They can be as elaborate or as simplistic as you can imagine - and they might just turn you into the world’s third most expensive living artist. NFTs have taken the cryptocurrency landscape by storm, and although they may lack the physical presence of more traditional artworks, their digital nature may well make them even more practical than we could ever imagine art to be.
Recently, NFTs - or non-fungible tokens to give their full name - have been taking off in a very real way. So much so that one work of art, Everydays - The First 5000 Days by artist Mike Winkelmann, recently sold at Christie’s auction house for $69,000,000 - positioning Winkelmann in 3rd place among the world’s most valuable living artists.
Although critics point to the lack of a physical product as a key reason why NFTs are nothing more than a fad, their digital nature is paving the way for a greater level of practicality for the artworks and collectibles. As a result, non-fungible tokens are paving the way for a new era of functional assets.
But before we take a look at how NFTs are blending practicality with art and collectibles, let’s first cover what it actually means:
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What are NFTs?
Non-fungible tokens refer to assets that are unique and that can’t be replaced with something else. For instance, Bitcoin is fungible because you can trade one Bitcoin for another and you’ll end up with the exact same thing. However, a work of art, or a one-of-a-kind collectible trading card, is non-fungible - because if you trade it you’ll end up with something different.
Most NFTs are part of the Ethereum blockchain. Although Ethereum is best associated with the world of cryptocurrency, its blockchain framework can support non-fungible tokens, which store added information that makes them work differently from a typical cryptocurrency coin, for instance.
Although the Ethereum blockchain is a popular place to host NFTs, it’s worth noting that other blockchains are capable of implementing their own non-fungible tokens, and some already have.
Significantly, an NFT conveys ownership of property digitally. This property could be entirely online - like virtual real estate, a collectible, a piece of art or an outfit in a video game. It may also be physically real, like actual real estate, a painting or a ticket to an event. Because it’s stored on a blockchain, an NFT comes with a smart contract confirming your ownership of the asset.
Interest in NFTs exploded in early 2021, with sales volume rocketing towards $100 million in February and March.
More versatile than traditional art
There’s a lot to be said about the longer-term sustainability of the NFTs we’re seeing become prevalent today. Although paintings are incredibly fragile, they can’t be lost in a wallet that you forget your password to, and they won’t become obsolete when new file formats take over. However, there’s much to be made of the potential use cases of NFT art and collectibles.
In fact, the most fascinating part of NFTs comes from how it can be used in gaming and entertainment. For instance, there are already games playable today that offer NFTs as items. Users could buy outfirst for their avatar, in-game accessories, or unique add-ons via the non-fungible tokens the game supports.
One game that’s built on NFTs is Axie Infinity, which is a decentralized strategy game in which users collect, breed and trade creatures called axies.
Created as a knowing nod to the Pokemon Nintendo Gameboy games of yesteryear, the game revolves around managing your axies and doing battle with them against other creatures known as chimera.
Every axie you collect, breed and trade are actually NFTs, and each one has its own attributes revolving around health, morale, speed and skill - which help to define their role in battle. Players can use love potions to breed axies to boost their NFT base and can be either won in battle or purchased on decentralized exchanges like Uniswap.
Significantly, axies, love potions and other NFTs can be sold in the in-app NFT market or via other popular marketplaces like OpenSea. While this may sound like an appealing way to earn a little bit of money as you play, it’s worth noting that Axie Infinity saw one user sell nine plots of digital land for $1.5 million in their virtual space.
The game is growing exponentially, too - with up to 5,000 new users arriving on a weekly basis. Weekly transaction volumes are also reaching $1.8 million.
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Collectibles with a purpose
Non-fungible tokens are also revolutionizing how we use collectibles like trading cards. Soccer-based game, Sorare, has combined the concepts of trading cards and fantasy football to enable players to buy and trade the digital cards of players before placing them in a 5-a-side team and scoring points based on their real-life performance.
Player cards are based on scarcity, and each real-world season sees the release of rare players (based on a scarcity of 100 cards produced), super rare (scarcity of 10), and unique (one card produced). Depending on the rarity of the cards you use, real-world performance scores can be multiplied by a predetermined percentage.
High-scoring players then receive rewards in the form of card prize draws and ETH - adding tangible rewards to the art of collecting your favorite players.
Having raised $530 million in funding so far, Sorare is an NFT game with a lot of admirers. Having recently struck a partnership with gaming giants Ubisoft, there’s plenty more potential for the platform to play host to even more gaming integration and further use cases for cards.
Growth alongside adoption
The concept of NFTs has been a little hard to digest for some onlookers who aren’t acquainted with the world of blockchain and cryptocurrency.
However, with evidence of more retail investors emerging from the Covid-19 pandemic with greater financial windfall through government stimulus packages, we’re seeing more users familiarising themselves with crypto and its applications.
“People in the US traded about 90 percent more stocks than the week before they received their stimulation funds,” said Maxim Manturov, head of investment research at Freedom Finance Europe. “Finally, a survey by Deutsche Bank, which included 430 retail investors, showed that the respondents were going to invest, on average, 37 percent of all their stimulation money into stocks. Goldman Sachs recently raised its expectations for stock demand by retail investors in 2021, from $100B to $350B.”
Figures published by Robinhood at the start of 2021 clearly show the sheer volume of retail investors arriving onto the cryptocurrency marketplace - with the number of new cryptocurrency traders on the app reaching an average of over three million per month across January and February.
With greater understanding of cryptocurrency, we’re likely to see more arrivals onto the NFT landscape.
Built on the rare concept of art and collectibles that can come with a more practical purpose than their physical counterparts, we may see a whole new genre of gaming and collecting emerge from the 2021 NFT boom.
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Dmytro Spilka, writer