In 2021, Bitcoin more than doubled its previous all-time high price, the ETH ecosystem grew, institutional investors jumped into cryptocurrencies, and Dogecoin somehow became a major buzzword.
But what everyone couldn’t stop talking about, surprisingly, was JPEG.
The previous year, NFTs held a special place. Currently, they are a mainstream phenomenon. Over the course of 12 months, not just has the term permeated the wider culture and made digital asset ownership a more recognizable concept, but the industry has grown to billions of dollars in monthly trades as well.
Numerous people feel strongly about NFTs, and that goes both ways. Whether it’s pleasure, displeasure, or a bit of FOMO, NFTs are both intensely loved and hated. Depending on whom you ask, they are either the future of ownership or only a big cynical and environmentally disastrous scam.
Finally, what is an NFT? Contrary to popular belief, an NFT is not a JPEG. It’s not a profile picture of a disinterested ape or a pixelated face, a sports star turned into a digital collectible, or a cartoonish monster fighting on your behalf in a video game. These are all things that an NFT can represent.
The NFT, itself, is importantly a blockchain-based token which confirms you are the only owner of that unique digital item – whatever it may be. Smart contracts, or the code that powers NFTs, make it possible to sell or transfer NFTs, assign permanent royalties for artists, use assets within games and metaverse, and more.
Gradually, next suddenly
Previously in 2021, it was sports and celebrities which helped drive NFTs from a niche market to a real phenomenon. Dapper Labs’ NBA Top Shot alone generated over $200 M in monthly trading volume in both February and March – over the whole NFT market generated during 2020.
Celebrities and artists made waves in the NFT space earlier in the current year as well, whether it was Grimes or Rob Gronkowski, or crypto-centric creators such as Pak and 3LAU. But it was digital artist Beeple who put an exclamation mark on the NFT boom earlier in the year with his $69.3 M sale of a single NFT at Christie’s auction in early March.
In the near future, this may be the case for an early NFT boom: a sign in which the frenzy has outstripped the real appetite in the market. Top Shot sales started decreasing, and more and more well-known celebrity drops failed to generate notable returns. Many were amazed if the NFT boom was just a short-lived fad.
In total, the market made $2.5 billion worth of trades in the first half of 2021, split roughly evenly between quarters — but the first quarter’s buzz gave way to a muted late spring and early summer. The free fall of the crypto market itself didn’t help. But as crypto prices surged in July, the NFT market rocketed to new highs in August.
Now, the leading NFT marketplace, OpenSea grew from $150 M worth of ETH trading volume in June to $329 M in July and after that $3.4 billion in August. And this time, it was more original, fully crypt-native projects which scaled the leap, showcasing the potential for creativity, community, and functional utility with digital assets.
The BAYC passed the baton from the O.G. CryptoPunks, treating its NFT profile pictures as an all-access pass to a unique club full of privileges, and providing holders the right to commercialize the pictures. ArtBlocks used Ethereum’s own blockchain to generate algorithmic artwork, just like EulerBeats did with music.
Meantime, Axie Infinity showed the huge potential for NFTs in video games, rapidly becoming the biggest NFT project to date as millions of players purchased and battled with cartoonish, Poke’mon-6 monsters. Some even made a living from it. Another project, called Loot, started with NFT lists of fantasy products. Presently, the decentralized community which developing gaming experiences around the NFTs.
And as the Metaverse develops, immersive worlds such as The Sandbox and Decentraland show the expanding digital frontier, providing ownership of virtual land which can be customized, shared, and also monetized. It’s an NFT space, and if ambitious Metaverse plans from Facebook and others come to fruition, we may all be living in it sooner rather than later.
Buzz & backlash
With $10.67 billion in Q3 trading volume and an estimated $22 billion now year-to-date, the NFT market is booming, according to DappRadar data. It seems to be maturing, as well, as additional use cases emerge amid a broader shift towards NFTs with utility. NFTs are considered an essential building block for Web3 – that is to say, the keys to the metaverse.
All this time, NFTs have helped people become familiar with digital currencies and blockchain tech. Many of them are colorful and attractive, and are tied to the artwork and culture which people already love. Though onboarding and usability are so much works in progress, NFTs have made crypto more accessible. As Alex Svanevik, CEO of Nansen, stated in September, “DeFi has brought the capital into cryptocurrencies, and NFTs are bringing the people into cryptocurrencies.”
But NFTs have trouble understanding. Definitely, it’s confusing for many of us to see someone spend millions of dollars on a Twitter avatar. But this is only the tip of the iceberg for obstacles which the market must slowly overcome.
Ethereum’s environmental impacts continues to dominate the narrative around NFTs, even for collectibles and assets mined on lower-energy-intensive blockchain platforms (such as Solana), plus scams and abuses continue to flourish in the crypto industry.
Strong criticism of NFTs is common on social media, and companies and projects which want to discover the space often encounter backlash. Nevertheless, as recently shown by McDonald’s and Budweiser, this has not largely stopped big brands. Marketers claim the Budverse is coming — but so is the Tinderverse, and White Castle’s Sliderverse.
Even the earliest and most popular NFT proponents probably could not have predicted such an explosive year for digital token collectibles. However, will the madness continue?
Some in the space think that the bulk of NFTs cannot sustain such value over the long term. Even famed NFT collector and creator Gary Vaynerchuk has warned of a “NFT winter” market retreat, telling Decrypt that he thinks just select “blue chip” projects will thrive.
If NFTs are indeed the building blocks of the next-generation Internet, they may finally become quite trivial. To the chagrin of present skeptics, NFTs could soon become ubiquitous, and represent ownership of every latest thing in our digital lives.
We might gradually not even call them NFTs. We might not even think about it. They will no longer be special, they will just be. By the way, when was the last time you used your digital music storage as your MP3 collection?
But in 2021, NFTs were wild, new, confusing, and enticing. Heading into 2022, we are still in the midst of madness.
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