Non-Fungible Tokens (NFT) - How people began to trade digital collectibles for millions of dollars (10 min read)
NFT - Non-Fungible Tokens are blockchain-signed digital collectibles with a provable record of ownership.
The most popular (at the moment) are NBA Top Shot, CryptoKitties, Aavegotchis, CryptoPunks, F1 Delta Time, Decentraland, or Hashmasks
Strategy & Tools
It’s hard to say how each NFT project got popular, but we can definitely learn from what worked to make the whole NFT space go viral.
- Aug 2017 - Decentraland, a virtual world held on blockchain raised over $26M in an ICO–in just one hour!
- Jun 2017 - the first NFT is minted - CryptoPunks. That’s a set of 10k unique tokens-avatars. There will never be more.
- Nov 28, 2017 - another NFT is minted - CryptoKitties. The set isn’t finite but there are various levels of rarity.
- Dec, 2017 - CryptoKitties already account for 11% of transactions on Ethereum.
- 2018 - a mini hype cycle leads to VC investments in NFT projects. Platforms for NFT trade are created - OpenSea, Rarible, Super Rare
- Mar 23, 2018 - a $176k - worth transaction is made on Decentraland
- Dec 2018 - CryptoKitties go viral. They regularly jam Ethereum network.
- 2019 - NFT market is of $60M size
- Dec 2019 - Nike patented CryptoKicks, NFT sneakers
- Jan 2020 - Rarible, a platform for selling NFT digital art, is released
- Feb 20, 2020 - Decentraland releases public version
- Sep 15, 2020 - F1 Delta Time is released
- Dec 2020 - 5% of Monaco Grand Prix Circuit is sold for $220k
- 2020 - NFT market surpasses $250M, that’s 4X in a year
- Late 2020 - NBA Top Shot is released. By February, someone paid $208k for a moment (digital version of sports card) with LeBron James’ play
- Feb 4, 2021 - a rare Hashmask is sold for over $1M
- Feb 19, 2021 - the original creator of Nyan Cat meme sells it’s NFT version for around $600k
- Feb 28, 2021 - NBA Top Shot has already recorded $230 million-worth sales. DJ 3LAU sold NFT album for over $3.6M and tokenized 33 other items, which generated over $11M in sales
- Mar 02, 2021 - Aavegotchis are released. 10,000 of ‘portals’ get sold in well under a minute.
- Mar 06, 2021 - Jack Dorsey, Twitter CEO, listed his first-ever tweet as NFT - it reached $2.5M bids
- Feb 25 - Mar 11, 2021 - the first NFT art auction is held online by Christie’s - One of the most famous auction house, founded in 1766.
„Everydays: The First 5000 Days”(1) by Beeple(2), a well-known digital artists who minted an NFT that combines 5,000 of his pieces is sold for over $69M
- 2021 - the market is expected to reach $180 billion in 2021
Looking at the highlights, you can see how the snowball got bigger and bigger. The most notable NFTs have been released in similar timeframes while the longer they were on the market, the more new NFTs were created.
Supply and demand
NFT markets work similarly to sports cards. There’s supply & demand - the rarer the collectible is, the higher its price might be.
Look at CryptoPunk #6965–out of 10,000 collectibles, there are only 28 apes, and it’s the only one (1/1) with a fedora! That justifies paying $1.5M for it.
Kinda – time will tell.
NFTs have an immutable history of ownership. That means it’s extremely easy to tell if the piece you’re looking at is the original or a copy. As with many blockchain-based projects, that removes the middlemen - you don't need anyone to verify the authenticity of what you’re buying. That’s especially interesting for digital art collectors.
A rising tide lifts all the boats
Both waves of NFT frenzy have been the consequence of Bitcoin (and other cryptos) reaching all-time-high prices. That’s on Nov 2017-Feb 2018 and Nov 2020-early 2021 (it’s still not over).
Another timing factor is the pandemic. It’s said that during lockdowns around the whole world, 50% of the global population spent most of the time online. That led to savings (as many people didn’t have to commute) and the rise of interest in stocks and other forms of investment. Crypto is appealing to Millennials and since Bitcoin got so expensive that it looked like a passed opportunity for latecomers, they started to look for other blockchain investments - such as NFT.
Well-known brands and influencers
Although the most expensive NFTs were mostly brands of their own, the big players have come to the party as well. There’s NBA, Formula 1, Gary Vaynerchuk, NBA players, Michael Rubin, Mark Cuban, Lindsay Lohan, and many more.
Get rich quick scheme (for some NFTs)
Seeing big sales on the network builds the hype around certain NFTs as well. Some collectibles raised to thousands of dollars in value almost overnight. Someone bought CryptoPunk #6965 for 4 ETH (around $3k) 3 years ago and sold it on Feb 19, 2021 for 800 ETH worth over $1,5M.
This is why more and more new collectors join and want to try their luck, sometimes making not necessarily wise choices. That’s especially effective as for a rather small investments, you might expect big returns.
New NFT projects rise almost everyday now, and they still get their share of the market. That’s because there’s so much buzz around digital collectibles and so much money to be spent or invested.
The most popular NFTs have large communities around them. That makes the experience more fun and engaging.
In NBA Top Shot, there are virtual queues that build the hype just as in the limited-edition sneakers or Supreme drops.
10 to 15 minutes before the drop, collectors can join the queue which randomizes their place in line.
During the wait, they can watch the platform’s Twitch official stream. People in the queue are granted in batches to “enter” the store and complete the checkout.
The demand is extremely high, considering the supply–for 10k packs available in one drop, there are over 200k collectors in line, and the number is quickly going up from drop to drop.
The Bandwagon Effect
The NFTs are getting early adopted by crypto investors and then bring more mainstream users to the community. The more popular the space gets… the more popular it gets.
The perceived value of rare items is higher than their real value. Even though for many the idea of collecting digital tokens might be hard to understand, they come for the sense of owning a rare item. The long queues for NBA Top Shot pack drops are another validator.
So many people active in the NFT space and celebrities with large following joining the hype, they create a social proof to others–that NFTs are the thing worth investing your time. Such validation is enough to invest into NFT for the first time.
Bitcoin reaching all-time-highs made crypto appear to the mainstream public. This builds the Fear of Missing Out in investing which makes people invest while it might be too late to make a decent return. Those who see it as it’s too late, looked for ‘the next big thing’ and NFTs have a lot to believe that.
90% of drivers think their skills are above the average but they are not. Overconfidence in investment makes investing seem less risky than it actually is.
Beginners seem to be especially overconfident with assessing their skills. While having less skill, it’s harder for them to recognize their own incompetence. That might be the case for many ‘meme investors’ who became interested in stocks and crypto during 2020 lockdowns.
Market immaturity is often represented by the amount of speculations but it seems that many collectors buy and hold the items for the long term. Analysts say that might provide some stability to the market and make NFTs valuable in the long term–there might be a potential for building businesses around the space. Just as paintings need frames and sports cards need sheets and albums, NFTs might need similar stuff.
Window of Opportunity
NFTs got so popular because of the right market conditions and timing, as well as a decent, visionary product. That proved to be right two times in a row, with the first and second Bitcoin price rally. The timing is often overlooked but it’s one of the key ingredients of building successful projects and businesses.