The origins of NFTs (Non-Fungible Tokens) date back to 2014 when Kevin McCoy introduced the first NFT, Quantum, on Namecoin. NFTs started gaining widespread attention in 2017 with the introduction of the first NFT collections on the Ethereum blockchain. Thanks to Ethereum’s innate capabilities for token generation, programming, storage, and trading via smart contracts, the process became more streamlined and accessible. In that same year, Matt Hall and John Watkinson released CryptoPunks, a set of 10,000 unique punk-inspired pixelated avatars, each represented as an NFT.
Non-fungible tokens, or NFTs, are reshaping the digital economy. NFTs are a type of digital asset that lives on a blockchain. These digital assets represent something unique, typically a piece of art, music, or a collectible. But over time, their use cases have grown out of these typical representations. NFTs are now widely used in gaming, decentralized finance, and even in investing instruments.
But how did NFTs come onto the scene? Let’s explore the entire process in detail.
Non-fungible tokens are cryptographic items that exist on a blockchain. Cryptocurrencies also live on a blockchain, but they are fungible – one coin can be exchanged for or replaced by another coin, and their value will not change.
But an NFT is given a unique identification code and metadata. This information distinguishes it from any other non-fungible token. So, even if two tokens on the same blockchain look identical, they are not interchangeable.
NFTs have a very wide range of use cases, many of which are still not explored. For now, we use NFTs to tokenize real-world assets to prove ownership, such as digital collectibles, digital artwork, or financial assets on DeFi.
While many of us have heard about NFTs, only a small part of users know how this trend was launched.
The very first NFTs were introduced on the Bitcoin blockchain in 2012, and they were called coloured coins. Why Bitcoin? Ethereum hasn’t been developed yet.
Later, NFTs evolved, and coloured coins turned into something more important. For now, the name “coloured coins” is almost forgotten, but the concept laid a foundation for a much wider and much more relevant trend – NFTs.
The first non-fungible token was minted in 2014 by digital artist Kevin McCoy. This NFT was minted on the NameCoin blockchain and was called Quantum.
McCoy called this NFT “monetized graphics,” but this idea was still too much ahead of time, and the NFT wasn’t sold until many years later. This story takes an important place in the NFT timeline.
Later, Kevin McCoy sold this NFT via Sotheby for $1.47 mln. Later, multiple ownership disputes were raised because Namecoin registrations had to be renewed on a yearly basis, but Kevin McCoy failed to do it in 2015.
Later, many early collections were created. Even though they didn’t get any traction in the NFT space, they are worth mentioning.
Spells of Genesis is the first project of such a type created on top of the Bitcoin blockchain. This collection was the first blockchain trading card. Its creation marked the start of a new era in gaming development – an era when users could own their in-game assets.
These NFTs were initially traded on the Counterparty platform but later, when more platforms appeared, trades moved to other platforms, too.
Etheria was the first project created in the Ethereum ecosystem. It consisted of tradable hexagonal tiles. The Etheria NFTs stayed unsold for more than five years, and now, one pixelated octagon costs thousands of dollars.
But it is not just an NFT collection. This project is considered the first metaverse and a blockchain-based game.
Rare Pepes is another NFT collection known as the first art experiment on a blockchain. Initially, they were available on the Counterparty platform only but then, when more marketplaces evolved, these NFTs were traded there, too.
Shortly after the launch of the collection, Joe Looney created the first wallet to store the first NFTs. The wallet allowed users to store their digital art NFTs and destroy them.
When NFTs became popular in 2021, some Rare Pepes owners reconfigured their tokens to enable them to run on the Ethereum blockchain.
The very first card is the most expensive and the rarest one. It is called the Nakamoto Card, after the Bitcoin founder Satoshi Nakamoto, and there are just 300 cards of this type in the world.
The history of NFTs doesn’t end here. Now, more projects are evolving and more NFT art pieces are being created.
The following popular NFT projects are the following ones.
CryptoPunks was launched by Matt Hall and John Watkinson in 2017 as one of the first collections that represent generative art. It inspired many subsequent similar collections such as Bored Ape Yacht Club. Considering this, we can say that CryptoPunks is the collection that has impacted the NFT markets immensely.
The main feature of this NFT art is that each NFT is generated algorithmically and is 100% unique. For now, CryptoPunks are among the top traded and expensive NFT art collections, and their price may climb to millions of USD.
CryptoKitties is one of the first NFT collections built on the Ethereum blockchain by Dapper Labs. And it was the first digital art project that attracted the attention of mass media.
In the world of technology, CryptoKitties played their role, too. They inspired the ERC-721, a standard that allows building your Kitties on blockchains compatible with the Ethereum virtual machine.
The project enables you to breed, raise, and trade virtual cats each of them is unique and has a different rarity level.
Axie Infinity is one of the first blockchain-based games that use NFTs. Its popularity has grown immensely in the past years and continues growing. In the game, players breed, raise, sell, and buy Axies – creatures that are used for the game: battling, exploring, building, and other activities.
These NFTs can be exchanged, bought, and sold on NFT marketplaces, including the platform’s NFT marketplace, and bring profit to their owners.
This is the first game that gave NFT ownership to players and enabled people to earn on their gaming efforts. There is nothing surprising that now, Axie Infinity is highly valued in the NFT world.
This browser-based NFT game enables users to own, buy and sell virtual real estate. Along with land plots and buildings, everything can be sold in this digital space. Avatars, wearables, and other items – all can be traded on NFT marketplaces for profit.
Decentraland is also considered one of the earliest metaverses which increases its value.
NBA Top Shot is an NFT collection created by basketball fans to incorporate in this way the most memorable events in the life of basketball players. Thanks to the NBA brand’s popularity, this collection helped to drive mainstream recognition for blockchain technology and NFT technology.
All the NBA Top Shot collectibles can be purchased on the proprietary NFT marketplace.
This collection made generative art even more popular. Art Blocks uses scripts to generate unique works. Even though it sounds simple but the project founders take care of the quality of each generated digital art piece to provide the best generative artwork.
This project is known for cementing NFT as a pop-culture phenomenon. It is among the most valued NFT projects also money-wise. Many celebrities own Apes, and having one is considered to be cool.
Earlier, NFT art pieces were not valued as they shall be. For example, in 2019, an artist named Coldie sold an NFT for $1,000, and it was an event of such importance that collectors dubbed Codie “Kind Codie.”
Now though, things have changed. NFTs are sometimes sold for millions of dollars. So, the creations by Pak, Beeple, and a couple of other artists are known to create the most expensive NFTs that were bought for millions of dollars.
The rise in NFT sales in 2021 was incredible. NFT exchanges were flourishing, the number of NFT transactions was growing, and the popular NFT collections were available for big money.
So, the cost of one Ape has soared immensely. Initially, an NFT minted recently was worth about $300, but in 2021, the price of a Golden Ape soared to millions of dollars, in additionally to the expenses needed to mint NFTs
Many marketplaces to trade NFTs were developed, from the simplest ones, such as OpenSea, to more advanced auction options, such as Nifty Gateway.
OpenSea was launched in 2017 and is the first platform that enabled trading NFTs that live on the Ethereum blockchain. This platform supports a number of blockchains. It focuses on art, music, collectibles, trading cards, and similar types of NFTs.
OpenSea is considered a perfect platform for those who are just starting their way in the world of NFTs. But before starting using it, one shall consider that for every deal, the service charges a 2.5% commission which may be something too high if we speak about thousands of dollars.
Also, security breaches and allegations of insider trading are the details that may impact your decision to choose a marketplace.
Magic Eden was launched in 2021, and since then, it has managed to become the most popular marketplace for Solana-based non-fungible tokens. This is the right place for those who are interested in new tokens.
This marketplace was launched in 2020 and supported all popular blockchains. This marketplace is the best option for collectioners and is focused on art, collectibles, gaming, and virtual worlds.
The platform uses its token RARI which enables its holders to vote on what tokens to list and decide on how the service is going to develop.
It is a place typically used by artists to sell their works. It focuses on collectibles, art, and gaming, among other NFT types. This platform works only with Ethereum-based NFTs.
The platform charges a 10% fee for each transaction which may be an obstacle to those who are just starting their way in the NFT world.
When the crypto winter started, the NFT scene didn’t change much at first. The majority of digital assets existed on the Ethereum blockchain, the Bitcoin blockchain was abandoned by digital artists, and NFT holders were still confident in their investments.
The first half of 2022 was marked by a slow decline in the sales volume of the created NFTs but still, the market stayed strong.
But in September, the trading volume on OpenSea collapsed by 99% compared to May of the same year (from $405 mln to less than $10 mln). But even though the sales dropped, the NFT community has always been optimistic regarding NFTs.
Even though now, the NFT market is recovering slowly, we still expect a lot of volatility, and for sure, we cannot expect a sudden huge explosion in the trading volumes.
The good thing is that even with the drop in NFT trades, digital art tokens and virtual digital assets didn’t suffer the increase in visibility. They have constantly been at the center of the attention of mainstream media, and thanks to the support of celebrities, the NFT’s popularity is growing.
The history of NFTs is rich in events, but what does the future hold for digital art and other NFT types?
While we still haven’t explored the potential of NFTs and their full range of use cases, one thing stays clear: NFTs are here to stay.
And most likely, NFTs won’t be limited to the art world only. Their applications will expand far beyond art to all sectors of our lives.
NFTs seem to be perfect for copyright protection. The digital proof of ownership of each art piece or any other asset is written down on a blockchain and the tokens themselves are managed by smart contracts without human intervention.
NFTs are already applied for the tokenization of real property and other real-world assets. A huge part of the NFTs is likely to be used for it.
NFTs are an inseparable part of decentralized finance or DeFi. On DeFi platforms, users can mint financial NFTs and trade assets in a safe environment controlled by smart contracts.
Non-fungible tokens in the gaming industry deserve special attention. Since the dawn of the history of NFTs, these tokens have been used for all types of games. They laid the foundation for the popular now play-to-earn gaming model where users get rewards for their investment in a game and their gaming efforts.
In NFT news, we hear more frequently about the emergence and development of metaverses. A digital image of a user, or we call it an avatar, enables people to perform in a metaverse all the activities they usually do in real life.
The history of NFTs shows that during the entire NFT timeline, they have been extensively used to create artists and reward fellow artists for their creations. This trend is going to advance, and the above-mentioned NFTs application for copyright protection will lay the foundation for this trend.
Another major development in this sector was ownership right. An artist owns all the NFTs he has created. And even if his NFTs are sold, he receives royalties for a lifetime.
Over time, when the security, scalability, and other issues are solved, NFTs may turn into one of the major technologies behind new financial, educational, legal, and art systems. More than that, this technology has an unlimited potential to grow and expand in all walks of our life.
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Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.