In my 2021 review post, I spoke about the amazing year that Non-Fungible Tokens (NFTs) experienced. Let’s start with the obvious, NFTs are a terrible name. The Crypto industry needs to be more welcoming of newcomers, and this name just doesn’t cut it. A better answer would have been Digital Assets or something simpler to understand, but the industry goes with NFTs so I will too. In short, NFTs are unique digital items stored on a blockchain. NFTs are written to programmable blockchains like Ethereum, Solana, Flow, and more. If you aren’t familiar with the basics on these chains, you can read about them here and here.
NFTs can refer to a wide range of assets from collectibles to art to gaming assets to entertainment assets to tickets and much more. The collectibles category of NFTs has seen the biggest volume of transactions and the most user adoption. We’ll start with those and art here, and we’ll get to the other categories in a future post.
We need to cover the first big stumbling block when people think about digital assets like a picture or video clip. In the physical collectible world, there is only one authentic version of a single Picasso painting. Once verified as the real thing, it has massive value. Someone can make a nearly perfect copy of the painting, but to a real collector that copy will have limited value. Only the real one is worth big bucks. It is no different for a digital asset. While it is much easier to just “right click and save as” a digital picture than to copy a painting, the blockchain allows for easy identification of the original picture so it maintains authenticity and value. I’m not going to waste a ton of time trying to fight with you if you are in the “right click and save as” crowd. People in that group are just not ready to understand the value of digital scarcity and authenticity.
The second big stumbling block people have with digital assets is really a problem this crowd has with the value of scarce physical assets. For hundreds of years, rare paintings of historical significance have had high values. Most people can’t afford a $100MM+ Monet painting, but they agree that those paintings are worth a ton of money. More recently, the price of other physical assets like baseball cards, sneakers, and historical documents have skyrocketed. These items are routinely selling at auction for millions of dollars, sometimes $5-10MM or even more. You might not agree that these prices make sense, but they are the market clearing prices in 2022. Digital assets of historical significance can have values in the $5-10MM range, and really rare items can get up to the prices of major works of physical art. It is what it is. You either accept this second basic fact and keep reading, or you give up on the concept of collectible and art NFTs.
The first big hit in this area was CryptoKitties back in 2017, created by Dapper Labs. These cute digital cats could be collected, bred, and played with in video games. They saw big price increases and had a really Beanie Baby type moment for a while. CryptoKitties maintain some value today for their historical significance, but they do not trade for high prices right now.
It took a few years before the next big hit came along in the NFT collectibles space. A group called Larva Labs created 10,000 pixelated cartoon heads called CryptoPunks back in 2017. Each one had different colors, features, accessories, etc. Why 10,000 of these? I’m not really sure but that is the amount they created, and that number has become a standard for these types of projects. When these first launched, you could get them for $100 or so. It took months for all of these to find homes in 2017. However, by 2020 it became clear that CryptoPunks had historical significance as the first major project of this type, and the prices started to rise fast. Rare CryptoPunks in 2021 traded at up to $7MM, and major celebs including JayZ, Snoop Dogg, OBJ, and more own Punks. The cheapest Punks sell for $400K today. These NFTs gained such high status that several celebs have even changed their profile picture on Twitter and Instagram from their own faces to their Punks. These types of collectible NFTs are now categorized as Profile Picture projects (“PFP”).
As you can imagine, a boatload of PFP collectible NFT projects launched to capitalize on the success of CryptoPunks. Most of the thousands of knockoff projects are worthless, but the second most popular one is called the Bored Ape Yacht Club (“BAYC” or “Bored Apes”). BAYC launched in 2021 with 10,000 fun cartoon apes with different characteristics. Their most rare ones have seen $1MM+ sales prices, and the cheapest ones today are in the $300K+ range. Celebs like Steph Curry and Eminem sport Bored Apes as their social media PFPs today.
Outside of PFP projects, sports collectibles have been another huge category. As I briefly touched on in the year in review post, Dapper Labs moved on from CryptoKitties to create NBA Top Shot in 2020. Dapper partnered with the league and the player’s association to create digital highlight collectibles, basically short video clips that are numbered and sold to fans. The product has been a massive hit, bringing in 500K+ buyers. Many of these people don’t know the term NFT and probably don’t realize these are blockchain digital assets, they just see them as digital video versions of basketball cards. They are sold in packs just like trading cards, and the entry price point is an affordable $10 or less. Dapper is now launching digital highlights with the NFL and European soccer leagues.
NFTs are going to have a big impact on the traditional trading card business for sure. Topps and Panini have dipped their toes into the NFT waters, and new trading card giant Fanatics has launched their own NFT arm called Candy. Collectible NFTs will also disrupt non-sports collectible markets with popular gaming cards like Pokemon and Magic The Gathering likely eyeing digital opportunities. We are even starting to see the children’s toy market incorporating NFTs with offerings from Marvel, Barbie, and Dr. Seuss already live. There is further innovation coming in collectible NFTs in 2022 and beyond.
The final category I want to cover in today’s post is digital art NFTs. For years, artists have been creating art using digital technologies and trying to build a market for their creations. While there were some meaningful sales before the blockchain, the digital art market was still nascent until recently. That all changed in March 2021, when digital artist Beeple worked with Christie’s auction house on the sale of Everydays: The First 5000 Days. Beeple had been making digital art for a long time, putting out new pieces every day to limited audiences. He combined all of these into this new piece, which Christie’s sold for $69MM to a Crypto whale collector. This caught the attention of artists and art collectors all over the world, and many more pieces have sold for millions. Two other projects, Art Blocks and Fidenza, have also seen creations sold for big money. Hundreds of digital artists are now making a living selling their works as NFTs. NFT art is here to stay.
What allowed for the rapid growth of collectible and art NFTs to happen? The blockchain addressed the “right click save as” problem with easy verification of authenticity and digital scarcity. Be on the lookout for other types of collectible assets that the blockchain can unlock. We have seen digital sneakers start to be created as NFTs and sold for big bucks. Digital clothing from traditional designers is being sold as well. This technology is going to affect a ton of industries, basically anything that has cache and scarcity can be added to the blockchain and sold to collectors. Margins are so high for the creators relative to physical items, so you can expect NFTs to continue their impressive growth in the collectible and arts space in 2022 and beyond.
This post got really long, so look out for the next few posts to cover how NFT technology is reshaping gaming, entertainment, ticketing, and more.
*Know someone that would benefit from getting educated on crypto? Please forward this email and tell them to subscribe.*