With the record Christie’s sale of Beeple’s Everydays: the First 5000 Days NFT for $69 million in 2021, a new sort of art and investment burst onto the global market.
NFTs, however, have been around for a lot longer than that; therefore, despite 2021 being dubbed the “year of the NFT,” they weren’t actually invented in that year.
It helps to learn more about the history of non-fungible tokens and the occasions that contributed to their trending and achieving the level of popularity they have in recent years in order to understand NFTs better and discover exactly what they are.
What is a Non-Fungible Token (NFT)?
A non-fungible token is only a unique digital asset. The fact that all bitcoins are the same and can be used interchangeably describes the fungibility of assets like bitcoin. A work of art is an illustration of a non-fungible token. I can have two identical works of digital art, but they are all completely different from one another. The crypto-artist Josie’s two NFTs are displayed in the sample below. Despite having a similar appearance, her two pieces, “Choose” editions #4 and #5, are wholly original to the blockchain.
NFTs have a long history, which we may now explore in more detail now that we have defined them.
2012–2013: Colored Coins
It might be argued that colored coins were the original NFTs. The smallest unit of a bitcoin, known as a satoshi, can be used to create Colored Coins, which are comprised of smaller bitcoin denominations. Colored Coins have numerous applications and can be used to represent a wide range of assets, including:
- Ability to issue your own cryptocurrency
- Issue shares of a company
- Access tokens
- Digital collectibles
The downside of colored coins was that they could only represent specific values if everyone agreed on their value, which represented a significant improvement in Bitcoin’s capabilities. Because this kind of conduct was never intended to be allowed within the Bitcoin network, Colored Coins could only be as strong as their weakest user. For example, three persons agree that 100 Colored Coins equal 100 company shares. The entire system collapses if even one member decides that colored coins are no longer equivalent to company shares.
The earliest reference to colored coins was made in a blog post by Yoni Assia from the beginning of 2012, titled “bitcoin 2.X (aka Colored Bitcoin) – initial specs.” In his post, he talks about colored coins, but not in relation to how they may represent different assets or use cases. Instead, he argues that Colored Coins are distinct from other bitcoin transactions since they were a part of the “Genesis transaction.” The potential of these novel assets didn’t seem to be fully realized until Meni Rosenfeld’s paper, “Overview of Colored Coins,” was published on December 4, 2012. Another paper was named “Colored Coins — BitcoinX” in 2013.
Colored Coins paved the way for additional research and provided a good deal of the foundation for NFTs.
The flaws in Colored Coins are apparent; the system performed best in a permissioned setting, therefore there are some situations where it is preferable to just utilize a database. Nevertheless, Colored Coins paved the way for additional research and provided a good deal of the foundation for NFTs. It was obvious that adding real-world assets to distributed ledgers had enormous promise, but doing so required a more adaptable blockchain.
2014 — Counterparty
Many individuals became aware of the enormous potential for issuing assets onto blockchains as a result of the development of Colored Coins. People were also aware that Bitcoin was never intended to support these extra functionalities in its current form. Counterparty, a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain, was established in 2014 by Robert Dermody, Adam Krellenstein, and Evan Wagner. Counterparty permitted the production of assets and even had a cryptocurrency token with the ticker XCP and a decentralized exchange. It had many initiatives and resources, such as a trading card game and meme trading.
April 2015 — Spells of Genesis on Counterparty
Spells of Genesis’ developers were among the first to conduct an ICO in addition to being pioneers in the release of in-game assets onto a blockchain via Counterparty. In reality, ICOs were used as a synonym for crowdfunding at that point. In order to finance its development, Spells of Genesis introduced BitCrystals, a token that served as the game’s currency.
August 2016 — More Trading Cards on Counterparty
Force of Will, a well-known trading card game and Counterparty partnered to launch their cards on the Counterparty platform in August 2016. Only Pokemon, Yu-Gi-Oh, and Magic: The Gathering were more popular card games in North America than Force of Will, which came in at number four. Because Force of Will was a sizable, well-known corporation with no prior blockchain or cryptocurrency experience, this occurrence was significant. Their inclusion in the ecosystem served as a sign of the benefit of placing these assets on a blockchain.
October 2016 — Rare Pepes on Counterparty
Memes eventually started to migrate to the blockchain; it was only a matter of time. On the Counterparty platform, “rare pepes” were first issued as assets in October 2016. A meme with this frog character is known as a rare pepe. There is a huge following for these memes. The Rare Pepe Meme Directory is a specific kind of meme trade.
Even though the Rare Pepe Meme Directory has “experts” that vouch for the rarity of the pepe memes, being on the Bitcoin blockchain isn’t enough. Despite its peculiarity, this illustration proves that consumers desire distinctive digital goods.
Today, Counterparty has a wide range of projects developed on its platform, many of which include assets like NFT.
March 2017 — Rare Pepes on Ethereum
Early in 2017, as Ethereum gained popularity, memes began to be traded there as well. A project called Peperium, which intended to be a “decentralized meme marketplace and trading card game (TCG) that allows anyone to generate memes that live eternally on IPFS and Ethereum,” was introduced in March 2017. Peperium, like Counterparty, has a corresponding token with the ticker symbol RARE that was used for making memes and covering listing fees.
A project called Peperium, which intended to be a “decentralized meme marketplace and trading card game (TCG) that allows anyone to generate memes that live eternally on IPFS and Ethereum,” was introduced in March of 2017.
June 2017 — Cryptopunks
Two “creative technologists” made the decision to develop their own NFT project with a little deviation as the trade of rare pepes on Ethereum increased. Matt Hall and John Watkinson discovered they could generate distinctive characters on the Ethereum network. There would be a 10,000-character cap and no two characters would be the same. As a nod to the Cypherpunks who experimented with Bitcoin’s forerunners in the 1990s, they chose the name Cryptopunks for their project.
Unexpectedly, Watkinson and Hall decided to offer free Cryptopunks to anyone with an Ethereum wallet. All 10,000 Cryptopunks were quickly claimed, and a bustling secondary market for buying and selling them soon followed. Interestingly, Cryptopunks were not totally ERC20 due to their constraints, but they were also not entirely ERC721 because that standard had not yet been developed. Thus, the easiest way to characterize cryptopunks is as a cross between ERC721 and ERC20.
What is the Ethereum Token Standard (ERC)
To allow its interactions to work correctly, the Ethereum blockchain includes different technical standards for different sorts of tokens on its network. “Ethereum Request for Comment” is what the “ERC” abbreviates. The most popular standard is ERC20, which provides guidelines that allow tokens to communicate with one another in a predictable way. When designing tokens that need to communicate with other tokens or applications on Ethereum, developers can greatly benefit from using this standard architecture. The best way to create unique tokens on Ethereum is not to use ERC20 tokens, even though they are useful for many Ethereum operations. ERC721 was created to address this. Despite sharing many characteristics with ERC20, ERC721 was created specifically to serve as the technical benchmark for non-fungible tokens on the Ethereum network. The key distinction between the two standards is that ERC721 tracks ownership and transactions of specific tokens within a block, allowing the chain to identify non-fungible tokens. The well-known CryptoKitties project was the first to use the new NFT technical standard.
October 2017 — CryptoKitties
With CryptoKitties, NFTs became widely used. Players can adopt, raise, and trade virtual cats in the blockchain-based video game CryptoKitties. On a blockchain, cats!
From CoinDesk to CNN, it seemed like every news outlet covered this amazing idea. Maybe it was because the game was clogging up the Ethereum network and making it run slowly, or maybe it was because people were trading them for astronomical profits.
Some virtual cats have fetched prices of over $100,000.
People started to understand the actual power of NFTs after observing the activity in the CryptoKitties community and watching prominent investors pour money into Dapper Labs.
Axiom Zen, a Vancouver-based firm, cleverly introduced CryptoKitties in October 2017. The project’s alpha release took place during the ETH Waterloo Hackathon, the biggest hackathon for the Ethereum ecosystem after the team had been working on it for a few months. It was the ideal setting and timing to unveil the game, with more than 400 creators present. The hackathon’s winning team was CryptoKitties, and the game immediately gained popularity. People started to understand the actual power of NFTs after observing the activity in the CryptoKitties community and watching prominent investors pour money into Dapper Labs.
The 2017 cryptocurrency bull market occurred at the same time as CryptoKitties’ ascent, which fueled the flames even further. Virtual cats were being bought, bred, and traded like mad. This made non-fungible tokens more appealing to many individuals. Then, Axiom Zen spun off a business named Dapper Labs, which raised $15 million from prestigious investors like a16z and Google Ventures. People started to understand the actual power of NFTs after observing the activity in the CryptoKitties community and watching prominent investors pour money into Dapper Labs.
2018–2019 — NFT Cambrian Explosion
The NFT ecosystem has experienced rapid expansion in 2018 and 2019. More projects are now being developed than 100 projects currently occupy the area. NFT marketplaces are flourishing, with OpenSea and SuperRare gaining ground. Although the transaction volumes are modest in comparison to those of other crypto markets, they are expanding quickly and have gone a long way. As Web3 wallets such as Metamask improve, it is becoming easier to enter the NFT ecosystem. Additionally, Dapper Labs just released a Dapper wallet that doesn’t require gas charges. In addition, websites like nonfungible.com and nftcryptonews.com are now available that explore NFT market stats, gameplay tutorials, and general knowledge about the area. This The Block graphic does a wonderful job of illustrating the current ecosystem.
The NFT road was led by CryptoKitties, but they could not have done it without the earlier initiatives that built the foundation by creating distinctive digital assets. Nonfungible.com’s intriguing infographic demonstrates how crucial CryptoKitties is to the NFT ecosystem as it stands today.
The ability to breed multiple cats, which results in the creation of a completely new cat or ERC721 coin, may have contributed to CryptoKitties’ rapid rise.
This graph demonstrates that owners of CryptoKitties are more likely to play additional NFT games than players of other NFT titles. The ideal entryway into the realm of NFTs is CryptoKitties.
The ability to breed multiple cats, which results in the creation of a completely new cat or ERC721 coin, may have contributed to CryptoKitties’ rapid rise. NFTs now have a limitless number of features, such as character names (which are a lot like domain names), virtual land plots, virtual apparel, event admittance tickets, asteroid mining resources, and more. The multiple NFT projects and games that are working together to make things interoperable are arguably the most interesting development in the area. For instance, a player might possess a sword in one game that they can transfer to another to use as a rare item of apparel. The possibilities are virtually limitless with interoperability.
What is the future of NFTs?
The emergence of non-fungible tokens is mostly unrelated to the publication of a few digital art collections. Crypto and NFTs are still being driven by a network of online communities, and there are no signs that this progress is about to stop.
The next great product to emerge from this industry is the subject of many rumors. You should anticipate a lot more NFT news in the years to come as developers and artists try to ride the NFT wave and there are discussions about what the Metaverse will bring.