Non-fungible tokens, also known as NFTs, are among the most promising applications of blockchain technology. In our previous piece on the topic, we examined what NFTs are, how they came to be and how they can be used to unlock blockchain’s full potential.
While NFTs have so far been in the shadow of their fungible counterparts, they’ve been gaining traction over the past few years. It’s a niche market, but one that is definitely on the rise. In this follow-up article, we are taking a look at what is perhaps the most popular NFT application right now – digital collectibles.
A growing market for non-fungible tokens
Financial news outlet CNBC recently published an article focusing on the “booming NFT space” and the growing demand for digital collectibles. The market, while still relatively small, is enjoying explosive growth. Last year, the total value of NFT transactions reached $250 million, four times higher than in 2019. And with sales volumes exceeding $220 million in the past month alone, we’re likely to see another growth surge this year.
The sector’s growing relevance has also been reflected in the increased venture capital investment in marketplaces for non-fungible tokens and other NFT service providers. Since the start of the year, VCs have invested some $90 million in such businesses, with Sorare securing the largest deal by raising nearly $50 million. Andrei Brasoveanu, a general partner at VC firm Accel, which participated in Sorare’s recent round of funding, told CNBC that NFTs were “one of the most exciting things we’ve seen in crypto for years”.
Non-fungible tokens as digital collectables
So what makes NFTs so attractive and so well suited to support digital collectibles? Well, as we’ve discussed on these pages, both fungible and non-fungible tokens are created via smart contracts. However, in the case of NFTs, the smart contracts are much more complex and typically contain much more information, such as rich metadata that describes what makes a particular NFT unique, file links, information about the owner, and more. This is what makes NFTs such a powerful and versatile tool for preserving uniqueness in the digital world.
The concept of using NFTs for digital collectibles was popularized by Dapper Labs and their famous dApp, CryptoKitties, which allowed users to collect, breed, buy and sell virtual cats. Released in November 2017, CryptoKitties became an overnight sensation and, for a while, was the most popular decentralized application on Ethereum.
Of course, digital collectibles are not limited to digital drawings of cute pets, and Dapper’s current project is the perfect illustration of that. The CryptoKitties developer has partnered with the National Basketball Association to develop a marketplace for basketball video highlights called NBA Top Shot. The platform, which is being built on Dapper’s proprietary blockchain, Flow, utilizes non-fungible tokens to transform iconic NBA moments into digital collectibles.
This is what makes NFTs such a great fit for this space. With their help, any digital asset can easily be turned into a digital collectible or a piece of memorabilia. In March 2020, the CEO of Twitter and Square Jack Dorsey sold his first tweet as an NFT at an online auction on a platform called “Valuables”. The purchase price was $2.9 million!
Digital art is often considered as a separate use case for NFTs, but it shares many of the characteristics of digital collectibles. It deserves a mention in this article, not least because an NFT representing a virtual painting from the artist Beeple was recently sold at an auction for a whopping $69 million. The fact that the auction was run by Christie’s indicates that the major traditional players are starting to pay attention to the space.
Prominent NFT platforms
With a successful product and a high-profile partnership under its belt, Dapper Labs are undoubtedly a leading player in the NFT space, but the CryptoKitties developer is not the only game in town. The aforementioned Sorare is among a number of prominent NFT platforms. It’s a fantasy football game, where users can collect, buy and sell digital player cards and use them to assemble teams to compete in tournaments to win collectibles and even Ether prizes.
Another promising project is OpenSea, an NFT marketplace that recently raised $23 million in a round of funding led by VC firm Andreessen Horowitz. OpenSea is a peer-to-peer platform that allows users to trade digital collectibles from various NFT projects, including CryptoKitties, Gods Unchained, and Decentraland.
Meanwhile, Rarible combines a digital collectibles marketplace and a platform for minting non-fungible tokens in one. The platform provides users with the means to create their own NFTs and also offers integration with OpenSea.
Also worth noting is the NFTX platform, which pushes the NFT concept even further by attempting to combine the strengths of both fungible and non-fungible tokens. The platform supports making ERC-20 tokens that are backed by NFTs. Essentially, tokens minted on NFTX function much like traditional indices which provide indirect exposure to financial markets or baskets of securities.
A bright future
From stamps and coins through art and antiques to comic books, action figures, and more, the human propensity for collecting rare things has manifested itself in many shapes and forms. And with the help of NFTs, collectible items have found their way into the digital domain. And with digitalization only poised to increase in the future, the future of the digital collectible space is looking bright.