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With Added Utility, NFTs Are Becoming Quite Useful

With Added Utility, NFTs Are Becoming Quite Useful

The Non-Fungible Token (NFT) industry can be traced back to the early days of the internet. The first NFTs were digital collectibles created on forums and message boards. These tokens were simply images or text used to represent a unique asset.

However, it wasn't until the development of blockchain technology that NFTs really began to take off. Blockchain provided a way to securely and permanently store data on a decentralized ledger. This made NFTs much more secure and trustworthy than traditional digital collectibles.

Since then, the NFT industry has exploded in popularity. Millions of dollars worth of NFTs have been sold, and the market is only getting bigger. With the help of blockchain, the NFT industry is revolutionizing the way we think about digital ownership.

This article discusses NFTs, including where they came from, important milestones, and what to expect in the future.

The Origin of NFTs

The first-ever known non-fungible token (NFT) was created in 2014 by Kevin McCoy and Anil Dash. It was called Quantum and consisted of a video clip of digital art created by McCoy’s wife, Jennifer. Originally, the technology was called “monetized graphics,” and Quantum was registered on the Namecoin blockchain and sold to Dash for $4. Today, it’s on sale for $7M.

In October of 2015, three months after the launch of the Ethereum blockchain, the first NFT project, Ehteria, was launched and demonstrated at DEVCON 1 in London. Most of the 457 NFTs went unsold for more than five years until March 13, 2021, as interest in NFTs was renewed. These remaining pieces sold out in 24 hours for a total of $1.4M. At the time of their launch in 2015, their cost was only $0.43 each.

Increased public awareness began in 2017 when an online game CryptoKitties monetized cat NFTs. During 2020, the value of the NFT market exploded, tripling to $250M. During the first quarter of 2021, more than $200M was spent on NFTs.

Or Was the Origin in 2012?

There is another origin story out there on NFTs worth discussing, known as Colored Coins. Colored Coins, created in 2012-2013, are made of small bitcoin denominations–known as a single satoshi–which can be used to represent a multitude of assets and have multiple uses, including:

  • Coupons
  • Property
  • Issue shares of a company
  • Ability to issue your own cryptocurrency
  • Digital collectibles
  • Access tokens

Unfortunately, the whole Colored Coin system carries several flaws. But, they played a significant role in laying the groundwork for NFTs. You can learn more about them here in the “Overview of Colored Coins.” 

Counterpoint: “Counterparty”

Another early consideration for the creation of NFTs is Counterparty. Counterparty is a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain. It allowed asset creation and even included a trading card game and meme trading, where Rare Pepes originated.

Rare Pepes

In October 2016, “rare pepes” were issued along the Counterparty platform. A rare pepe is a meme featuring a frog character that has developed an intense fanbase. Besides being incredibly quirky, the uniqueness of these images makes them such desirable NFTs. 

How the NFT space has evolved

In simple terms, an NFT is a unit of data stored on a variety of digital ledgers called a blockchain, which can be sold and traded. But, what started as a simple video clip has evolved into many use cases across various industries. But, perhaps none is more compelling than the art industry.

The History of NFT Art

Art is perhaps the most common way to use NFTs, as auctions from high-profile NFTs have made the biggest splash in public attention. Currently, the most expensive NFT ever sold was at an auction price of $91.8M–work by artist Pak, entitled The Merge.

The merge

The Merge is both a single piece of artwork and a series of artworks. When it launched, buyers could purchase an NFT, called a mass, for a set amount of money ($575). However, for buyers who purchased more than one mass, instead of receiving another NFT, their current mass actually increased in size. The price of a mass NFT grew throughout the sale, and buyers who bought a lot of mass were rewarded with free mass. 

It sounds a little confusing, but if you can picture a tiny ball of mercury as one mass, then add other tiny balls of mercury to it, you can see how each comes together to get bigger and bigger. That’s what The Merge is and was before the sale was brought to a close. Now, even though the launch is over, buyers and traders can still sell or trade their NFTs to grow their mass bigger, making their NFT more valuable. 

In the end, more than 28,000 buyers spent over $91M on what has been one of the most compelling NFT art concepts to date.

Everydays: The first 5000 days

The second most expensive (at $69M) was a piece of artwork by Michael Winkelmann–known as Beeple–called Everydays: the First 5000 Days.

Beeple is a graphic designer and motion artist from South Carolina who is well-renowned in the digital art world. However, his rise to fame reached a new height with his NFT collage created from 5,000 images created daily for 13 years. The images were put together and formed one NFT unit that sold for almost $70M making it the third-most-expensive piece of art ever sold.

CryptoPunks

Perhaps, the most well-known NFT digital art pieces are the collection of CryptoPunks, which is credited with starting the NFT craze of 2021.  

CryptoPunks is a series of 10,000 unique collectible characters stored on the Ethereum blockchain. Each character is created using an algorithm and no two are identical. The images are 24x24 pixels and feature some combination of guys, girls, apes, zombies, and aliens. While some of the images share attributes, the rarest ones feature the fewest attributes. For example, on the current marketplace, CryptoPunk 5822 is on sale by the owner for $34.89M. It features one attribute–a bandana–which is only shared by 481 punks. 

Perhaps the wildest part of CryptoPunks is that initially, they were all free. One simply had to claim them. Now they sell for hundreds of thousands to multi-millions of dollars.

CryptoKitties

In the 90s, we had Tomagotchi–a handheld digital pet that you could feed, love, and–if neglected–kill. In the 2020s, we have CryptoKitties! CryptoKitties are digitally created breedable and collectible cats. Each is one-of-a-kind and cannot be replicated, taken away, or destroyed.

It turns out that breeding digital pets is big business for at least a short period of time. While CryptoKitties was the first widely recognized blockchain game and featured astronomical growth, the popularity was short-lived. In fact, it reached its peak on December 10th, 2017. But, by the beginning of 2018, the game’s popularity fell by 90% of users. However, for those that were fortunate during that short time. One CryptoKitty fetched $1.3M, another $566,000, and the third most expensive CryptoKitty was sold for $107,000.

Bored Ape Yatch Club

Similar to CryptoPunks, Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique, algorithm-created images. Except instead of aliens, zombies, and humans, BAYC features images of–you guessed it–apes. In March of 2022, sales of BAYC made up more than a third of total NFT sales. In January of 2022, BAYC surpassed $1B in total sales.

Who Can Create & Purchase NFTs?

The easy answer is that anyone can create or purchase NFTs. Some companies help guide you through the process of creation, connecting your content through blockchain, and getting the proper paperwork done to develop your own NFTs. Purchasing is also as easy as connecting with an online marketplace and working with vendors to purchase or acquire the NFTs you want.

You can launch your NFT collection in seconds with Mantial. We assist everyone, from entrepreneurs to celebrities and large companies throughout the whole process of conception, sales, and management of NFT collections.

In Conclusion

The future is wide-open for the NFT industry. As it becomes more and more popular, creators and even NFT experts are still exploring the possibilities of this technology and how it collides with our everyday lives. While the exact future of NFTs is uncertain, the market is expected to continue growing, and NFTs worth millions of dollars today could be worth billions in the future. 

And, when money like that is involved, everyone will want a piece of the action.

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The Walking Dead

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Rick’s NFT

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The Walking Dead

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Michonne’s NFT

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Key points

  • NFTs are more than just digital bubble gum cards or collectible art.
  • NFTs can actually be quite useful in a myriad of ways.
  • Smart contracts allow various forms of utility to be built into NFTs.
  • Utility can also be added to NFTs outside of smart contracts.

Since NFTs exploded onto the world stage in 2020 and 2021 the technology has been making its way into every nook and cranny of modern society. What started out as the equivalent of digital bubble gum card collections has blossomed into a veritable cornucopia of NFTs. There are NFT restaurants, NFT albums, NFT fashion, NFT cars, and even NFT real estate. 

The main purpose of an NFT is to act as provenance. In other words, NFTs provide proof of origin, authenticity, and ownership of any asset — physical or digital. 

However, creative thinkers are now finding endless ways to actually make NFTs far more useful than just acting as a digital certificate of authenticity.

NFTs are made possible by smart contracts. These are essentially computer programs that act as automated contracts. You might have heard cryptocurrencies being referred to as “programmable money.” These programs run on a decentralized computer network such as Ethereum and automate all kinds of functions. 

Automating royalty payments

The most obvious example so far of NFT utility is the payment of aftermarket royalties. When an NFT is originally sold, the owner retains most or all of the selling price and NFT marketplaces such as OpenSea make a small commission on the sale. The underlying smart contract of OpenSea NFTs automatically rakes 2.5% of the sale price into an Ether wallet owned by OpenSea.  

However, OpenSea smart contracts can also facilitate the payment of aftermarket royalties. What this means is that each time an NFT is re-sold, up to 10% of the selling price will be automatically transferred to the original creator’s wallet. 

Prior to this development, artists had no way of collecting royalties on after-market sales. Let’s say an artist sells a painting for $100, and then the buyer turns around and sells the painting for one million dollars. The original artists wouldn’t see a dime of that money even though they’re the ones that gave the work value. 

Even in cases where royalties are written into contracts, in order for content creators to collect those royalties, they have to trust publishers, agents, managers, and performing right organizations to collect and distribute royalties. But smart contracts relieve creators from having to trust anyone in the chain to protect their rights and interests. They can rest assured that if the item is sold on the market, the creator is guaranteed to get their royalties. 

Today, royalties are the most common form of NFT utility. However, more and more examples of NFT utility are popping up every day. 

NFTs usability

Proof of permission

NFTs can also be imbued with functionality without building it into smart contracts. A perfect example of this is access to resources based on proof of ownership.

Let’s use concert tickets as an example. Prior to the invention of NFTs, in order to get into a concert, you had to purchase a ticket and present the ticket at the gate in order to get in. The ticket acted as proof of the fact that you reserved a seat at the event. Because they are tied to a unique wallet address, NFTs can perform the exact same function as a printed ticket. 

NFTs are already being used as proof of permission to access all sorts of activities — not just concerts, but also museums, sporting events, trade shows, and seminars.

NFTs can also be used to authenticate permission to access web applications of any kind. Today, most websites require users to enter a username and a password in order to prove permission and gain access to various web platforms. With Web3 — that is blockchain-enabled web platforms — NFTs can be used as proof of permission. 

Platforms are being developed that only give access to users who connect a crypto wallet containing a particular NFT. The application confirms that the wallet contains the requisite NFT and grants access. The NFT essentially acts as a key to the platform. If the user decides they are no longer interested in utilizing the platform, then they can just sell their NFT to someone else.  

Examples of proof of permission

A good example of proof of permission is an NFT collection called Satoshi’s Key. Ownership of a Satoshi’s Key NFT gives the holder lifetime access to an automated crypto investment tool called Satoshi’s Index. Without the NFT, users must register with the website and pay a yearly fee of a few hundred dollars. So owning a Satoshi’s Key can save the holder thousands of dollars over the years.

Moreover, because there are a limited number of these lifetime keys, and because they provide so much value, those who own the keys can resell them at any point in the future and make their money back or even make a profit on the investment. New users will either have to pony up hundreds of dollars or they can buy a Satoshi’s key and then resell it when they want to move on to other things. 

Because it doesn’t have to be written into the smart contract, this type of utility — proof of permission — can be added to an NFT at any time. A great example of this is the Bored Ape Yacht Club NFT collection. This is one of the most expensive and exclusive NFT collections on the planet with Bored Apes selling for hundreds of thousands of dollars. Recently, the company behind BAYC announced that they are building a BAYC metaverse to which all holders will have access. 

Another good example of a utility that is not written into the smart contract is the first band to release an album as an NFT — Kings of Leon. In order to download the album, you had to be one of the original buyers of the NFT. The NFT was “redeemed” by connecting the wallet to a website where the music could be downloaded. 

Anything you can imagine can be attached to an NFT

Wallets don’t need to be connected to platforms to give buyers access to assets or provide utility. Ownership of an NFT can also give holders access to just about anything by linking the NFT to an asset. 

For example, an NFT could give the holder access to a high-resolution version of an image, or an audio or video file, or a text file, or a computer program, or anything else that can be stored on a web server. 

OpenSea and other NFT marketplaces let creators attach a web link to downloadable content that is only accessible when the wallet containing the NFT is connected to the marketplace. No one else is able to access the content. This adds rarity to otherwise valueless assets.

If you were to buy a movie or album on the iTunes store, you can’t turn around and sell it to someone else without selling your entire account. And you certainly can’t sell it for a profit. However, if a song or a movie is connected to an NFT that gives the owner access to the content, the owner can easily resell it to someone else for whatever price they choose. 

In this scenario, the NFT is essentially redeemable an infinite number of times. Anyone who buys the NFT can access the asset. So, why would anyone want to release an NFT that can be redeemed an infinite number of times? The answer takes us back to royalty payments. 

The reason songs are only a dollar on iTunes is that there is an infinite supply, they’re not rare. However, if the song can only be downloaded by the holders of a limited collection of NFTs, and there is high demand for the content, then the value could be much higher. If the item is rare and in demand, then the royalty payments on after-market sales can be far higher than the cost of a single song or movie. 

Royalties, proof of permission, and attached assets are just a few examples of how NFTs can provide owners with utility and create rarity of an asset. The possibilities for the usefulness of NFTs are only limited by our imagination.