In a recent ad for cryptocurrency exchange FTX, Tom Brady asks seemingly everyone in his contact list, “You in?” As in, are you going to join him in buying some crypto, and not, presumably, in being a football star married to a supermodel. The pitch is straightforward celebrity-endorsement fare, designed to capitalize on the FOMO that is the standard psychological tactic of those who are already invested in cryptocurrencies and related technologies, and who would like the rest of us to come aboard. Mr. Brady has an equity stake in FTX.
A “You in?”-style pitch is also typical of successful multilevel marketing companies. Both make a virtue of the fact that our getting “in” will obviously enrich those urging us to do so, by driving up the value of their own holdings or network.
PM matinee which only cost me $10 while StarWars is at the more expensive, evening showtime. Or maybe I have a ticket for the 3D showing of Avengers whereas your ticket is for the cheaper 2D version of Star Wars.
Finally, it goes without saying that the two tickets are exchanged at the theater for two objectively different experiences.
NFTs are the digital manifestation of items like movie tickets, in that they can contain information in addition to just the owner, lending them all sorts of uses and unforeseen value.
However, just as with fungible tokens, the Ethereum developer community recognized that to build a strong ecosystem of tokens and dApps, they would need to standardize NFTs…
ERC721: The birth of the contemporary NFT ecosystem
Just as ERC20 standardized fungible tokens, ERC721 was written to standardize non-fungible tokens.
Just like how water always takes the shape of its container, changes cannot be sustained unless one also changes the structure.
The rise of NFTs can be explained by those two insights.
First, NFTs take less effort for the owner of an item to benefit from it = thus NFTs are a path of least resistance to ownership. Whether the item in question is a piece of art or an in-game collectible, the common reasons someone would want to own the item are: (a) value appraisal and monetization; (b) sign of status / fame; (c) support for one’s favorite creators and (d) personal appreciation.
Non-fungible tokens (NFTs) are “tokens (on the blockchain) that we can use to represent ownership of unique items”. NFTs are making headlines lately (see TechCrunch, The Verge, Forbes to name but a few), with more money being spent on them.
NBA Top Shot – one of the most popular marketplaces – sold USD$250M in the past 30 days (source).
Some NFTs could command very high unit prices, such as a digital artwork selling for thousands of USD equivalent, or a digital card with an NBA top shot moment asking for five-digits. Unsurprisingly, there has been lots of skepticism about the (monetary) value of NFTs.
By standardizing NFTs, the developer community ushered in a new ecosystem of digital content, games, and applications that use NFTs. Thanks to ERC721, we have things like Decentraland, CryptoBeasties, Etheremon, and CryptoKitties.
What does it mean to have an ecosystem of apps that use NFTs?
It can be useful to think of NFTs as a new technology on top of which we can build the same kinds of products and experiences that we already love, but with the additional benefits that come with decentralization and sound, economically scarce, digital assets.
Let’s look at two of the most prevalent examples: games and rare art.
Here at Decentraland, we’re especially excited about blockchain games, so this is something that we’ve already written about.
These are some of the most cutting edge and innovative ways that the Kingswap project have come up with to reward their early adopters and loyal community members and supporters through the issuance of NFTs.
While Bitcoin used a blockchain to store a record of transactions, there were some people who saw an even greater potential.
The result was Ethereum, created by Vitalik Buterin, which uses blockchains to decentralize much more complicated information — even scripting. People began using Ethereum to create new cryptocurrencies (often referred to as tokens) and decentralized applications (or dApps) like our LAND Marketplace.
This ability to encode more complex data structures led to a need for standards…
ERC: building a community and ecosystem
You’ll often see the acronym ERC thrown around in crypto circles (usually followed by an identifying number like 20 or 721).
ERC simply stands for “Ethereum Request for Comments” which results in a set of standards for building software using Ethereum.
If you’re a regular reader of our blog, you’ll often see us referring to NFTs, saying things like “NFTs are redefining online gaming…” or “NFTs have revolutionized digital art”. While we firmly believe these statements to be true, we sometimes get so swept up in our own excitement that we forget NFTs can be confusing and difficult to understand for new readers.
So, we would like to take a step back and explain what NFTs are in a way that anyone can understand.
Hopefully after reading this, you’ll be just as excited about NFTs as we are!
Where it all started: cryptocurrencies, blockchains, and Ethereum
One of the very first uses for blockchain technology that gained the attention of mainstream users was Bitcoin, a digital currency that removed any need for a middleman (i.e.
Another answer by a16z to why NFTs have value for the seller is because NFTs offer better economics by removing intermediaries (via P2P direct sales), allowing for tiered, granular pricing (e.g., charge different prices for different editions) and minimizing user acquisition costs.
I would add another reason on why NFTs have value: NFTs are a path of least resistance to (the benefits of) ownership.
As context, Robert Fritz wrote a book called “The Path of Least Resistance”, in which he shared three insights:
- Everyone goes through life by taking the path of least resistance, just like how a river will flow along the smoothest path.
- The underlying structure decides what the path of least resistance is. It is difficult (if not impossible) to sustain changes by pure will power.
Many jurisdictions also treat Utility Tokens similarly to Payment Tokens, as long as they can be used as a medium of exchange, meaning that Payment Tokens (like how Singapore treats utility and payment tokens as Digital Payment Tokens) can act as a store of value and medium of exchange such as Bitcoin and Ethereum. How are NFTs Differentiated? NFTs usually do not grant the token holder any entitlements against the issuer, as a typical case is a unique Baseball card or Pokemon or Magic the Gathering Trading Card – buyers and holders simply purchase NFTs as collectibles, and buying these cards does not give them any right against the manufacturers of the collectibles.
A few decades after the birth of the Internet, we saw the birth of Bitcoin and other blockchains in the 21st century. Blockchains enable anyone to send cryptocurrencies to anyone else anywhere in the world, assuming both parties have access to the Internet.
Blockchains make money transfers faster and cheaper compared with using traditional financial institutions (such as banks). Thus, the blockchain is the underlying structure that empowered applications built on top to become a path of less resistance for value transfer.
NFTs are one type of value that is being transferred on-chain.