State of NFTs 2022

01. What is an NFT & How to Create One?

🎨 What is an NFT?

It’s a non-fungible token.Describing something as non-fungible is a fancy way of saying it is unique. For example, a dollar is fungible - one dollar can be exchanged for another, and they are both considered the same thing. Similarly, a gold bar, Bitcoin, and ETH are all fungible. The Mona Lisa, on the other hand, is non-fungible because it’s one of a kind. NFTs are tokens that can be used to represent the ownership of unique items. Moreover, since NFTs are built on blockchains, they have unique owners at any given time, and no one can modify the record of ownership or copy/paste a new NFT into existence.

🪙 What can be tokenized?

Anything can be tokenized, including tangible and intangible things. Some examples of things that can be tokenized are memes, news articles, digital art, physical art, videos, and even something like sneakers.
Essentially, NFTs are like physical collector’s items, only digital. Instead of getting an actual oil painting to hang on the wall, the buyer receives a digital file instead.

👐 Why are NFTs useful if anyone can copy or download the original item?

This is a common question and there are a lot of misconceptions regarding the difference between actually owning an NFT and owning a copy of it. Even though people can save the file or fake an item by copying the original, the non-fungible token minted on a blockchain indisputably proves who had ownership of the first and original version of an item.

02. How to Create an NFT?

To mint an NFT, the following things are needed: An NFT platform of choice, a payment wallet, and funds to pay for the minting process. The specific actions required are listed below in detail.

Step 1: Select your asset

If the asset can be represented in the form of a multimedia file (a digital image, a text file, an audio file, a video, etc.), it can be minted as a non-fungible token. In other words, NFTs can represent any digital file.

Step 2: Get some crypto

Platforms require a payment to cover the cost of minting (generating) an NFT. Funds must be present in a user’s wallet to cover this cost. There are many options for digital wallets such as MetaMask, Torus, Portis, WalletConnect, Coinbase, MyEtherWallet, and Fortmatic. MetaMask is the safest option because it’s compatible with all of the big minting platforms.
Opensea, the leading NFT Marketplace on Ethereum has also introduced the “lazy minting” functionality to their platform. This allows NFT creators to make an NFT without having to pay gas upfront for minting the NFT. The creator will only have to pay for the gas fees once their NFT has been purchased on-chain.

Step 3: Connect your wallet to an NFT platform

The most popular ones are Mintable, Rarible, and OpenSea. Using OpenSea is a good option because it has no moderation. This means you don’t have to be approved as an artist to sell an NFT. To use the NFT platform, connect your wallet to the associated website or DApp.

Step 4: Mint It

Fill in the required information, upload your multimedia file, and mint the NFT. The price of minting an NFT depends on the gas fees at the time.

03. The Road To NFT Democratization

NFTs have gone from being a very niche application of blockchain technology to achieving adoption by celebrities worldwide. The following sections will give an overview of the history of NFTs and how they went mainstream in crypto.

2012-2013: Colored Coins

Colored coins are tokens that represent real-world assets on the blockchain and can be used to prove ownership of any asset, from cars and real estate to digital collectibles. It didn’t take off because the scripting language of bitcoin was not conducive to this application. However, this concept laid the foundation for NFTs in the future.

2014: Counterparty

In 2014, Robert Dermody, Adam Krellenstein, and Evan Wagner founded Counterparty: a peer-to-peer financial platform and a distributed, open-source Internet protocol built on top of the Bitcoin blockchain. Counterparty allowed asset creation, had a decentralized exchange, and even had a crypto token with the ticker XCP.

Spells of Genesis on Counterparty

The creators of the game Spells of Genesis were the first to put in-game assets onto a blockchain via Counterparty.

Rare Pepes on Counterparty

By October 2016, Pepe memes were issued as collectibles in a project called “Rare Pepes” on Counterparty.

2017: The Beginnings Of The Ethereum NFT Marketplace

As Ethereum gained popularity in early 2017, the NFT market followed. Some of the NFT projects that were started in 2017 are still at all-time highs.

Cryptopunks: June 2017

American studio Larva Labs created CryptoPunks, which launched in June 2017 as one of the first NFT projects on the Ethereum blockchain. The collection consists of 10,000 uniquely generated characters inspired by the London punk scene.

To show how much they have grown in value, here’s a piece of trivia: They started free, but now the cheapest-priced Punk available out of 10000 punks is on sale for 90 ETH.

CryptoPunks has cemented its position as the foremost NFT project not only because it was the first, but also due to high-profile purchases. These NFTs have been bought by the likes of rapper/media executive Jay-Z, NFL star Odell Beckham Junior, crypto investment fund Three Arrows Capital, and even the payment giant Visa.

CryptoKitties: October 2017

CryptoKitties is a blockchain game on Ethereum by Canadian studio Dapper Labs. This game allows players to purchase, collect, breed, and sell NFT virtual kittens. The kittens are differentiated in their appearance and traits, or as they’re known in the game — their “cattributes.”

This game's high popularity in December 2017 congested the Ethereum network, causing the number of transactions being made to reach an all-time high.

Decentraland, A decentralized virtual world: 2017-18

Powered by the Ethereum blockchain, Decentraland is a decentralized virtual world that allows its inhabitants to use customized avatars, trade collectibles, and participate in the virtual world’s governance process. Users can then select and customize their avatar, which comes with a virtual passport representing its identity in Decentraland. Once users have completed the initial setup of their avatar, they can start building their own neighborhood and purchase digital assets.

When the beta version of Decentraland launched in 2017, the developers sold virtual land parcels for as little as $20. Following the 2020-2021 boom in NFT art, the most desirable digital real estate in Decentraland has been selling for more than $100,000 on average, with a Candian investment firm making the most significant investment yet of $2.43 million recently.

Post-2018 Major Highlights

With the bloom of the Ethereum NFT marketplaces, the NFT space experienced a surge of new projects. Here are the highlights of some of the major successes in this era.

NFT Marketplaces

Marketplaces for NFTs include OpenSea (most prominent), Nifty Gateway (limited edition works), Super Rare (single edition works), Rarible, Cargo Marketplace, Known Origin, and MakersPlace. With the growth of NFTs, minting platforms Mintbase and Mintable have developed a solid market for themselves.

NBA TopShot

This officially licensed blockchain application was created in partnership with Dapper Labs and was built on the Flow blockchain. Each NTF collectible in NBA Top Shot contains a short video of an in-game moment such as a dunk, a buzzer-beater, or a game-winning block.

On Aug. 26, a legendary LeBron James moment in the “2020 NBA Finals - Series 1” set was purchased for $230,000.

Axie Infinity

Axie infinity is a blockchain-based play-to-earn game. The gameplay revolves around fictitious creatures known as Axies, which players collect, breed, and battle. Axie Infinity’s play-to-earn dynamics are partly responsible for the GameFi title’s mainstream appeal. People that were out of work in developing nations due to the COVID pandemic started to play the game as a source of income in 2021.

NFT Tweets

Twitter CEO Jack Dorsey sold his first tweet for $2.9 million. Following this, another crypto project took Twitter by storm. This project was called Valuables, and it enabled users to tokenize and sell individual tweets as NFTs.

Social Media And Pop Culture Join the Trend

Pop music artists Kings of Leon, Grimes, Flume, and Steve Aoki have all had great success creating and selling NFTs.
Youtuber Logan Paul created his own NFT with 3000 copies to sell and sold each copy for 1 ETH — making around 3.5 million dollars in a single day.
Shawn Mendes made around one million dollars in digital-goods sales in 10 minutes during his NFT drop.
Many celebrities contributed their own paintings as NFTs for charity purposes.

BAYC: Bored Ape Yacht Club

Launched in late April, Bored Ape Yacht Club is one of the biggest success stories of the 2021 NFT boom. Bored Ape Yacht Club (BAYC) is a collection of 10,000 NFT Apes, each with completely unique traits. Some traits are rarer than others, meaning that collectors place more value on them. By purchasing an Ape, you also get exclusive access to future collections and other perks as a member of BAYC.

BAYC has created a sense of community unlike any other.

When everyone’s got skin in the game, it creates a new dynamic, as opposed to everyone being able to say what they want and critique everything without consequence

Drew Austin, a technology investor who owns three Bored Apes and co-owns two others said.

Following its launch, Bored Ape Yacht Club quickly attracted high-profile attention. Known holders of BAYC NFTs include NBA stars LaMelo Ball and Stephen Curry, rapper KSI, Post Malone, YouTuber Logan Paul, talk show host Jimmy Fallon, and various crypto startup founders. The project has racked up more than 93,000 ETH in all-time trading volume on OpenSea.

Communities like BAYC had been missing from the internet before the rise of NFTs. With communities like BAYC partnering up with giants like Adidas Originals, it feels like this is just the beginning of the surge of NFTs.

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04. Summer 2021 Bull Market

The NFT space saw an explosive jump in the summer of 2021. Sales volumes surged to $10.7 billion in the third quarter of 2021 according to data from DappRadar. The biggest NFT marketplace, OpenSea, saw an increase in sales from $4.8 million in October 2020 to $2.6 billion in October 2021.

To account for the major events in summer 2021, we saw NFTs get major sports and digital art partnerships. Basketball and soccer fans saw value in NFTs via the NBA Top Shot and Sorare. Moreover, Beeple’s record $69.3 million sale astounded the digital art sector. We’ve recently seen traditional auction houses like Sotheby’s and Christie’s embrace NFT art and collectibles. We’ve also seen increasingly high-profile NFT purchases from professional athletes and international companies.

Will the market continue at this pace? Probably not. Even in a bull market, we see some pullbacks here and there, but the summer of 2021 has set the general trend of NFTs (GREEN) for the next few years to come. As the metaverse gains popularity, NFTs are being viewed as more and more valuable. Even if the current prices of some of today’s elite projects might not be sustainable, it’s clear that NFTs representing ownership of unique virtual items will be a part of our increasingly digital future.

05. NFT Market by Numbers

While not everyone understands NFTs and many question their utility, one thing is clear — NFTs are growing rapidly and are not showing any signs of stopping.

In the third quarter of 2021, the volume of NFT sales surged to $10.7 Billion, according to the data from Dapp Radar. This was a nearly eight-fold increase from the number of NFT sales in Q2 of 2021 when this figure was roughly $1.3 Billion.

Let’s break down the NFT market by numbers.

NFT Market sales surge to $10.7 Billion as per DAppRadar

Source: Reuters and DappRadar

Even in the month of August when the stock markets faltered worldwide, NFT sales showed no signs of stopping. In August alone, Opensea saw sales volumes hit $3.4 Billion.

There have been over 2.2 million NFT users across all Ethereum-based projects

Source: Dune Analytics

This data only reflects the number of users buying NFTs from Ethereum-based projects. There are many different blockchains (eg, Solana) that host many different NFT collections. Since Solana allows users to make low-cost transactions, many newbies have preferred buying their first NFT on Solana.

Collectibles are the most popular NFTs

Source: Reuters and NonFungible.com

Given that the most expensive NFT ever sold was a collectible by Beeple valued at $69.3 million, it’s not surprising to see that collectibles are the most popular NFT category.

The number of NFT buyers is still relatively low with only 265,927 active wallets (ie. wallets that purchased an NFT) on Ethereum in Q3 2021

Source: Reuters and NonFungible.com

While the number of NFT buyers continues to grow with the increase in sales, the total number of buyers is still relatively small compared to the total sales. This shows that NFTs are generally less distributed, and a few wallets of wealthy individuals and organizations hold many NFTs.

Most NFTs are sold for less than $1,000

Source: Reuters and NonFungible.com

While it’s the NFTs that are sold for millions of dollars that make it to the news, the data shows that in Q3 2021, more than half of NFTs sold for less than $1,000, with 58.55% being in the $100 to $1,000 range.

06. NFT Marketplaces Overview

While Opensea is the most well-known NFT marketplace with over 22.51k active users and $73.41 million in trading volume, there are many other marketplaces where NFTs are being actively bought and sold. Let’s take a look at some of these marketplaces:

👑 OpenSea

OpenSea is the Ethereum network's leader in NFT sales, with a total trading volume of more than $75 million at the time of writing. Moreover, the sales volume hit $3.4 Billion in August.

Source: Dune Analytics‍

Even in the month of August when the stock markets faltered worldwide, NFT sales showed no signs of stopping. In August alone, Opensea saw sales volumes hit $3.4 Billion.

While the sales figures have come down slightly after peaking in August, Opensea has still already seen sales volume of over $1.5 Billion.

Signing up on Opensea is free, and the platform supports a variety of digital assets. It also helps artists and creators by providing a simple approach for creating an NFT (known as "minting"). In addition, this marketplace accepts over 150 other tokens as payment! OpenSea is a wonderful place to start if you're new to the NFT realm.

Axie Marketplace

Axie Marketplace is the online store for the play-to-earn game Axie Infinity. Players can purchase new characters (Axies), entire lands, and other items as NFTs for use in the game on the Axie Marketplace. However, instead of dealing in cryptocurrencies, the marketplace deals in Axies only.

Rarible

Rarible is a community-owned platform that offers a wide range of digital art and collectibles. It is one of the main NFT marketplaces on Ethereum and it allows you to buy and sell all kinds of media, just like OpenSea. Sellers can also make many NFTs for a single image to sell it multiple times. Rarible’s user interface is similar to other NFT marketplaces like OpenSea. It’s very easy to use, even for newcomers in the crypto space.

Super Rare

SuperRare is another marketplace for digital creators. While it is very similar to Rarible, it positions itself as a slightly higher-end marketplace in terms of product offerings. The company works closely with artists and requires the artists' work to be submitted and approved before being listed on the website. On SuperRare, you can find art, videos, and 3D images.

Solanart.io

Solanart.io is the leading NFT marketplace on the Solana blockchain. It is Solana's first NFT marketplace and allows users to buy and trade digital assets quickly and affordably. It aims to be a reliable platform for artists who wish to showcase their creative side, grow their fan base, and, most importantly — profit from their digital works.

07. Current Trends on the NFT Market

🧬 Fractionalized Non-Fungible Tokens

Fractionalized non-fungible tokens are not new in the industry, but they have only recently become more popular.
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While crypto millionaires are snatching up CryptoPunks and Bored Apes, the typical crypto enthusiast can't afford those six- and seven-figure non-fungible tokens. However, unlike conventional artworks, a non-fungible token can be fractionalized, or broken down into several better-priced pieces that can be purchased individually.
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To obtain access to this new asset category, numerous crypto players are coming together in DAOs (decentralized autonomous organizations) that focus on buying non-fungible tokens. (They have even fractionalized the Doge meme that gave birth to Dogecoin)

🕹 Gaming Non-Fungible Tokens: Supdrive And Axie Infinity

Gaming non-fungible tokens are a subset of NFTs that are attracting a large amount of attention in the cryptocurrency world.
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Since the start of the second half of 2021, the Ethereum-centered Axie Infinity has amassed over $1.6B in non-fungible token transaction volume — more than any standalone non-fungible token project or collection. Even with an overall minimum buy-in value of hundreds of dollars in Ethereum, the game has exploded in popularity, with over one million every-day active gamers.
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Even when considering games like the NFT-driven fancy football game Sorare with its large fan base and the impending 3D metaverse game The Sandbox with its many promises and significant investors/partners, no other cryptocurrency game remotely has yet challenged Axie's current performance and trajectory.

🎨 Generative Art

In this NFT sector, a blockchain does not just contain a token indicating a deed of rights for a work of art, but it also generates the artwork directly.
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The basis of the booming generative non-fungible token art industry is that while the minting operation is occurring, an algorithm or script saved on a blockchain generates creative artwork.
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Perhaps the most powerful contributors in the world of generative non-fungible tokens are the team members behind Art Blocks. This Ethereum-centered project includes a wide range of unique releases from multiple artists, encompassing a wide range of artwork types and methods.

08. Challenges & Issues with NFTs

🥷 It's Easier To Scam With NFTs

Anyone is free to buy virtual collectibles; it’s an open market for anyone who has cryptocurrency. With this being said, it’s also easy for anyone to list anything they want as an NFT. Unsuspecting buyers may end up buying NFTs that appear legitimate and useful, but receive non-functional in-game items, altered copies of other NFTs, or any other number of non-functional or illegitimate items. NFT buyers must do their own research before purchasing an NFT, since scams are a real possibility in this market.

⚡️ NFTs Consume Massive Energy

A proof-of-work (PoW) consensus mechanism is a crucial component of Ethereum. PoW involves a community of miners competing to solve cryptographically difficult tasks to authenticate payments on a network. That's what allows a non-fungible token to be created and recorded on the blockchain network in the first place.
Unfortunately, computationally tough problems require massive quantities of processing power, which requires a lot of electricity. According to some estimations, the energy required by crypto mining is similar to the energy produced in one year by the London metropolitan area. However, when Ethereum shifts to Proof-of-Stake, this energy issue will be resolved.

🤝 Copyright And Ownership

The copyright implications of NFTs can be difficult to understand This is because the original asset, whether it is a piece of art, an in-game item, or an audio file, may have copyright protection under the US Copyright Office or intellectual property protection under the US Patent and Trademark Office. This means that it is legally protected property, and it is registered under the name of the person who created the asset. When an NFT is sold, those protections that are attached to the asset don’t necessarily pass to the buyer. This means that while one person may own an NFT, a different person else may legally own the asset according to the US government. The previous owner of the copyright or the intellectual property rights of the asset must transfer the copyright or intellectual property rights to the person who is buying the NFT in order for the asset to be theirs both on-chain and legally.

📉 Volatility And Uncertainty

In terms of liquidity, NFTs are more similar to paintings or baseball cards than stocks and bitcoin, since every vendor must get a buyer prepared to pay a fixed amount for a unique item. As a result of this, collectors may find it difficult to liquidate an NFT.
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In the real world, conventional art has been used as a bail-out system by individuals in financial problems. Hence, including non-fungible tokens into the decentralized finance space appears to be a sensible move in the right direction. By facilitating tokenization, NFTs might potentially benefit the decentralized finance industry by resolving liquidity difficulties. Tokenization might make it easier and more flexible to sell an illiquid financial asset quickly whenever the owner is in a tough situation financially.
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As a result, when contrasted with fungible currencies, non-fungible tokens have limited liquidity. One explanation for this is that digital collectors prefer to hold their non-fungible tokens instead of trading them on speculative marketplaces. One other problem is that non-fungible tokens are sold pairwise on markets with just a small number of prospective buyers for each transaction.

💸 Price Discovery

One of the flaws of this asset type is the absence of price discovery. Because illiquidity breeds asset pricing opacity, price discovery will naturally become a problem. Because of the personal nature and value of art, estimating the value of most artworks is difficult.

NFT owners can employ quick price discovery methods to establish a lower limit at which they can always sell their holdings. A capital-effective price discovery system can speed up operations, enhance liquidity via tokenization, allow non-fungible tokens to be utilized as collateral without the usage of order books, and provide for the creation of a huge number of NFT-based products. To put it another way, price discovery will enable the financialization of non-traditional assets.

09. People to Follow About NFT

If one profile stands out in the Ethereum NFT space, it has to be Punk 6529. From alpha about new NFT collections to how to secure your NFTs, this profile has everything that a newbie in the NFT space needs to get started. Punk 6529’s Guide To NFT Twitter Terminology is perhaps the best source one can find to get up to speed to the NFT world.

While there are many collectors in the Ethereum NFT space, not all of them are worth following. Here’s a list of people that you should be following:

As the Twitter bio of SOLbuckets says, he’s not your average Solana ape. From the latest NFT drops in the Solana ecosystem to priceless threads and motivation posts about the NFT space, SOLbucket’s profile has all that one can ask for.

Below is a list of other people that one can follow to learn about NFTs minted on the Solana blockchain:

Following the Twitter handles mentioned above will enable you to stay on top of the different NFT projects popping up on both Ethereum and Solana.

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