NFTs — a meme or a real thing?

Unless you have been living under a rock, you must have heard this phrase somewhere. Perhaps it’s been the news saying that a celebrity paid an incredible amount of money for an NFT, or a Twitter avatar looking like a character from a video game. Conquering the world of decentralized finances, NFTs gained a rapid increase in popularity over the last year: try typing ,,what is ..’’ on Google and see for yourself — it’ll be a list of NFTs. Even Collins Dictionary made it the ,,word of the year” for 2021. You may be wondering what’s all the buzz about, why everyone is talking about some basic jpg from the internet that can be downloaded by anyone. In any case like this, where a new technology kicks in, there is more to it. Let me tell you this story as plainly and as I possibly can.

What does NFT stand for?

NFT stands for Non-Fungible Token: a digital asset that is stored on a blockchain. It can be a song, animated gifs, pictures or graphics. Once purchased, they belong to us and can be sold or traded for another digital asset: they are powered by smart contracts that provide transferability and make it able to verify the owner. A ,,non-fungible” means that the asset is valued differently, based on their uniqueness and often… just hype: unlike the ,,fungible” asset, e.g. Bitcoin that is interchangeably tradable and each has the same value. It all starts with an artist that makes the collection of graphics, e.g. Bored Apes or CryptoPunks. Later, they have to be adapted into the Ethereum (recently also Polygon) blockchain: the process is called minting. It makes the NFT impossible to edit, modify or delete.

Opensea: a platform where everything happens

Of course, there has to be a marketplace dedicated to trading all the assets. In the case of NFTs, the largest platform is called Opensea.io. It’s an American company founded in 2017 — right when the whole idea of tokens was born. How does the platform work? Well, there are plenty of actions you can take once you decide to start your journey with the NFTs. There are two modes on the website:

Explore

Top trending charts, trading volume rankings and well, 30 million (!!!) digital assets are here, in the explore mode of the Opensea.io website. Pretty impressive, right? Here you can purchase, trade and sell all the digital art that is out there. The fee that is included in every transaction stands at 2,5%.

Create

You will need to have an Ethereum wallet to launch the creator mode and of course, connect the wallet to the marketplace. The next step is to upload your first NFT into the platform. You can choose between plenty of formats including jpg, png, gif, mov4 and many more. The only limitation is the size of the asset — the maximum is 100mb. Later on you can freely customize it and choose the blockchain you wish to mint your NFT on.

Interesting projects you should know

This blogpost would never end If I wanted to show you all of the NFTs projects that are somehow unique and extraordinary. But let me present at least some of them, so that you can have a perspective and a little taste of this intriguing digital world.

The CryptoPunks

If you look at one of them, you will see primitive pixelated graphics looking like an image just taken out of the early-internet era. What if I told you that these rudimentary pixels are being traded for millions of dollars and gain massive popularity? It’s a collection of 10 000 unique characters that are one of the very first NFTs out there. Punks were created by Larva Labs in 2017 and are one of the most famous collections of digital art: even financial company Visa bought one back in August 2021 for $150 000 in Ethereum, believing that NFTs will play an important role in the future.

How are CryptoPunks valued? It all depends on their attributes and a type. There are 5 types of punks: apes, zombies, aliens, males and females. The most rare are aliens (only 9), whereas males are the most common ones — 6039 pieces. When it comes to the attributes, it gets more complicated. Punks can have hats, jewelry, different hairstyles etc.

The price depends on the combination of those attributes and rarity. However, as the saying goes ,”less is more” is very applicable here. One of the most valued punks are the ones that have 0 or 1 attribute. Why? They are very easy to recognize, giving the owner the feeling of prestige and uniqueness. CryptoPunks with 2 or 3 attributes are the most common too.

The largest sum paid for a Punk was made this February: an alien with one attribute, a blue bandana. The amount of the transaction was $23.7 millions of dollars! Crazy, right?

Bored Ape Yacht Club and its family

If you’re using Twitter, there is no way you haven’t seen an ape in someone’s avatar in the last couple of months. This collection is something way more than just a piece of digital art placed on the Ethereum blockchain. It is a really well-crafted community, where Ape owners are members of the club. As an example, the BAYC membership gives its members an access to ‘The Bathroom’ which is a place to draw or write. Each holder can paint a pixel per 15 minutes in the name of ,,collaborative art experiment”. The project is a creation of Yuga Labs and the initial sale went in April 2021. The price for all of the Apes was 0.08 ETH — in the name of fair distribution. Almost a year and a half later, the floor price for a piece is 72 ETH! A huge contribution to that makes a broad publicity and celebrities owning apes that caused the pump of the value: Justin Bieber, Snoop Doog, Paris Hilton, Jimmy Fallon, and many more. Talking about Justin Bieber, his purchase was questioned by the community, as he paid 4x the current market value for not-so-rare ape: 500 ETH! Celebrities and their businesses, right? 😉

After the successful launch of the Bored Apes, the family tree got bigger as Mutant Ape Yacht Club, Bored Ape Chemistry Club, and Bored Ape Kennel Club were created. Mutants are the evolved forms of the original Bored Apes. There are 20 000 of them, exactly twice as many as the OG ones. They can be created by giving an existing Ape a ‘Mutant Serum’ or minting one as a part of public sale. The Chemistry Club is a marketplace for those serums, and the Kennel Club represents dogs that are connected to the Apes as the creators say: ‘every ape should have a four-legged companion’. Every member of the club had a chance to claim one NFT for themselves, for free: as a part of the membership perks. Later, the public sale on OpenSea went on and all the proceeds were donated to animal shelters. The whole idea of going further with the Club, making the family bigger, doing those charitable activities and bonuses to the Ape holders, prove that the project is as solid as it possibly can be: from the marketing perspective and the development side.

The Beatles collection as NFTs

You can’t have your cake and eat it too… Unless you sell your valuable family treasures on an auction as… NFTs! That’s exactly what Julian Lennon did with his collection of The Beatles legacy including John Lenon’s private items. The digital gallery consists of guitars, notes for Hey Jude written by McCartney or the famous Lennon’s Magical Mystery Afghan coat and the black cape he wore in Help!. Some part of the profits were donated into the Julian Lennon’s Foundation which addresses environmental and humanitarian issues. You can take a look at the collection here.

The impact on the environment

Just like with any new technology entering the market, new environmental threats enter as well. The NFTs are powered by the blockchain system and rely on cryptocurrencies requiring massive amounts of energy: in the end it’s all digital finances we’re talking about. The biggest by the market cap, the most known crypto, Bitcoin, to be mined uses more electricity per year than countries like Argentina or the Netherlands. Second large crypto powering almost all NFTs, Ethereum, needs the similar amount of power that an average US household would consume in approximately 8 days. How are the cryptos mined then?

In the early years of BTC, simply anybody could run mining software from their PCs. As the network got bigger, the algorithm got more complicated and demanded stronger devices: like super efficient GPUs (graphics processing units). In order to ensure the smooth functioning of the blockchain, 1 block per 10 minutes has to be mined. All of this creates tons of electricity waste, as the mining tools quickly become outdated. The appearance of the NTFs only created additional demand for energy consumption and fueled the industry with bigger hype, recognition and opportunities that are bringing more investors into the market and the world of blockchain in general.

As I previously mentioned, Ethereum is the main blockchain platform used for all the NFTs transactions. The biggest problem with this one is the infamous ‘gas fee’ that has to be covered whenever there is a transaction. A fee that is often ridiculously high and therefore, energy consuming. The cost of the fee is determined by the supply and the demand between the network’s miners. It’s been created to compensate for the computing energy needed for processing and validating the transactions on the Ethereum blockchain. The problem was acknowledged by none other than Vitalik Buterin, the author of this platform: ETH 2.0 is launching soon, in order to increase the capacity for the transactions, make the network more sustainable and of course reduce the cost of the fees.

So, is it a meme or a real thing?

The sense of the NFT’s concept is super arguable. For some, digital art is created to launder the money, or fool people and has no reliable value, whereas for others, it’s a new way of making investments. In my humble opinion, understanding the market is way more difficult than for example investing in cryptocurrencies. Because of the ‘non-fungible’ aspect of the NFTs, it’s super risky to make a real profit, almost hazardous. Is it worth digging deeper into this world? For sure, yes. I believe that it will be the standard of the Internet, a Web 3.0 to be precise. Is it worth investing into some collection straight after reading this blogpost? Well, take your time, make your own research and calculate the risk! Good luck. 😉

iteo is an international technology consultancy & software engineering company, founded in Poland. Visit us on www.iteo.com

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iteo

iteo

iteo is an international technology consultancy & software engineering company, founded in Poland. Visit us on www.iteo.com

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