NFTs or ‘Non Fungible Tokens’ have taken the art world by storm.$69.3 million at the renowned Christie’s auction house. But how big is the NFT market, and where will it go next?
What is an NFT?
An NFT is a verified digital asset that is protected by blockchain technology to provide proof of authenticity and ownership. The most popular NFTs include images, music, videos, and of course, GIFs.
In the same way that a piece of original artwork is considered highly valuable, NFTs certify a digital artwork as unique, which of course is what makes them sellable.
When you purchase an NFT, you’re not only purchasing a piece of art, but you are also purchasing a kind of unique barcode that acts as a certificate of authenticity and serves as proof that the asset is uniquely yours.
NFTs came about in the mid-2010s but took off in late 2017 through a game called
CryptoKitties, where players buy and “breed” limited-edition digital cats using cryptocurrency.
What do you get when you buy an NFT?
This is where most of the confusion surrounding NFTs comes from.
When you purchase an NFT, the authenticity of your ownership is verified through a unique token and is recorded on the blockchain.
However, while you may have bought an image or meme and therefore own it on the blockchain, you actually have no control over rights to its distribution.
So you’re not really buying the content - as this can usually be downloaded or found online for free. You’re instead buying a token that connects your name to the creator's art on the blockchain.
Digital tokens are all about scarcity - NFTs cannot be duplicated, can be easily authenticated, and are immutable, but they operate on the same deflationary principles as bitcoin, meaning there’s no surefire way to know whether they will retain their value in time.
How big is the NFT market?
In 2020, the NFT market grew by a massive 299% and was valued at over $250 million.
However, according to NonFungible.com, the market is already booming so far in 2021.
Their report indicates that more than $2 billion was spent on NFTs during the first quarter of 2021, an increase of about 2,100% from the last quarter of 2020.
Why is the NFT market surging?
The increase in spending on NFTs can mainly be linked to the new investors and big brands jumping into the market.
The surge in interest at the start of 2021 is largely down to NBA Top Shot, a platform where users can buy basketball highlights which have been turned into NFTs. By late February, NBA Top Shot had generated $230 million in transactions since its conception in the previous October.
NBA Top Shots are basically virtual sports cards, except that they’re video highlights of a move - such as a LeBron James dunk or a Steph Curry 3-pointer.
These NFTs can sell for thousands - for example, a LeBron James Moment from the Cosmic Series 1 recently sold for $208,000 - while you can also get Moments by less popular players which sell for less.
Another factor that influences the cost of a Moment is its rarity. Just like trading cards, there is a finite number of each Moment, and some are more common than others. So getting a moment that is 1 of 25 is more valuable - and more expensive - than getting one that is 1 of 500.
While it’s the six-figure sums that have gained Top Shot its media attention, Top Shot has said that the average sale price in April was $65, compared to $157 in March, $182 in February, and $80 in January.
That said, participation remains high, with 324,000 unique buyers in April, which is still a significant increase from the 30,800 participants in January.
While the NFT market was booming at the start of the year, it seems to have now stabilized.
While NFTs saw explosive growth in February and March, sales volumes plateaued in April.
Major NFT marketplace OpenSea saw monthly sales of $93.6 million in April, significantly less than the $150 million it made in March, slightly less than February’s $95 million, but significantly higher than the $8 million in sales generated in January.
A year ago volumes were around the $1 million a month mark.
On NFT marketplace Nifty Gateway, owned by Gemini, April’s monthly sales of $60.9 million were less than half of the $144 million in sales from March, but still far higher than the $8.75 million made in January.
While sales data from NonFungible.com shows that overall, weekly trading volumes on NFTs in April were lower than March’s figures, they’re still substantially higher than pre-2021 levels.
What caused the surge in interest?
There are a few factors that can be linked to the recent NFT market boom.
These include the big brands jumping on board the NFT trend - such as NBA.
This not only increases popularity and awareness but also provides the digital assets with a kind of credibility, which can be key to getting those who were hesitant at first to get on board.
When renowned auction houses such as Christie's start auctioning NFTs, it further legitimizes them.
One art collector told Insider the surge in NFTs can be linked to the increasing price of Bitcoin, knock-on economic effects of the pandemic, and the distrust in the US dollar.
The other key factor which has increased NFT sales is the Covid-19 pandemic. With more people and businesses working from home, we’ve been increasingly utilizing digital spaces and have become more exposed to cryptocurrency and digital assets such as NFTs.
There’s also the economic uncertainty that has come attached to the pandemic, and, whenever the economy is unstable, there’s always a surge in investments in other forms of currency.
What are the most expensive NFTs?
Everydays: the First 5000 Days – $69.3 million
In 2021, digital artist Beeple broke records with the most expensive NFT artwork yet. “Everydays: the First 5000 Days” sold at the renowned auction house Christie’s for close to $70 million.
CryptoPunk #3100 – $7.58 Million
CryptoPunks #3100 is one of the rarest punks available, as it belongs to a group of just 9 Aliens. CryptoPunks has just 10,000 punks in store, and the Aliens are one of the smallest groups, making them some of the most valuable NFTs.
CryptoPunk #7804 – $7.57 Million
Another valuable CryptoPunk is Punk #7804. Also an Alien, it comes with three accessories - Cap Forward, Small Shades, and a Pipe - and these determine how rare the alien is.
Only 254 punks come with Cap Forward, 378 punks come with a Pipe, and 317 punks come with small shades, but Alien punks are extremely rare, hence the high price tag.
Crossroads – $6.6 Million
Crossroads is a digital artwork by Beeple, and it sold for over $6 million just before the record-breaking sale of Everydays. The piece was sold on Nifty Gateway, and as a single artwork rather than a compilation like Everydays, it could be said to be even more valuable.
The first Tweet – $2.9 Million
It’s not just artwork that gets minted as NFTs. In 2021, the first tweet ever sent sold for $2.9million. The tweet read “just setting up my Twitter”, and was tweeted by the CEO and founder of Twitter Jack Dorsey back in 2006.
The tokenization of this tweet indicates the many possibilities for NFTs in the future. Who knows what will be the next big NFT?
Why do people buy NFTs?
There are numerous reasons why people buy NFTs, but it can be difficult to understand why people would spend so much money on a meme or video clip that they don’t even own the copyright to.
According to the CEO of SuperRare, another NFT site, people are motivated to buy NFTs because they provide the buyer with a unique connection to the creator that does not exist with any other art form.
In the same way that people collect antiques or artwork, having an original is considered special, and it's this extrinsic value - rather than the intrinsic value - which attracts many people to NTFs.
For example, CryptoPunks - the pixelated avatars that have fetched millions of dollars - can be easily downloaded on the web, but a download of one of these avatars would not be considered authentic. On average, a real alien CryptoPunk can cost around $900,000.
While there’s no detectable difference between the original and copied version, NFTs come with a unique bar code. This bar code works like a verification token and is stored on the blockchain - a type of decentralized record-keeping system.
Blockchains store transitions in a vast network of computers that all hold each other accountable on a shared public record, and this makes it extremely difficult to remove an NFT from the web.
Blockchains also provide a way of tracing an NFT and mapping its transaction history.
What are the risks and issues associated with NFTs?
In order to purchase an NFT from a marketplace, you’ll usually need a crypto wallet, and considering less than 1% of the world’s population own one, mass adoption could be a long way off.
There are also usually fees that need to be paid to mint or buy a product off the blockchain, and these can amount to hundreds of dollars - so NFTs aren’t exactly the most accessible thing in the world.
Some people are trying to change this, though.
The co-founders of the NFT platform Nifty Gateway, are working to improve the attainability of digital assets for the general public, and they’re also one of a few platforms that enable users to purchase NFTs via their credit card if they don’t have a crypto wallet.
Like any trend, there’s always the risk that NFTs are just a fad or a bubble. You could invest thousands in an NFT only to see enthusiasm dwindle and values plummet, meaning a big loss for you.
Though according to NFT backers, the system's built-in scarcity is what enables NFTs to retain their value, so long as interest continues.
While NFTs can’t be duplicated, they are prone to scams. For example, people have bought NFTs thinking they’re created by famous artists such as Banksy for six-figure prices, only to discover they’re fakes.
There are also concerns over the environmental impact of NFTs.
NFTs rely on an underlying blockchain system, and the computing power required to operate this is huge.
There have even been estimates that one crypto transaction could consume more power than the average U.S. household uses in a single day.
One artist suggested that generating six NFT pieces would require more electricity than his entire physical studio did in a 2-year period.
It’s safe to say that the NFT market is huge.
After its boom at the beginning of the year, it has dipped recently, but figures still remain higher than pre-2021 sales.
With the backing of NBA, Formula 1, Nike, and more, the market is broadening as more and more big brands are keen to tokenize their assets.
Not only this, but the Covid-19 pandemic has definitely had an impact on crypto-currency due to global economic hardship, and these trends have also been reflected in NFT sales. Plus more of us are generally spending more time online and at home, and have become more exposed to NFTs.
Who knows what the next big NFT sale will be?
There are certainly some concerns over the accessibility of NFTs, as well as the environmental impacts of the blockchain, but the scarcity of NFTs could be something that helps retain their value.
Plus, everybody wants to own something unique - and that’s exactly what NFTs are all about - certifying authenticity and linking a buyer with the artist or creator of the NFT.