2021 was the year when crypto reached its peak of popularity. And non-fungible tokens (NFTs) were a huge part of this massive spike in notoriety. Most people know Bitcoin before that fateful year. However, NFTs created a brand new group of crypto users. Users who were interested in using blockchain technology for alternative use cases.
Decentralized applications (dapps) built on Ethereum were becoming increasingly popular. It is during this time, and NFT-based use cases were right up there with DeFi in terms of the most popular app category. So, what are NFTs? Why are they being in promotion by some of the most famous people and brands in the world? And is this a real phenomenon that will stand the test of time or just another crypto fad? Let’s take a closer look.
To understand how NFTs work at a technical level, it is best to start with traditional, fungible tokens. Originally, crypto assets like bitcoin were only intent to work as alternative, digital currencies. And one of the key attributes of a currency is that it is fungible. This means that all iterations of the currency are treat equally. For example, all bitcoin are treat equally.
There is no reason for a user to prefer a specific coin over another. There would be no reason to reject a particular bitcoin from another user for any reason. This makes Bitcoin a better form of money. This is because users do not have to worry about tracking different valuations for varying types of Bitcoin. In other words, one bitcoin is equal to one bitcoin. I
One should note that there are some edge cases where Bitcoin’s fungibility could be viewed as less than perfect. This is such as in cases where some Bitcoin has been identified on the blockchain as proceeds from a criminal operation, but we’ll put that to the side for the sake of this simple explanation.
Now, NFTs take the idea of fungibility and turn it on its head. Instead of making every token identical and interchangeable, an NFTs intend to be unique. This is an attempt to make the NFT a rare collectible of sorts, and the NFT will usually represent some other thing that exists in meat space or the digital world. For example, a famous person could issue a 1-of-1 collectible token on Ethereum or some other blockchain. This token could represent anything from a new song released by the famous celebrity to a ticket to an upcoming event.
Or maybe the celebrity plans to simply recognize the owner of the 1-of-1 collectible token as their biggest fan. The exact details of how this technology will be in use in the future remain a bit unclear, but the core idea is that these are tokens that are issue on blockchains and intend to be unique collectibles.
While NFTs are usually in association with smart contract-focus blockchains like Ethereum and Solana today, the reality is that the first iteration of this technology was find on Bitcoin. Although the Bitcoin network is usually in view as simple, secure, and not as flexible as other options, the earliest NFT project was built on Counterparty, which was a secondary protocol built on the Bitcoin blockchain.
Most of the trading cards were tweaks of people from pop culture or the Bitcoin industry to make them look like Pepe the Frog. These Rare Pepes are some of the most popular NFT collectibles today due to their historical significance, and they are now trade on Ethereum-based platforms like OpenSea. While these NFTs were originally trade mostly for fun and not for profit, some of the rarest of the Rare Pepes sold for hundreds of thousands of dollars worth of crypto.
Crypto & NFTs Continued
Two of the other major developments in the NFT space were Cryptopunks and Cryptokitties. Much like Rare Pepes, these were auto-generate collectibles that stuck to a general theme with each NFT having its own unique traits. The Bored Ape Yacht Club took things further by effectively turning the NFTs into vouchers for parties and other events. Today, many famous celebrities and brands are experimenting with NFTs and selling them to the highest bidders. Additionally, artists, such as Beeple, are using NFTs to monetize their digital artwork to the tune of millions of dollars.
The Future of NFTs and Crypto
For now, it’s still unclear if NFTs, at least as they exist today, will be anything more than a fad. Many of the projects launched in 2021 were nothing more than money grabs built strictly for the purpose of cashing in on the latest crypto trend, but it’s possible that something useful will eventually come out of this technological innovation.
One key area to watch will be digital content monetization, as that’s been a key problem area for content creators ever since the release of Napster in the late 90s. Many believe NFTs will be the key to unlocking new revenue streams for a wide variety of articles over the next decade. That said, it’s also worth considering how much NFTs necessitate the use of blockchain technology. NFTs may stick around for the long term, but they may not necessarily need the levels of decentralization found on public blockchains based on proof-of-work or even proof-of-stake.
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