NFT mania and digital ownership

0


Welcome to the History of Crypto, a Cointelegraph series that brings readers back to the most significant events in the crypto space. Powered by Phemex, the timeline allows crypto community members to explore and look back at the important events that shaped the industry into what it is today.

In the tumultuous landscape of the digital age, where trends come and go at the speed of a click, one phenomenon has risen to prominence like few others: nonfungible tokens (NFTs). The years 2020 and 2021 marked a period of unprecedented growth and widespread adoption of these digital assets, reshaping the way we perceive ownership, art and the internet itself. In fact, in 2021 alone, the NFT market saw approximately $25 billion in trading volume, compared to an almost non-existent metric just a few years prior.

While the concept of blockchain technology had been around for over a decade, the emergence of NFTs captured the imagination of both creators and collectors. NFTs represent unique digital assets stored on a blockchain, ensuring their scarcity and authenticity. This innovation allowed for the tokenization of digital art, music, videos and even tweets, turning intangible creations into valuable commodities.

The concept of NFTs can be traced back to at least 2012 when the Colored Coins protocol was created on the Bitcoin blockchain. This protocol allowed users to issue custom tokens representing digital or physical assets. However, it wasn’t until later, with the emergence of Ethereum smart contracts and the ERC-271 token standard in 2017, that nonfungible tokens specifically for digital assets became possible.

One of the earliest and most notable examples of NFTs gaining widespread attention in 2017 was CryptoKitties. Developed by Canadian studio Axiom Zen, CryptoKitties is a blockchain-based virtual game that allows players to purchase, collect, breed and sell virtual cats. Following the success of CryptoKitties, numerous other projects began experimenting with NFTs for various purposes, including digital art, virtual real estate, in-game items and more. Platforms like Decentraland and NBA Top Shot gained traction during this period, showcasing the diverse applications of NFTs beyond gaming.

Then, between 2020 and 2021, mainstream adoption exploded.

NFTs reached new levels of mainstream recognition in 2021 as high-profile sales made headlines, including digital artwork selling for millions of dollars and celebrities launching their own NFT collections. In one such case, on Nov. 2, 2021, award-winning writer and director Quentin Tarantino announced he would auction off seven uncut scenes from Pulp Fiction as NFTs, built on the Secret Network. 

Other sales, too, mesmerized headlines, such as the $69 million sale of Beeple’s digital artwork “Everyday: The First 5,000 Days” at Christie’s auction house in March 2021. Newly created digital artworks by artists like Pak and Grimes fetched millions of dollars in auctions and private sales upon inception. During this time, iconic collections, such as Bored Ape Yacht Club and CryptoPunks, were also born.

Each being a part of a 10,000 algorithmically generated profile pictures collection, in March 2021, a CryptoPunk NFT (#7804) sold for over $7.5 million at auction, marking one of the highest prices paid for a single CryptoPunk at the time. Following this milestone, in October 2021, a rare triple Bored Ape set, consisting of three apes sold as a bundle, fetched over $24 million at a Sotheby’s auction. At the same time, the number of NFT marketplaces expanded rapidly during this period. Platforms such as OpenSea, Rarible, Foundation and Nifty Gateway gained widespread popularity, providing avenues for creators to mint and sell their digital assets. OpenSea emerged as one of the largest NFT marketplaces, with monthly trading volumes surpassing $1 billion by mid-2021, a figure since overtaken by Blur and OKX NFT.

However, this surge in popularity also brought criticism regarding environmental concerns due to the energy-intensive nature of blockchain transactions, as well as questions about the intrinsic value of digital assets. Indeed, during the crypto winter of 2022–2023, the trading volume of NFTs fell by a staggering 99% from its 2021 peak. 

Legal disputes also emerged over the ownership and authenticity of digital assets, highlighting the need for clear regulations and guidelines. Some platforms implemented verification mechanisms to authenticate the originality of NFTs and protect creators’ rights, while others grappled with defining ownership in decentralized ecosystems. Indeed, following the widespread publicity of the Pulp Fiction NFTs, Miramax sued the Hollywood director in a copyright lawsuit that was settled in September 2022. Yuga Labs, the current owner of both the BAYC and CryptoPunks series, also faced similar legal battles over its digital collections. 

Yet, all was not lost; with the ongoing crypto bull market, NFTs trading volume has recovered. New NFT projects, especially in Hong Kong, are surging in popularity, with collections gobbled up shortly after release. New protocols, such as ParaSpace (now Parallel Finance), are developing new tools for the ever-increasing NFT lending market. Meanwhile, new Ethereum token standards, such as ERC-404, seek to fractionalize NFTs and enable their widespread access. 

Overall, the NFT space continues to evolve, with ongoing experimentation in various industries and new platforms emerging to cater to different niches within the NFT ecosystem. Additionally, efforts to address environmental concerns and improve the sustainability of blockchain technology are underway as developers and enthusiasts seek to ensure the long-term viability of NFTs as a form of digital ownership and expression.

Related: The different types of NFTs: A beginner’s guide