Non-Fungible Tokens - NFT 101 - Why People are Spending Millions of Dollars for Crypto Art and Digital Items

Non-Fungible Tokens – NFT 101 – Why People are Spending Millions of Dollars for Crypto Art and Digital Items

 

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This article gives an overview of Non-fungible tokens and lumps all categories of NFTs — from games to art and metaverses — together. Succeeding articles will look at NFT platforms and categories, and the NFT phenomenon in the Philippines.

My Introduction to NFTs

In 2019, I first heard about NBA Top Shot, now a blockchain-based platform where users can buy and sell NBA moments. (Think NBA player cards but this time, a particular highlight in the NBA, such as a Luka Doncic assist or a Lebron James dunk). 

I have been registered in Top Shot for a long time but took the plunge this year. An industry colleague did so before me. He purchased a pack for $9. He opened it and sold some of the “player moments” in the pack for $100 to $500 each. This depends on the player and the moment’s serial number. Think of a “moment” just like as you would an NBA player card:

  • The moment is the NBA player card.
  • The serial number is just like the serial numbers in cards: the higher, the better. 

I first heard about Axie Infinity in 2018, learned more about it in 2020, and found out that many people are playing this game to earn money and survive the loss of jobs and income because of the pandemic. A player buys 3 Axies — and there are no two Axies alike — and plays to win battles. This is Axie Infinity’s basic gameplay. Future forms of gameplay will involve the utilization of “lands” or virtual real estates.

A player can easily earn Php 400 per day playing Axie Infinity. Because there is “real” money in this game, good Axies are being sold at incredibly high prices. No two Axies are the same. The most highly coveted ones — the Mystic Axies — so-called because they have Mystic parts that normal Axies do not have, are sold for millions of dollars in ETH.

Beeple, a digital artist famous for, among other things, creating one piece of digital art per day, has recently made history by having one of his works auctioned at Christie’s, an auction house in New York and London and founded in 1766. This is the first time the legendary auction house, built before the United States became a country, will auction a digital piece of art with no physical representation. As of March 1, 2021, the highest bid is at $3 million. The starting bid was $100. There’s nothing more legit than Christie’s, one person told me.

Beeple’s “EVERYDAYS: THE FIRST 5000 DAYS” auctioned at Christie’s, a legendary auction house

A video of Lebron James’ dunk is all over the internet, and you can download a video to forever save that moment in your collection. I can download an image of digital art and put it on my phone. I can transfer my Charizard to a friend in many Pokemon games, but that Charizard, via some cheat tools, can be duplicated. Try going to a tournament with your fake Charizard. 

What made it possible for NBA Top Shot to sell moments, Axie Infinity to sell Axies, and artists to sell thousands of dollars for something that is, in its raw essence, a digital file, is because the files are Non-Fungible tokens.

Fungi-What? What is an NFT?

Non – Not

Fungible – Interchangeable

Non-Fungible Tokens or NFTs are a distinct, unique, and easily verifiable type of digital items that can represent digital items that range from, among several things:

  • Digital art by an artist on Rarible or MakersPlace
  • A virtual real estate on Sandbox, Decentraland, or Axie Infinity
  • An in-game creature on Axie Infinity
  • A digital football trading card on Sorare 
  • A “moment” in NBA history on NBA Top Shot

NFTs are Unique

Because NFTs are unique, no two NFTs are the same. In Axie Infinity, no two Axies are the same even if they have the same move set. 

In NBA Top Shot, a particular moment (think “card”) will have a different serial number. Take a look at this Zion Williamson Dunk. The higher the serial number, the higher the price it goes for sale. No two Zion Williamson “moments” are the same. A card with a serial number the same as the player’s jersey could also be highly valuable.

Because it is non-fungible, you can prove provenance. Meaning, you can verify who owns what NFT, who issues what NFT, and so on. 

Luis Buenaventura, the artist behind “CryptoPOP!” sells his digital art on MakersPlace. If a person buys his art, such as Justin here, there is “proof” of who currently owns the art and proof that it was indeed the art created by Luis. 

Eventually, if Justin decides to sell this art to the next collector named Michael, the purchaser knows the art can be traced back to Luis because the art’s history can be traced through the blockchain. 

This means that NFTs will allow one to trace and prove authenticity, which in turn would allow an NFT holder to sell it. 

If Luis becomes the next Juan Luna or Amorsolo in the year 2030, Michael above has proof that he owns one of Luis’ early works, driving that early art price.

Similarly, in NBA Top Shot, if Giannis Antetoukounmpo (disclaimer, my current favorite player) decides to buy one of his “moment,” then decides to sell it to Justin. Justin then sell it to Michael, and the “moment” gets sold multiple times and eventually to John. The fact that Giannis once owned it is easily provable on the blockchain, driving the price of that “moment.” Even if that “moment’s” serial number is not special (meaning it’s not really serial no. 1, for example), what made it have value is the fact that the two-time MVP once owned it.

NFTs solve this problem in digital files where people can just copy and paste and duplicate files by the thousands. With NFT, I can’t just save a copy of an image of Luis’ art and sell it. In the words of Ollie Leech on Coindesk, “[NFT] makes the creation and circulation of fake collectibles pointless because each item can be traced back to the original issuer.”

This means NFTs are incredibly useful in video games, arts, and other items in the collectible space. 

NFTs Can be Sold

So How Much Are NFTs Selling For?

One “Land” or virtual real estate in Axie Infinity got sold for $1.5 million. 

On Nifty Gateway, just days before Beeple’s art got auctioned on Christie’s, his work “CROSSROADS” was sold for $6.6 million.

On Rarible, Mark Cuban, the Shark Tank judge and owner of the Dallas Mavericks minted and sold his NFT “The RollUp 2021” in 10 editions, which features him wearing a Mavs shirt (Disclaimer. The writer is a Nowitzki fan). If you look at the history of this NFT, you can see how much it got sold from the time Mark put it up on sale up to the present day offers.

On MakersPlace, Luis Buenaventura’s “$50,000 Endgame” is being sold for 10 ETH, worth $15,771 at the time I wrote this article.

On NBA Top Shot, a Lebron James moment got sold for $208,000.

Elle, another industry colleague, was one of the people who bought one of Beeple’s first “drop” on a site called Nifty Gateway. Elle bought Beeple’s “Into The Ether” Edition No. 22/207 for $969. 

Edition No. 21 of “Into the Ether” got resold for $50,000.

Filipino artist AJ Dimarucot, who designed for brands like the NBA, sold his first set of NFTs for 4.69 ETH.

Market Overview

What’s the Current NFT Market Overview?

Some stats from NonFungible.com for the past 30 days:

  • No. of sales: 111,155
  • Volume in USD: $178,738,548
  • Average Price: $1,608

Stats (All Time)

  • No. of sales: 5,341,753
  • Volume in USD: $354,889,005
  • Average Price: $66.44

Stats (All Time – Art)

  • No. of sales: 111,517
  • Volume in USD: $92,230,066
  • Average Price: $827.06

Stats (All Time – Games)

  • No. of sales: 1,693,560
  • Volume in USD: $37,774,705
  • Average Price: $22.30

As an example of its growth, let’s take a look at Axie Infinity’s Market Participants and Current Holders:

Institutions Buy NFTs

Who’s Buying All This? 

Delphi Digital, an incredible crypto and DeFi market research firm, spent $159,000 to buy 5 Mystic Axies in Axie Infinity.

“As the game increases in popularity, the value of these NFTs can also rise given their rarity and utility,” Medio Demarco, the company’s co-founder, told Decrypt.

Mark Cuban has been minting (creating), buying, and selling on multiple NFT marketplaces. He’s also buying his team’s “moments” on NBA Top Shot. 

We assume incredibly wealthy people are bidding on Beeple’s art on Christie’s.

Venture Capitalist Chamath Palihapitiya said he is building a sizable collection of NFTs that his firm will publicize soon.

Why Do NFTs Have Value?

Before NFTs, digital files, be it digital art or music, can easily be copied and pasted. If I take a picture or save a video downloaded somewhere, then I proceed to duplicate them, there are two copies immediately. 

If I screenshot Luis’s “$50,000 Endgame” or Beeple’s “Into the Ether,” both of them are NFTs, I do own a copy, but I don’t have the real document per se. I could never sell it because people can check the transaction recorded on the blockchain where it can be verified that I do not own the real copy. The only way to own these NFTs is to buy them with the transaction recorded on the blockchain. It’s a public record of ownership for people to verify provenance and authenticity.

NFTs also made it possible for the original creator to get a percentage of the sale of their work every time it changes hands. So every time Mark Cuban’s NFTs get sold and resold, he, the creator, will always get a share.

In a way, NFTs made digital art scarce and valuable. NFTs made it possible for more digital assets, be it virtual real estate, in-game items, and video game characters or creatures, basically any form of digital objects that can be collected to become valuable, allowing them to be bought and sold.

I got through the question of why people would buy a “moment” on NBA Top Shot versus a physical NBA card game because I realize that the sense of ownership is the same for a digital collectible as a physical one. That’s a Mark Cuba quote, by the way.

Judging from how much NFTs are selling as of lately. The question of why NFTs have value should no longer be asked. NFTs have a value already.

Yield Guild Games, a play-to-earn guild, bought 88 plots of virtual real estate (“Land”) in Axie Infinity worth $76,000. In a Medium post, Yield Guild Games said they believe a significant portion of rewards given to Axie Infinity players in the form of the cryptocurrency AXS (worth $1.6 when I wrote this) will be distributed through gameplay surrounding these virtual real estates. 

The NFTs (“Land”) are bought because of future utility (AXS reward through “Land Gameplay”).

YGG recently announced that it has raised $1.325 million from a seed round led by Delphi Digital to buy more yield generating NFTs, such as more Land in Axie Infinity. YGG, effectively acting as a decentralized autonomous organization (DAO), will lend these game assets in virtual worlds to its players so they can earn income.

This year, Justin Roland, the creator of Rick & Morty, sold his art entitled “The best I can do” for $1.65 million on Nifty Gateway. The art looks like a doodle on a post-it note. 

Gabby Dizon of Yield Guild Games, also a crypto art collector, said the above selling for $1.65 million is not an NFT question, not even a crypto art question, but more of an art question:

“Art has been meant to shock, and a lot of it is based on two things:

1) Who is doing the selling. 

2) Who made it. IF I would create this (Justin Roland’s art), and there’s a fair chance that I could do it. I don’t expect it to sell to even 1% of how much Roland sold it.”

“It gives you the question of what art is. Because it is an NFT and on the chain, you can at least have a fair amount of provenance that proves that the art is made by Roland, which I assume is what the buyer cares about.”

Getting Started Guide

Immediately get started in NFTs

The best way to understand NFTs is always to interact with them yourselves. Here’s a couple of things you can do. You don’t need to do everything, just the ones that are interesting to you. Also remember to not go all out and only put a small comfortable amount to try it.

  1. Go to NBA Top Shot, register, buy your first NBA “moment.”
  2. Go to Makersplace. Buy your first crypto art.

The above doesn’t even need you to use cryptocurrency or install MetaMask and all those apps required in most NFT activities. But assuming you already have MetaMask:

  1. Go to marketplace.axieinfinity.com, buy 3 Axies. (Important: you won’t be able to play without the three Axies)
  2. Go to Rarible, buy your first crypto art.

In future articles, we can talk about how to get started in specific NFT platforms, such as minting your first collectible in Rarible, and so on. 

Can I Show Off My NFTs?

Whether you created your own NFT or bought a couple, your collectibles or art can be shown off for everyone to see. I’m not just talking about sharing a link on Twitter, although that’s one way too. 

Some platforms, like NBA Top Shots, have a page that lists all your collected “moments.” So yes, that’s still a link.

Apps like Rainbow.me are designed in a way that you can display or show off the crypto arts you collected. OpenSea and Rarible, connect your address with all your NFTs, and you can view all those NFTs in one place, whether they are crypto art or an Axie.

For the real serious, galleries can be built on virtual real estates on Decentraland, a metaverse (if you’ve watched Ready Player One, it’s similar, basically a virtual world where you can do almost everything). The Narra Gallery is an open gallery space in Decentraland. It’s a space for Crypto Art and other NFT projects. 

Important Reads:

  1. Colin Goltra’s Speculations Blog is a resource for making sense of crypto art. Start here.
  2. Mark Cuban’s “The Store of Value Generation is Kicking Your Ass and You Don’t Even Know it
  3. OpenSea’s the NFT Bible

This article is published on BitPinas: Non-Fungible Tokens – NFT 101 – Why People are Spending Millions of Dollars for Crypto Art and Digital Items

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