NFTs were around before 2021 — it's just that not many people really knew about them.
As recently as last summer, the floor price of a Crypto Punk was only a little more than 1 ETH (mind you, ETH was worth a lot less in summer 2020). In summer 2021, Visa bought a Crypto Punk for $150,000. That’s a pretty big difference, to say the least.
In our NFTs in 2021 recap, CoinMarketCap Alexandria looks at some of the most interesting developments around NFTs in 2021 and previews what may be yet to come.
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The Rise of NFTs
When we think of NFTs now, we most often think of them as profile pictures on social media (picture for proof, or PFP). But how do NFTs actually work under the hood?
Put simply, NFTs are code on the blockchain that ensures a function can only be triggered a limited amount of times. Let's say we want to create, or mint, an NFT called Cute Kitties. The function determines that only 8,888 of these Cute Kitties can ever be created. If someone tries to mint an additional one, the blockchain returns an error for the transaction.
Moreover, all of these 8,888 entries on the blockchain are unique. That is what makes NFTs "non-fungible," similar to how a wallet address functions like a unique "locker" that allows you to access tokens. In this way, you can think of NFTs as unique tokens.
If you want it even simpler, here's an idiot-proof explanation:
So, is that of any practical use to anyone?
Oh, you bet.
NFTs are verifiably scarce, portable and programmable digital goods.
There will be a lot more use cases than just PFPs for NFTs in the future. An obvious one is digital art, and we'll get to that one in more detail in a moment. The art sector is a massive market for preserving and passing on wealth, and as our lives increasingly move online, art will too.
Think of virtual land in — buzzword alert — the metaverse. The same argument for value applies to NFTs. People spend more time than ever meeting their friends in cyberspace, especially after COVID keeps on popping out new variants. With everyone and their mother jumping into the development of the metaverse, NFTs could become huge for owning your own piece of virtual real estate.
NFTs can also serve for putting ownership of real-world goods on the blockchain. Think of the process you have to go through when buying a house and getting it registered in your name. The digitalization of data records will be a massive business — and expect NFTs to be in the middle of it, because they reduce inefficiencies and increase access for everyone. Not only can paper-intensive processes be streamlined, but markets will become more liquid (think of art), and professions can be rewarded more fairly (hello underpaid artists and creators).
Ok, all that sounds wonderful. However, let's go back to 2021 and its PFPs and JPEGs for a minute, because there are quite a few stories to tell here.
A $69 Million JPEG
Buying PFPs and JPEGs was the in-thing to do on Crypto Twitter in 2021. It was a true PFP and JPEG mania, but the piece that topped it all was bought at a physical auction house.
Beeple, a digital artist who goes by the real-world name of Mike Winkelmann, sold his piece The First 5,000 Days for an astonishing $69 million at Sotheby's. That made it the third-most-expensive art piece ever auctioned. The title's backstory is that Winkelmann painted a digital picture every day for 5,000 days straight before selling the whole thing this spring at the renowned London auction house. Talk about commitment. It is unclear whether he expected to fetch $69 million, but the piece obviously did go for quite a bit higher than the starting bid of $100.
Floor Prices Explode
Not all NFT collections were as expensive as Beeple's hit piece, but floor prices (the price of a collection's cheapest piece) exploded in 2021. While Crypto Punks changed hands in 2019 for anywhere between $60 and $600, the same punks traded between $600 and $3,500 in 2020. However, in 2021, those exact same Crypto Punks traded for prices between $480,000 and $1.25 million. A tidy return indeed.
According to nftpricefloor.com, the price floor on the two most important NFT collections, Crypto Punks and Bored Ape Yacht Club, is 65 ETH and 54 ETH at the time of writing. Only those two collections alone accounted for a sales volume of well over $100 million in 2021. Although NFT trading volumes collapsed after an overheated summer, the most popular collections are likely to retain their value.
The Most Important NFT Collections
Speaking of popular NFT collections, let's take a look at the ones you should know about:
The Crypto Punks are the undisputed OGs when it comes to NFTs. Incredibly, you were able to mint them for free in 2017 when Larva Labs released the collection. That kind of origin story is what earns you cultural icon status and is a big reason why many expect Crypto Punks to retain their value even when (if?) the NFT market experiences a big correction.
The Bored Ape Yacht Club is a collection of 10,000 unique apes launched in May 2021 for 0.08 ETH per NFT. The team managed to build an incredibly dedicated community with an active Discord that attracted a couple of big names. Two spin-offs of the original, the Bored Ape Kennel Club, where apes received a pet dog for free, and the Mutant Ape Yacht Club, a collection of mutated apes, were also successful, albeit not as much as the original.
Meetbits were launched by the same time that launched Crypto Punks and initially got a bit of headwind because half the collection went to Crypto Punk holders. Still, the unique 3D voxel characters are holding up well, although their floor price is at 2.6 ETH well short of that of the top dogs.
Nouns is an attempt at improving the formation of on-chain avatar communities, with each avatar being equally rare. Every day, one avatar is auctioned. As such, rarity is built into the project by design. Nouns is maybe the most unusual NFT project and generates almost no trading volume, also because its floor price sits at a hefty 55 ETH.
Loot was a project that generated an incredible amount of hype during its launch in September. Unlike most other NFT collections, it is not a PFP collection, but a text-based token that you can create around anything you wish. This deliberate ambiguity and simplicity was well-received in the crypto community. Immediately, a community formed around the project and started building utility around the text-based tokens.
Mekaverse was almost the exact opposite of Loot, as it was probably the most-anticipated NFT launch ever, generating an enormous amount of hype in the run-up. 120,000 people tried to mint one of the robots, leading to a very healthy price floor of 5 ETH right after launch. However, as so often the case, the hype did eventually not keep up with expectations, and Mekaverse saw a pretty brutal crash to a price floor of 0.69 ETH at the time of writing. You can read the full story of the Mekaverse launch in our deep dive into Mekaverse.
Stars Getting Into NFTs
It was not only normies and speculators trying to get in on the NFT game. Maybe the biggest bullish indicator was the adoption by stars — you know the FOMO is real when stars want what you want. And there are a lot of stars that either bought NFTs or launched their own collection.
In particular, the Bored Apes Yacht Club was incredibly popular among celebrities. Here's a selection with only a few of the most famous names:
Stars also quickly figured out how they could use NFTs by launching their own collections. Canadian musician Grimes sold almost $6 million worth of NFTs with artwork and animations. Snoop Dogg, an avid NFT collector that reportedly operates a highly popular Crypto Twitter account, launched his NFT collection called "A journey with the Dogg." Lindsay Lohan and Damien Hirst also hopped on the NFT bandwagon.
And last but not least, South Park picked up on the NFT mania and made their own little hit piece about it in their latest one-hour episode:
Ethereum Gas Prices Surge Because of NFTs
Unfortunately, someone always has to suffer when a new technology emerges. We're not talking about the exit scams and rug pulls that undoubtedly happened to many NFT projects, but about surging gas fees. Ethereum faced prolonged periods of record-high transaction fees this year — mainly due to launches of popular NFT projects where people tried to mint as fast as possible.
Although the EIP-1559 upgrade to Ethereum (the London Hard Fork) was supposed to slow rising gas fees, gas wars are still common. With the price of ETH rising (nice), gas fees in dollar terms can get pretty ugly for NFT mints and other smart contract interactions (not so nice). The Ethereum community has come under fire for this from various sides. Zhu Su was particularly outspoken in accusing Ethereum of having abandoned its users.
So, what are NFT collectors to do in such a dire situation?
Some are waiting for more solutions like Immutable X, a layer-two solution with zero gas fees, focused on NFT projects. Others, however, turned to alternative blockchains to get their PFP fix. Enter Solana.
Solana NFTs surge
The Solana ecosystem was the breakout star among alternative layer-one blockchains and had its own not-so-little NFT boom in the summer months:
Thanks to its virtual-zero fees and super-quick transactions, Solana is a good natural habitat for NFTs. Unsurprisingly, many projects popped up that bore many similarities with NFT projects native to Ethereum. Solana had its own apes:
And its own punks:
But there were also wildly successful native Solana NFT collections. Two of them were Galactic Geckos:
Aurory in particular is a great example of two trends that kicked off in 2021 and will probably only grow stronger in the coming years. One is Solana becoming home to "retail NFTs," targeting folks that cannot afford hundreds of dollars in gas on Ethereum. The other is GameFi.
NFTs Give Rise to Play-to-Earn and Blockchain Gaming
The biggest knock-on effect of NFTs in 2021 was, without a doubt, the emergence of play-to-earn. Aurory is an NFT collection developing an open-world desktop game where players' non-fungible tokens will function as playable characters. However, the space's biggest star is Axie Infinity, the game that sparked an avalanche of copycats trying to mimic its meteoric rise.
So, what is Axie Infinity, and why is it so consequential?
Imagine Pokémon — but being able to own and trade the Pokémon for real money and possibly even earning a living off it. That is Axie in a nutshell. Read more about how Axie Infinity works in our deep dive into AXS.
Axie Infinity is a game-changer because NFTs are a game-changer. They allow players to own their in-game assets and cash them out, giving gaming a different sense of purpose. Traditional gaming developers like Ubisoft have also picked up on this and are making their first, often crude and poorly thought-out attempts to venture into the NFT space. Expect to hear a lot more about NFTs in games in the future, not least because not everybody supports the trend. Steam, for instance, banned blockchain games from their platform.
The NFT Wrap-Up
2021 was a year of unimaginable growth for the NFT space. Can 2022 possibly top this, or are NFTs in for a rough surprise when the market corrects? Where the market will go is anyone's guess, but NFTs are here to stay. Too many influential people have become interested in the technology for it just to disappear again.
You'll hear more about NFTs in the future, including in our upcoming pieces of this festive period.
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