Year 2021, early March: the digital artist Beeple rose to global fame by selling at Christie’s a collage of digital artworks entitled "the First 5000 Days" for over 69 million dollars. The sale set a precedent and a record for the most expensive pieces of digital art sold thus far and it was done by using NFT Technology. This event marked the beginning of a new art and investment era.
However, a few people know that NFTs have been around for much longer than that, and although 2021 became the year of the NFT, it wasn't the year of their invention.
To learn and understand exactly what NFTs are, it helps to dive a bit deeper into the history of non-fungible tokens and the events that led to them trending and gaining the popularity they have in recent years.
What Are Non-Fungible Tokens (NFTs)?
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain distinguished from each other via unique identification codes and metadata. Unlike cryptocurrencies or FIAT currencies (also known as fungible tokens) that can serve as a medium for commercial transactions, NFTs cannot be traded or exchanged at equivalency as each NFT is unique and has its own value.
NFTs are used to represent ownership of assets (mostly digital) and this concept of ownership can be applied to almost anything, from digital art to collectibles, game items, event tickets, domain names, virtual real estate, and even contract ownership records for physical assets. The introduction of NFTs made demonstrating ownership safer and easier in the digital asset space.
The beginnings of NFTs (2012 - 2016)
The primordial idea of NFTs was proposed in 2012, when Meni Rosenfield released a paper introducing the concept of "Colored Coins" for the Bitcoin blockchain.
Colored Coins were meant to represent and manage real-world assets on the blockchain and to be used as proof of ownership. Colored Coins were similar to regular Bitcoins, but with an added element called "token" determining their purpose and use, making them segregated and unique.
The concept of Colored Coins has never been realized because of the technical limitations of Bitcoin, but it did lay the foundation for the experiments that led to the invention of NFTs, like the one made by digital artist Kevin McCoy who, on May 3rd, 2014, minted the first-known NFT called "Quantum" on the Namecoin blockchain. Quantum was a digital image of a pixelated octagon that changed color and pulsated in a manner reminiscent of an octopus.
Later the Counterparty platform (Bitcoin 2.0) was established and gained ground as a platform that enabled the creation of digital assets, like Spells of Genesis that pioneered the issuing of in-game assets, followed by the Rare Pepes NFT collection, in 2016.
The Bitcoin blockchain, however, was never meant to be used as a database for tokens representing the ownership of assets; that's why soon after, when the newly established Ethereum blockchain was established, the NFTs began to shift there.
From Experiments to Mainstream (2017 - 2020)
The shift for NFTs to Ethereum was backed up with the introduction of a set of token standards meant to inform developers on how to create, issue and deploy new tokens in line with the underlying blockchain technology.
Following the success of the Rare Pepes, two software developers, John Watkinson and Matt Hall, created their own generative series of NFTs on the Ethereum blockchain, giving birth to the famous CryptoPunks collection. The experimental project, inspired by London punk culture and the cyberpunk movement, was limited to 10000 pieces, with no two characters the same, and originally offered for free.
In November 2017, the venture studio Axiom Zen introduced another NFT collection, the CryptoKitties.
CryptoKitties is a virtual game that enables players to adopt, breed and trade virtual cats, storing them in crypto wallets. The game became a viral sensation right after its announcement, becoming so popular that CryptoKitties clogged the Ethereum blockchain and people began making unbelievable profits.
The huge success of CryptoKitties started the era of NFT gaming, gathering more and more public attention. The first project to break ground in this space was Decentraland (MANA), followed by platforms and games using Enjin Coin (ENJ) and, later, Axie Infinity (AXS).
NFTs as we know them (2021)
2021 saw a huge explosion and surge in NFT supply and demand mostly driven by the huge changes that occurred in the art market when prestigious auction houses like Christie’s and Sotheby’s started taking their auctions into the online world and selling NFT art.
This led to Christie’s record-breaking sale of Beeple’s NFT we mentioned at the beginning of this article, which validated the NFT marketplace significantly giving space to new and valuable collections like the Bored Apes Yacht Club.
Towards the end of the year, once Facebook rebranded as Meta and started showing interest in the metaverse, the surge in NFT demand and especially within the metaverse was remarkable, while even other blockchains such as Cardano, Solana, Tezos and Flow, started their own versions of NFTs.
Despite some doubts, one thing remains absolutely certain, NFTs are going to become a huge part of the future of the digital world. The art market has already transformed a lot in recent years and the financial world is moving in that direction too, well aware of the endless opportunities and unlimited potential of this amazing technology.