sector in 2021. Amid COVID-19-inspired lockdowns and job losses, people in Southeast Asia turned to NFT games like Axie Infinity. Earnings from NFT gaming have helped bring a larger population to the table.
The examples cited above show that NFTs have become a cultural phenomenon with a variety of use cases and utilities. On the one hand, people use NFTs to supplement their monthly income. But on the other hand, NFT consolidation is emerging as a status symbol for the affluent population. As a result, people are now placing their NFTs as Profile Pictures (PFPs) on various social media handles to display their collection. That’s because Twitter, which has already considered the NFT verification badge, has now come up with a solution on Twitter Blue.
NFTs are unlocking the hitherto explored territory of digital ownership and asset provenance using blockchain technology. These verifiable virtual assets are key components of emerging metavers across multiple blockchain networks. However, NFT projects need to solve some problems if they want to sustain themselves in the long run.
Sailing through the chopped landscape
Currently, a handful of NFT projects are showing signs of volatility. For example, the developers of the highly successful Pudgy Penguins NFT spent all the Treasury funds but failed to deliver on the promised roadmap. As a result, the penguin community has voted for its founding members through its decentralized governance structure.
Other than that, NFTs have crazy floor price fluctuations, with speculators raising prices even in liquid market conditions. Last year, for example, the floor value of a clip-art rock NFT without any special utility was 2.2 million. This tendency of some speculative investors to hype price metrics without reason and logic can be detrimental.
This upheaval in the NFT market is not very surprising. While the technology and concept of NFTs is revolutionary, the NFT field is still in its infancy. At such an early stage of development, things can be very volatile. But NFT projects can be successful if they focus on three essential factors: innovation, community and ecosystem.
The most crucial task for any NFT project is to focus on innovative designs and varied utilities for its users. Moreover, the first-to-market NFT project will always be ahead of other competitive projects in generating value. Unfortunately, while it is easy to make copies of the original (fork), it does not always translate into a successful project.
For example, the legendary etherium-based cryptopunx from Larva Labs is the inspiration behind the polygonponx living on the polygon blockchain. Although PolygonPunks is very successful, many consider it a ‘derivative collection’ that can compromise buyers’ safety. This is why the NFT marketplace OpenSea removed PolygonPunks at the request of the developers of Larva Labs.
Another characteristic of a good NFT project is how strong the community is. A truly decentralized project with a well-knit community goes a long way in making it a success. As noted above, the Pudgy Penguins and CryptoPunks communities are strong enough to preserve the project’s heritage. Moreover, interoperable NFTs help strengthen communities in blockchain networks.
Another important factor to consider is the blockchain on which NFT resides, as each network ecosystem is different. Ethereum, for example, has very high gas fees, accounting for more than 80% of NFT whale blockchain NFT. Blockchains like Binance Smart Chain, Solana and Tezos, on the other hand, have negligible gas fees. Moreover, many of them are carbon-neutral networks, attracting environmentally conscious NFT artists.
If NFT projects focus on the above qualities during the development phase, most of them will last for a long time. But what will the NFT landscape look like in the near future?
There is hope on the horizon for NFT-based projects
Undoubtedly, 2022 will be the year of innovation and growth in the NFT space. As a result, we can see an ever-increasing proliferation of previously unimaginable cases of NFT use.
One such use could be through NFT-based financial instruments with tokenized insurance, real estate, bonds, debts and commodities. NFTs can open up new avenues of collateralized lending or leasing and help raise capital for startups. In addition, NFT derivatives could be very popular this year. Therefore, gamers can trade their in-game NFT assets such as cars and weapons in the derivatives market, leading to greater liquidity. In addition, the Bluechip NFT Index may allow new investors to participate in the most successful NFT projects. Some charities and companies are also using NFTs for fundraising campaigns. Although few NFT projects currently provide the services mentioned earlier, they remain immature and underdeveloped. Significant innovations and further diversification in everyday use cases are yet to reach the masses.
As the years go by, the value and application of NFTs will diversify and thus disrupt different industries. However, the success of the NFT sector will largely depend on how fair, transparent and secure the NFTs are. Game theory proves that random numbers are the basic building blocks of any fair and secure system. Most blockchain networks, including most NFT protocols, rely on random numbers for their regular system operation.
First, it is used in cryptographically generated public-private keys and digital signatures. Second, randomness in input and output programs ensures the right opportunity for all participants in NFT-based games. Third, random numbers are crucial in hash power and proof-of-work consensus protocols.
With the expansion of the NFT industry, developers will need a huge set of random numbers for their projects. But as the American mathematician Robert Covey said, “Generation of random numbers is very important to leave for chance.” thus, “Random numbers should not be generated at random by the method chosen.” According to Turing Award winner Donald Knuth. Hard research and solid science are crucial to obtaining random numbers.
If all goes well, the NFTs are ready for the bright future ahead.
Felix Zhou is a co-founder of ARPA and the Bella Protocol.
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