What are NFTs? ...and Future Uses

10/27/2022 11:22

NFTs — or Non-Fungible Tokens, if you're feeling formal — got a lot of people excited. Some of those people have since fallen off the other side of that, into the Trough of Disillusionment. But, others are metabolizing the short-comings and misunderstandings that came out of the initial rise of NFTs to explore their real utility. Continuing in the Gartner Hype Cycle, into the Slope of Enlightenment.

What is an NFT?

If you read Non-Fungible Token and still had no idea what that actually was, you're not alone. It essentially means that the token is unique. It cannot be exchanged for another. So, where dollars or even bitcoins are fungible, any dollar is the exact same as any other, or even 100 cents, and any bitcoin is the same as holding any other bitcoin, NFTs have unique properties.

This is why they've been used so heavily for art. The Mona Lisa is obviously different from other pieces of art, or even Mona Lisa replications. But, this was also the cause of some of the issues that burned people on the idea of NFTs.

The Rise of NFTs

Well, NFTs were actually developed a good bit (in crypto time) before their rise…so I lied to you. Back to their beginning!

The initial idea for NFTs was called 'Colored Coins' and sparked by the desire to represent real-world assets on-chain. This was conceived of for Bitcoin, but due to the limitations of the network was never realized.

Rather the first NFT, a piece called Quantum, was minted on the Namecoin blockchain by Kevin McCoy as a result of his and Anil Dash's efforts in 2014. At the time, there was not much activity around it, but the two wanted to create a way to protect creators and prove digital provenance.

Still of Kevin McCoy’s Quantum, later auctioned by Sotheby’s. Source: Yahoo News

Memes, Generative Art, and Games, oh my!

Counterparty, which runs on Bitcoin, enabled the creation of NFTs on Bitcoin. This led to a slight resurgence of NFTs, especially when they partnered with Spells of Genesis, one of the first blockchain-enabled games, in 2015.

In 2016, people started to use Counterparty to mint memes, particularly Rare Pepes. As trading of these NFTs started to pick up, another shift came when John Watkinson and Matt Hall created their own NFT project — Crypto Punks (maybe you've heard of it) — on Ethereum in 2017. This project introduced generative art as well, creating a method for the art represented by NFTs to continuously evolve.

This is also around the time that ERC721 was developed. This refers to an Ethereum Token Standard, and with the development of ERC721, NFTs became much easier to create. Following this, CryptoKitties, a generative art 'game,' hit the ground running. And, the token standard, as well as a surge in DeFi activity, cemented Ethereum's dominance as the blockchain of choice for many creators.

It's Real Art, Baby

While many were exploring NFTs as games and collectables, there was still a bit of a disconnect from their beginnings — for digital artists. While some people started playing around with this, the true landslide came when major players from the traditional art world joined the game — Christie's and Sothebys.

Namely, Christie's record-breaking sale of Beeple's Everydays: the First 500 Days for a whopping $69 million rocketed NFTs to the top of the headlines, both in and outside the crypto space. After this, there was a wave of activity as other artists and creators began to explore what NFTs could do for them.

For many, it was nothing. The art market is a hard market…and just because your art is now on-chain, doesn't mean that you'll have the type of following needed to bring in the big bucks. There were some other growing pains as well in the aftermath of this major event. Some artists saw their work 'stolen' and minted by others, and many came out against the environmental impacts of minting on Ethereum.

But, while NFTs have cooled slightly since their height, they never lost popularity. And, this moment of reflection is leading to more driven and better projects. Many of them focus on the issues that creators face, and how NFTs, along with a host of other tools, can actually solve these issues.

NFTs as Access

One thing that started springing up was the idea that NFTs could grant access. Similar to how NFTs are good for art due to their uniqueness…or scarcity, they are good for access.

While NFTs can be used as the digital equivalent of paper tickets…or even the smancier version of QR codes, they bring a new layer to this. For on-chain events, they can literally act as a key to get into certain spaces — some of which you might be able to keep, while others might require you to burn.

But, due to how entrenched in art and collectibles NFTs were since the beginning, they have carved out a space that enables them to take ticketing to a more collectible level, driven even further by innovative minds. Just look at the Bored Ape Yacht Club. Their NFTs, while in some regards a product of Internet culture, go beyond just being a great online joke. They literally give holders access to online spaces…and the tools (images) they need to flaunt that access publicly online.

But, beyond this, the great issue that NFTs solve is that they provide a communication link between creators — weather of art, events, or something else — and their fans without compromising the latter's privacy. All the creator needs to know is that x wallet holds their NFT, and they are able to drop more perks to those supporters, no ID needed.

There is ongoing innovation on both the technology, to make NFTs better vessels to hold, grow, and represent different types of experience, and creators to use this technology in a way that grants collectors real benefits. One that we're definitely keeping our eye on here at Third Academy is the idea of soulbound NFTs (courtesy of everyone’s favorite, Vitalik Buterin). These NFTs are non-transferrable, revolutionizing the idea and utility of online identity.

The Future

NFTs grew to prominence very quickly. This of course, led to some growing pains as people became familiar with the technology, what it's actually good for, and why they should, or shouldn't, use it. But now, some of the major pain points are being addressed.

This means better onboarding for creators. As a technology designed to serve them, NFTs saw some rough patches… But, many people are committed to making sure that NFTs actually solve real issues that creators have and make the process of finding, engaging, and growing their fan and collector bases easier.

On the other hand, people are building out the Metaverse….and starting to do that in meaningful ways using NFTs, not only as digital assets you can own there, but assets that will give you access to new spaces, events, and features in the Metaverse. Essentially, giving the whole space more meaning and functionality. NFTs are a major player in providing the real perks that we need to invest not just money (but also money…), but also time into these new spaces.

Have any experiences to share or want to learn more? Join our Discord to talk now, or contribute directly to the Third Academy Library by applying to be a contributor below!

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