Key Takeaways

• While NFTs have been around since 2014 and started to gain fame in 2017 with Cryptokitties, NFT marketplaces have seen massive growth in the last 12 months, upwards of 1700%.
• A digital asset, NFTs are unique in that each contains a unique digital identifier, making it provably scarce.
• NFTs themselves are a popular trend, especially among the rich and famous.

Introduction

The Global NFT Market

•  Non-fungible tokens (NFT) are unique digital or physical items frequently based on the Ethereum blockchain. Each NFT contains an identifier that represents it as being unique or one-of-a-kind, which makes it the only one in existence. Examples of popular NFTs include art, music, puzzles, videos, sports collectibles, or even Tweets. As Analytics Insights stated, "The popularity of crypto art lies in the ability to securely value, purchase, and exchange digital art using a digital ledger. NFTs popularity is also powered by the fact that artists, including professionals, can prove ownership of their works through digital signs supported by blockchain technology. It, therefore, eliminates illegal duplication of digital works."
• NFTs give ownership of the original. Whereas artists may retain copyrights or reproduction rights, the owner of the NFT retains its intrinsic value as being the only original in existence. As explained, "anyone can buy a Monet print. But only one person can own the original." In other words, "An NFT acts as a non-duplicable digital certificate of ownership representing a specific digital asset. Essentially, it is a smart contract that identifies something as unique. The smart contract is then minted into a token (generally ERC 721) on a blockchain, commonly on Ethereum. Popular forms of NFT are things like jpegs, gifs and videos. When an NFT is purchased, the owner then has the digital rights to resell, distribute or license their asset in any way they choose. In many cases, the original piece of art, gif, tweet or video is still available for others to see, but you own a wholly unique version of this asset. The value of an NFT can vary greatly based on how desirable it is. NFTs such as those from celebrities, popular influencers, or those which capture a momentous occasion, can be extremely valuable. Typically, this value is driven by scarcity — something unique within the NFT space, as a creator, might only mint one specific version."
• A legal definition of NFTs: "Because NFTs are not fungible, they can be used to represent other, unique assets that are either online or in the physical world. For instance, an NFT could be used to represent an oil painting hanging on an art gallery wall. More commonly at present, NFTs can be tied to a digital asset by cryptographically associating the token with that other asset."
• Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council details the importance of NFTs, "Essentially, NFTs create digital scarcity." Earlier this year, "digital artist Mike Winklemann, better known as 'Beeple' crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, EVERYDAYS: The First 5000 Days, which sold at Christie’s for a record-breaking $69.3 million."
• NFTs have been around since 2014. However, from late 2017 to 2020, over $174 million has been spent on them. This is mainly due to the built-in authentication NFTs contain, which "serves as proof of ownership. Collectors value those 'digital bragging rights' almost more than the item itself," according to Forbes. In addition, the NFT market has grown 1,795% in 2021.
•  Seven features are present in blockchain-based NFTs: standardization, traceability, interoperability, liquidity, programability, immutability and provable scarcity. Standardization "serves as building blocks for digital assets from basic ownership, transfer, and control to advanced features such as additional standards for displaying the NFTs", whereas traceability enables NFTs to be traded freely in open marketplaces. Interoperability provides and enables the multitude of NFT marketplaces consistent, clear, and reliable API that is authorized and permissioned for writing and reading data across all platforms. Arguably most important is the fact that NFTs cannot be altered in any manner and their proof of ownership is programmed through digital keys.
• Thousands of NFTs are sold on many dozens of digital marketplaces or platforms. While there is not a definitive quantity of NFT marketplaces, CryptoWissor lists 34, some top marketplaces include OpenSea, SuperRare, Rarible, Nifty Gateway, and NBA TopShot. OpenSea is commonly known as the first NFT marketplace and the largest, with a sales volume estimated at $414.24 million.
• "Data acquired by cryptocurrency trading simulator Crypto Parrot indicates that the all-time trading volume of the ten leading NFT marketplaces has hit $1.63 billion as of May 4, 2021."
• The highest trading volume marketplaces include NBA Top Shot with a trading volume at $549.71 million, "followed by OpenSea with a volume of $414.24 million. The two marketplaces account for more than half of the trading volume at 59%. CryptoPunks ranks third with a volume of $299.16 million. Additionally, NBA Top Shot has the most significant number of traders among the top ten marketplaces at 357,114. AtomicMarket ranks second with 239,284 traders. The traders on the two platforms represent about 72% of the 824,894 total traders by the top ten marketplaces. Elsewhere, OpenSea had 108,990 traders as of May 4, 2021."
•  Four categories of NFT marketplaces are open, curated, collectibles, and games. CryptoNews explains, "The open marketplaces are ones where you can find anything under the sun, from visual art to music files, to collectibles, to game items. In this way, these NFT marketplaces are more open to any person who wants to enter the NFT space. Collectibles are sets of NFTs that are all branded with a similar quality, like CryptoPunks, for example. The collectible marketplace for CryptoPunks is all made in the same style, but they have varied faces and colors. The games marketplaces section will include NFT marketplaces that are motivated by assets bought on gaming applications."

NFT Trends

• Among the trends within the NFT market is the trend of traditional collectible outlets, such as auction houses, acknowledging NFTs and now including them in their portfolios. "Due to the growth of crypto art, famous traditional auction houses have also acknowledged the shift and are now utilizing existing marketplaces. With some auction houses commanding a considerable following, the fanbase is bound to influence the trading volume on the marketplaces. Recently, the leading auction house, Sotheby’s, announced that it will accept bitcoin and ether for an upcoming auction of a Banksy painting."
• NFTs are allowing social media stars an alternative to the big technology platforms, such as Instagram and TikTok by "distributing control away from Big Tech, and into the hands of creators and fans. Creators can turn their content into exclusive digital collectibles using NFTs, meaning ownership and authenticity are guaranteed. Users of the network (fans, followers and other creators) can exchange, collect and trade these NFTs within the marketplace." BitClout and Hyprr are two new social media networks and are "providing new and innovative ways for social media stars, fans and peers to monetize their influence."
•  Decentralized-commerce, or dCommerce is exploding due to NFTs. "Splyt is definitely at the forefront of this movement. Its eNFT (Ecommerce-Non-Fungible-Token) tokenizes off-chain products on the blockchain. This creates a universal, standardized protocol for how data and funds are shared securely between all parties in ecommerce transactions. In an age where more and more products are entirely digital, the ability to add transparency to the center of transitions between buyers, sellers and resellers opens up huge opportunities."
•  Growth within gaming is a current trend in the NFT market. NFTs allow gamers to trade and collect gaming assets anywhere on the globe and play a large role in specific games. "One of the most interesting examples within this new breed of game producers is AnRKey X. The team has built a gDEX (Decentralized Finance Gaming Platform Exchange) protocol that merges the worlds of DeFi (Decentralized Finance) yield farming, NFTs and competitive esports into what they are terming M$ports (Money Sports). This allows teams of gamers to compete against each other to earn yield, with NFTs featuring key in-game characters providing valuable power-ups to increase APYs. This area is really catching attention — allowing in-game items to have their own unique value outside of the game ecosystem while providing a compelling use case for NFTs within games."

•  Large investments in NFT marketplaces by venture capital firms and large tech companies is trending. "Opensea has been successful in raking in an investment of $23 million in a round under the leadership of Andreessen Horowitz. The massive investment presents good news for the growth of non-fungible tokens in 2021. The trust of a leading venture capital firm in the long-term potential of the NFT market also strengthens the possibilities of non-fungible tokens market growth in 2021. Another NFT platform, Recur, collected $5 million from some of the renowned crypto funds and individual investors. The platform involved notable names such as Gary Vaynerchuk, Delphi Digital, and Hashed for drawing investments to develop branded NFT Fan Experiences."
•  Celebrities and famous high-net-worth individuals are joining the NFT 'craze' by creating, selling and buying NFTs, sometimes for millions. The list is long and includes Rob Gronkowski, Ja Rule, Lindsay Lohan, Kings of Leon, Shawn Mendezs, Paris Hilton and Mark Cuban. As well, famous athletes are dropping collections on specific NFT marketplaces. Patrick Mahomes will launch a collection of NFTs that are “centered around significant moments in Mahomes life" on Makersplace. Famous in the social media sphere, YouTube star and gamer Pewdiepie recently announced his collaboration with Wallem, a blockchain-based game. The game utilizes NFTs for trading skins and other in-game assets.

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