The earliest records show a need for humans to communicate and share information. Today those needs are still present. Are NFTs a mechanism that can change how we do business, transfer ownership of art and revolutionize how we view financial markets? Is it a turning point in mankind or a global social experiment by the world’s financial elite and family offices?
I don’t fucking know. I can tell you a little about the history of NFTs, and we can see who’s right or wrong in the end.
Overview of cryptography
In the early days, humans needed to communicate with one another. They also required a method to ensure that their messages would remain secure. Some of the first records of written communication date back almost 4000 years. Found in Roman and Egyptian civilizations, cultures communicated with depictions before evolving to mono-alphabets.
Not surprisingly, out of the need for privacy, the first resemblances of modern-day cryptography were born. Cryptography is the art and science of a cryptosystem. Which is a collection of mechanisms based on mathematical algorithms to keep things secure. The first form of cryptography was the Caesar Shift Cipher. Moving letters of a message by an agreed number and then back to unscramble the message.
Cryptography originates from the Greek words Krypto, meaning hidden and graphene, meaning writing. Hidden writing … makes sense.
Cryptography evolved to Stenography, where a secret message was hidden entirely. It went from numbers and letters to a binary bit sequence that relies on a number, computational complexity, and probability theory. Modern cryptography requires secret keys. The private keys are known as a hash. A hash protects the physical identity of the holder while it keeps all transactions publically available for scrutiny.
Primarily cryptography provides four fundamental levels of security. Confidentiality or the essential aspect of keeping information from unauthorized persons. Data Integrity or a service that identifies if data has been altered or manipulated in any manner. Authentication to confirm that data is authentic and sent from a verified sender and Non-repudiation as a way to disallow the refusal of ownership or action.
There are a variety of cryptographic solutions that offer different levels of security and encryption. Commonplace in NFT and blockchain tech are hash functions. A hash function converts a numerical input into another compressed value. The methods create codes that act as keys. We use these keys when interacting with wallets and tokens.
Association to Blockchain
In 1993 a man named Hal Finney made remarks explaining a new type of currency. Crypto trading cards. They would be scarce, exclusive, and come with provenance. It was an idea that conveyed the concept of digital cash. Initially a joke, it was the first-ever explanation of NFTs or non-fungible tokens. Little did Finney know that what he said would be some of the main aspects of NFTs, digital signatures, rarity, and trading.
Moving on to 2012, when mention of the idea was brought up once more. This time is attached to real-world examples such as real estate, commodities, and bonds. Brought forth by Yoni Assia, it was known as colored coins. Starting as ordinary bitcoins that were transferred in a Genesis transaction. Originally designed to be a currency, its initial use cases ranged from property to digital collectibles. They even allowed for the storage of small amounts of metadata.
The problem, however, was that colored coins only worked if all parties involved believed in their value. Some of the first attempts to use colored coins were Spell of Genesis, a blockchain game. It was also the first to create an ICO or initial coin offering called BitCrystals, in-game currency. After that, the world was introduced to Pepe the Frog. A cute frog character that rapidly rose to fame. Dropped in 2016, then again on, Ethereum in 2017. Gaining fame, an ecosystem began to form. Peperium and the Rare Pepe Directory are two examples.
When NFTs became NFTs
A massive link to NFTs and how they came to be is between the world of digital art and online communities. Deviant Art was a known breeding ground for talented digital artists. Those communities grew and evolved to sites like Tumblr, where creators shared images without retribution.
Kevin McCoy & Anil Dash dreamed of a world where this problem didn’t exist. They dreamed of a world where artists would get paid for their works and collectors could feel secure in their transactions. This vision was known as the “monetized graphics” system. Both met at an industry event called Seven on Seven while Dash was working on concepts relating to provenance, ownership, distribution, and control of artworks.
On May 2, 2014, “Quantum” was “minted” on the Namecoin blockchain, and a form of the NFT was created. Following “Quantum’s” release, a pivotal moment in history happened.
At the 2015 Devcon 1 conference, the first NFT was minted. Etheria was a game created by Cyrus Adkisson which let you buy, sell and build on hexagonal swaths of digital land. Unfortunately, nothing really happened, and all the game heard was crickets. Until 2021. When the hype hit. The entire map was gobbled up for around $1.4 million. Leading us to probably one of the most popularly known collections to date, CryptoPunks.
Some would argue this is the first-ever NFT. It was, however, the first to be minted to the Ethereum blockchain. As an experiment with a random pixel portrait generator, 10,000 unique 24×24 portraits were created. Initially, the pieces were sold for the price of gas (pennies). Soon after that, an article written by Mashable saw the set completely sold out. There is only one with all seven unique attributes in the entire collection.
Next on the block was CryptoKitties.
Known as the first mainstream NFT project. Launched at the 2017 Ethereum Waterloo hackathon, it was a primitive on-chain game. Letting users breed cats produce new cats with combined attributes … hella nerd alert. Genesis collections were launched via a Dutch auction. A somewhat important fact as this is a revolutionary approach towards pricing mechanisms of the items. They’re also credited with paving the way for releases and creating an on-chain breeding algorithm.
Pretty suite accomplishments for a random ass game.
CryptoKitties was probably responsible for driving the secondary market too. You could breed cats and create new ones; it was a clear path for collectors to see a return on their early investments. By buying up a couple of cats, breeding them to make a rarer cat, they could flip the cat and repeat. Or simply buy up a rare cat hoping that someone will come along and buy it. Really fueling the growth of a breeder community.
The collection did a significant amount of transactions. Trading volume was over five thousand Ethereum. Figures were so absurd that they increased exposure and awareness for the project. Some of the items reached over six figures. Two were Cat #18 that sold for $110,000, and Dragon sold for $170,000. It traded so much initially that it “broke” the network. Pending transactions stalled from 1,500 to 11,000, respectively.
Ultimately the project declined as the NFT market built momentum.
NFTs, a growing trend?
Keeping speed from early projects 2018 saw massive growth with over 100 projects in the NFT ecosystem. Did this mean it was a growing trend?
The emergence of Layer 2 games was beginning. Others were scaling CryptoKitties and building on top of it. Development was easy since it was a permissionless space, and additions could be made right on top of existing smart contracts. Some were:
- Kitty Race – let you race cats for ETH
- KittyHats – let you accessorize cats
- Wrapped Kitties – combined cats and DeFi making cats ERC20 tokens
- DapperLabs created KittyVerse
Advancements garnered attention from venture capital, CryptoPunks evolved into Larva Labs. CryptoKitties grew, seeing two funding rounds at $12 and 15 million. Rare Bits, a peer-to-peer marketplace, got $6 million. In addition, many other companies came on the scene, increasing spending to over $100 million.
Pretty impressive for such young, unregulated, unruly technology. A few of the most significant projects today were launched then.
Lucid Sight kicked off an on-chain baseball game with Major League Baseball. Decentraland saw a $25 million grab for $MANA, and sales for virtual land saw the highest trading volume than any other NFT.
CryptoVoxels launched a direct webVR experience allowing users to show off their NFTs inside the world. Enthusiasts could create museums, art galleries, NFT advent calendars, towers with top NFT projects, and in-world stores. The domain snowballed among digital artists on Cent, a social network with micropayments, emerged as a hanging ground for early affairs.
That’s not to say all this good didn’t come with bad.
Hot Potatoes was a highly harmful game to the NFT markets but helped build pricing and auction mechanics used today. It was a game that let someone sell an NFT and toss it around, with the spread being the profit for the seller. The last one holding the NFT with no sale faces the loss.
Another thing that saw losses was interest in the market.
Present-day and beyond
Not a creature was stirring, not even an ape. Quiet for some time, the NFT market lost a fair bit of inertia. Things had taken a standstill until around late 2019 and early 2020 when momentum picked up and further development continued. Being described as a new asset class and connecting once more to digital art was the genre’s resurgence. A renaissance, if you will.
Projects like Axie Infinity, Neon District, and NonFungible came to life. Artists began experimenting with technology on a larger scale. Marketplaces and platforms emerged, such as SuperRare, Known Origin, MakersPlace, and more. Minting became more accessible than ever, lowering the barrier to entry and allowing more and more people to flock to NFTs.
Use cases are growing beyond collectibles and digital art. Companies are beginning to see value in the underlying concept of an NFT. Websites like the Kred platform let influencers create NFT swag bags for attendees. One of the earliest adopters and most oversized pushers of NFTs has been gaming. Many games have been launched in this space. Big-name brands are tying themselves to the technology and taking huge bets.
Twenty-twenty saw massive development for NFTs and pushed that growth into today, where much of the market is still ripe. Companies are popping up left and right. Rarible and Cargo launched new features like bulk creation, unlockable content, and rich media. With more media types, artists can expand their creatives, and other artists can enter the space.
Musicians, videographers, and animators were all able to create NFTs. OpenSea was able to remove gas costs with minting. Animoca Brands launched F1DeltaTime, which featured a $100k sale of the 1-1-1 car powered by OpenSea. MyCryptoHeroes was the first to transfer its assets to Ethereum when it wanted to sell them on secondary markets.
The astonishing growth in 2021 has been roughly $2.5 billion in the first half of the year.
Wrapping it up
When you think about it, NFTs have been around for a very long time. We just haven’t really understood them. The airline points we’ve collected are technically NFTs. Remember, it’s simply a type of technology. Digital art is only data attached to a use case.
NFTs have come a long way from crypto trading cards and monetized graphics. There have been a lot of highly cool projects that have happened along the way. NFT.NYC Token Summit sold tickets as NFTs, Coin. Kred released its “NFT swag bag.” Binance issued holiday collectibles. Microsoft released Azure Heroes. Crypto Stamps were created by the Australian postal service. A program lets users scratch-off physical stamps for a wallet address with $ETH and an NFT of stamps sold on the secondary market.
While there’s no telling if we’re going to make it or not, there is one thing that’s for sure NFTs have come a long way from their early inception. With the advancements in technology, the rapid adoption of NFTs, and the community behind them, the possibilities are limitless.