Over the past 24 months, the NFT (non-fungible token) ecosystem has exploded, turning what was once seen as a niche use of blockchain technology into something that may change the very face of society and culture. As with all things crypto, the rise of NFTs has not been a linear one, experiencing some corrective dips and dives along the way. Zoom out, however, and you’ll see that the NFT ecosystem has seen massive growth over the past two years. So much growth, in fact, that traditional investors and mainstream media outlets are beginning to pay attention.
Despite FUD, market crash predictions, and the typical doom and gloom that is often leveled against all things crypto, NFTs hype is bigger than ever. Not only is the NFT sector enabling creativity and ownership of digital assets, but it’s making people healthy amounts of money in the process.
With an increasing amount of outside attention and marketplaces, dApps, and blockchains like Cardano joining the NFT space, the relevance of NFTs is growing by the day.
While 2020 was not a quiet year for NFTs by any means, 2021 is proving to be something of a golden year, with the ecosystem tracking a meteoric trajectory.
In the first half of 2020, NFT sales were recorded at $13.7 million. Nothing to sniff at, surely. Already a multi-million dollar sector, brand new and full of untapped potential.
And the potential was well-and-truly tapped.
Over the same six-month period in 2021, NFT sales shot up to an extraordinary $2.5 billion, according to dAppRadar.
This translates into an 18,148% increase from 2020 to 2021 for the NFT market.
While a lot of industries see some exciting growth during their early years, this is unprecedented. During the mid-nineties to early noughties, for example, e-commerce saw some pretty substantial growth, Bezos still had hair, and Amazon only sold books. The NFT ecosystem, however, is proving to be one of the fastest-growing markets in history.
June, in particular, was a record-breaking month for the NFT space. The platform OpenSea, a leading NFT marketplace, recorded almost $150 million in NFT sales alone. This figure is made even more remarkable when you keep in mind that the entire NFT market made only 9% of this figure over a 6-month period. In other words, OpenSea generated 1,000% more sales value in June than the entire NFT sector put together did.
Despite fears that the NFT bubble has burst, the market is not slowing down as we move into the latter half of 2021 and beyond. The latest figures indicate that, if anything, demand is soaring yet again. With NFT games like Axie Infinity and collectibles like CryptoPunks striking a chord with investors and increasingly digital generations, the market is looking strong.
In July, NFT sales volumes totaled more than $1.2 billion in sales, according to dAppRadar. Given the first half of 2021 was a staggering $2.5 billion, generating almost half of this figure in just one month is undeniably impressive.
And it’s not just big players making up the numbers. July saw a 23% increase in users from July, meaning 1.4 million additional NFT investors and collectors entering the scene.
While for those involved in the space, NFTs represent the future of ownership, there are still many hesitant to partake. Being such a new technology, NFTs represent a challenge to traditional investing. It’s not only art collectors feeling the need to keep up either. With projects like Decentraland, we also see digital real estate become a thing, now a multi-million dollar venture. Collectors of baseball cards and valuables are also having to get their heads around the tech for fear of missing out.
Central to NFTs is blockchain technology. Blockchains are decentralized networks such as Bitcoin and Ethereum that provide tamper-proof ways to transact and keep track of virtual currencies and digital assets. Through the use of a permission-less digital ledger, the network of computers that make up the blockchain validates and records transactions utilizing smart contracts. These automatic code executions ensure ownership is immutable and transactions are secure.
While cryptocurrencies like BTC and Ether are replaceable, each carrying the same value, NFTs, as their name suggests, are non-fungible. That is, each is unique. The value of each NFT varies according to its history, previous ownership, and marketability.
While other NFT blockchains are beginning to emerge, Cardano, being a notable one, Ethereum is still the king of the space.
The most well-established NFT token is ERC-721, which resides on the Ethereum blockchain. It lacks some of the bells and whistles of other tokens but is considered by the community to be the gold standard, designed from the beginning to be used for NFTs.
The new kid on the block is Enjin’s ERC-1155 token. These tokens can act both as fungible and non-fungible assets and incorporate data that ERC-721’s can’t. They can also be bundled together under one smart contract, meaning transactions can be complete quicker and cheaper, saving on gas fees that the Ethereum network charges.
Speculation on the reasons behind the NFT market’s growth over 2020 and 2021 is rampant.
The first major project, CryptoPunks, was launched by LarvaLabs in 2017. While this kicked off the world of NFTs, it wasn’t until 2020 that things began to heat up. Prior to then, non-fungibles were something only the earliest adopters had heard of. The concepts involved were relatively unfamiliar, and the future potential required some imagination.
Over the course of 2020, the space found traction, with hundreds of thousands of NFTS traded every month.
While scarce collectibles like CryptoPunks now form a large part of the NFT space, the art scene can be at least partially given credit for its success. Over the course of 2020 and 2021, digital artists like Beeple, Fewocious, Trevor Jones, Hackatao, and Slimesunday have all flocked to the NFT space enjoying commercial success and the ability to reach a wider audience. With NFTs offering verifiable proof-of-ownership, digital art has become big business.
Also driving the success of the NFT space is investment from investors and institutions. With the likes of Visa now buying into the NFTS, digital assets have gained some credibility over the past two years, no longer seen as too-risky or untested. Owning a CryptoPunk is now a measure of success and a worthwhile investment, with some now going for upwards of $11 million.
With a rising demand for NFTs, multiple marketplaces are now available, including SuperRare, Nifty Gateway, OpenSea, as well as individual marketplaces like NBA Top Shot. With this rise in the competition came better accessibility, making the process of buying, selling, and browsing NFTs a lot easier.
Aside from adoption by artists, investors, institutions, and better platform competition, the NFT ecosystem’s success can be attributed to NFT gaming.
Leveraging NFTs, gaming companies are now able to reward players of their games with digital items that can hold actual value. This play-to-earn model has proved successful, allowing players to openly sell, buy and trade items on their game’s marketplaces. Games like Axie Infinity enable players to convert their in-game items into tokens that can then be used just like any other NFT.
The play-to-earn model is considered by many to be a valuable investment, sinking in time to reap the financial benefits.
Using Axie Infinity as an example, it has recorded $152 million in sales volume during a recent 7-day period. This involved over 140,000 individual traders completing over 440,000 sales. In July, one Axie even fetched the incredible amount of $819,000, with many others fetching hundreds of thousands too.
The model has proven especially popular in developing countries, where NFT gaming is treated as an additional income for many.
The years 2020 and 2021 will forever be considered the boom that kicked off NFTs. With a world ready and comfortable with digital ownership and stuck indoors thanks to pandemic lockdowns, NFTs soon found considerable traction.
But where next for NFTs?
The next phase for NFTs will almost certainly involve the up-and-coming DeFi space.
DeFi (decentralized finance) and NFTs are an interesting crossing-point between two aspects of crypto. One primarily focuses on the lending and yielding of currency, the other on the owning and trading of digital assets.
There are some interesting projects already attempting to merge the two different spaces, including NFTX. This project aims to allow investing in illiquid NFTs such as CryptoPunks through index funds based on tokens. Their tokenized CryptoPunk index fund, for example, is called $PUNK and allows more people to enjoy some of the upsides of these scarce assets.
DeFi and NFT integration can also be seen with NFTfi. This platform allows people to use NFTs as collaterals on crypto-loans or lend the NFT itself. Should the borrower default, the NFT or crypto-currency becomes owned by the lender.
Another area that will see growth is fractionalized NFTs. This involves collective ownership of highly valuable NFTs such as the original Doge meme through representative ERC-20 tokens. With NFT prices going through the roof, this will help keep the market liquid. Should someone wish to own a fractionalized NFT outright, they simply need to buy all of the ERC-20 tokens.
The NFT ecosystem is dynamic, challenging, and exciting. The nature of the technology means it will constantly innovate, gaining notability and widespread adoption in the years to come.