Every now and then, the cryptocurrency industry gets a new buzz to rage about. Last year, Bitcoin and several other large-cap cryptocurrencies delivered stellar returns as institutional investment jumped, and many looked to avoid a wipeout from the coronavirus.
The same year saw the explosion in decentralized finance (DeFi). People raced to several DeFi protocols, pouring billions of dollars into these services as they hoped to cash in on that craze as well.
While many of these top trends continue to perform at impressive levels going into the third month of 2021, one space has been especially breaking bounds and doing numbers - non-fungible tokens (NFTs).
NFTs have actually been around for a while. They’ve been growing in value, but their rise has usually been obscure compared to the traditional crypto space. This year, however, their numbers have been more than impressive. So, it is worth understanding what NFTs are and why they’ve become so hot.
Understanding NFTs and How They Work
Essentially, an NFT is a digital asset that represents several unique intangible and tangible assets. NFTs can be used to represent a myriad of things, from real estate to gaming assets and sports cards.
One of the primary benefits of owning an NFT is that each unit contains information that makes it easily verifiable and distinct from other types of NFTs. Since an original NFT user can track his token, it is pointless to fake or create counterfeits of the assets. So, on their own, NFTs eliminate problems like fraud or double-spending.
It’s worth noting that unlike regular cryptocurrencies, it’s impossible to spend NFTs. You also can’t exchange one for another since no two NFTs are identical. In fact, even NFTs that are hosted on the same platform or game are different. Think of NFTs like tickets to a concert - each ticket contains your information and allows you to enter the venue easily. So, you can’t trade your ticket for someone else’s because you’ll be found out and denied entrance.
Most of the NFTs available today were developed on the Ethereum blockchain. You’ll find that they are mostly either ERC-1155 or ERC-721 tokens. Ethereum created these token standards to allow software developers to easily deploy their tokens and access compatibility with the broader Ethereum ecosystem.
Several other blockchains - including TRON and EOS - have also released their token standards. They actively recommend that developers migrate to their platforms to enjoy easy access and scalability.
Their Distinct Importance to the Crypto Space
NFTs have become especially popular among cryptocurrency users over the past few years. Official data shows that over $170 million has been spent on these assets since 2017.
Thanks to their blockchain integration, NFTs can help collectors and gamers own unique assets and make money. In some cases, game players can even develop and monetize their structures - including theme parks and casinos - in virtual worlds. They can also sell individual items that they get while playing these games - such as native currencies, avatars, costumes, and much more.
For artists, the ability to sell their work in digital form to a global audience of customers without going through galleries and auction houses helps them optimize their earnings. Artists can also program their royalties into digital artwork to ensure that they get percentages of sales profits whenever their work is sold to someone else.
NFTs Could Grow Even More
Some sources also believe that NFTs could grow significantly over the next year. In a recent report, Canadian analytics firm NonFungible forecasted that 2021 would be poised for a fresh bull market in the NFT space.
Per the report, the second half of 2020 saw a 200 percent increase in NFT sales, marking $9 million in total revenues. However, sales have skyrocketed this year, with eight figures already recorded. Several hot NFTs have seen their values skyrocket, with many of them gaining over $1 million in net sales this month alone.
Just this week, a collectible in the famous Cryptopunk series fetched 500 ETH (over $1 million) in sales. Three days before that, another Cryptopunk piece sold for 800 ETH ($1.55 million when the sale went down), while another sold for 650 ETH before then.
Project-based NFTs now have a market cap worth over $300 million. Mason Nystrom, a market research analyst at Messari, believes that this figure could hit over $1.3 billion before the year closes.
As Nystrom noted, the art industry has increasingly embraced NFTs, with over $120 million in sales up until December 2020. With NFTs also showing significant potential in collectibles and gaming and the expected launch of several critical infrastructures, this year could see the NFT industry grow at tremendous rates.
So far, the NBA is perhaps the most prominent organization to dabble in NFTs. It has a long-standing partnership with Dapper Labs, the creators of the famous CryptoKitties game. Both have released collectible NFTs in the form of NBA Top Shot moments, and these tokens are moving significant sales.
With more adoption, nothing stops the NFT craze from taking over.