The Sudden Rise of NFTs

The Sudden Rise of NFTs
The Siliconreview
29 March, 2021

Anyone who has been paying attention to tech news in recent weeks will have heard about the sudden boom in the market for NFTs. Some of the headlines include Twitter founder Jack Dorsey selling his first ever tweet for a cool $2.9 million US, and the purchase of a virtual ‘Mars Home’ for $500,000. As we dive ever deeper into the virtual space, the lines between the real and digital worlds become more and more blurred. One virtual world is even offering job opportunities to work in their casino, with the crypto pay exchanged for various NFTs inside the so-called online metaverse.

If all this sounds a bit much, then you are not alone. In a world that is just now waking up to the possibilities of blockchain, the NFT market can seem like a step too far. But for anyone who has been switched on to crypto for longer, this latest spike in the value and scope of NFTs was perhaps inevitable. Not ready to apply for a job at a virtual casino? For more traditional online casino Canada real money sites, you can find a real money casino here.

How do NFTs Work?

Let’s back up a bit, because the concept of NFTs is still alien to a lot of us. NFT stands for non-fungible token – hardly the catchiest of names. Without getting too technical, the purpose of NFTs is to create uniqueness for a given piece of digital information. An ongoing problem for digital creatives is that their work can be easily duplicated an infinite number of times, so it is almost impossible to claim authenticity or ownership.

NFTs solve this problem by registering a digital piece as unique on the blockchain. While it is still possible to make copies, the NFT version is marked as the original. This can be seen as analogous to the way that original paintings sell for vast sums, while their prints are worth much less. NFTs allow digital artists to certify the authenticity of a piece, which in turn means that it can be sold for as much as IRL artworks.

Where did NFTs Come From?

While it may look like they appeared overnight, NFTs have been around in some form since 2012. Early iterations met with more or less success but proved beyond doubt that people were more than willing to pay for digital assets outside of computer game environments.

The first NFT to really take off was CryptoKitties in 2017. Thanks to updates in the NFT technical standards for the Ethereum blockchain, it was now possible to accurately track the ownership of the unique tokens. CryptoKitties made the news, baffling many observers. Participants traded their virtual cats on the blockchain using cryptocurrency, and some made enormous profits. A market was born.

Critics compared it to the Beanie Baby craze of the 1990s, and it was pointed out that the ‘value’ of these digital assets relied solely on a collective agreement on how much they were worth. In this way, it has similarities to any other collection mania throughout history. The only difference being that the items are intangible and the currency used is crypto.

With people increasingly occupying virtual spaces almost as much as physical ones, it seems logical that a market for digital items would grow up within them. After all, these items can have use and therefore value when immersed in a digital world. The extended period of enforced isolation and immobility that was forced on the global population by the pandemic has also doubtless been a factor in the way things have been moving.

Is the NFT Boom Here to Stay?

Anyone who doesn’t spend time in virtual spaces may be extremely skeptical of the sudden interest in NFTs. Public skepticism over cryptocurrencies is still high, and NFTs are an offshoot of this – a bubble inside a bubble, if you like. The most recent record set in the market was the $69.3 million purchase of a piece entitled ‘Everydays: the First 5,000 Days’, in an auction hosted by Christie’s. This marks the third highest payment for an artwork by a living artist in any medium.

Can this level of interest and investment in NFTs be maintained? At the moment, it is hard to say. A whole parallel economy is already emerging thanks to blockchain, and despite the predictions of traditional economists it is a bubble that has refused to burst. While the numbers may not stay this high forever, it seems reasonable to expect that NFTs are here to stay in one form or another.

Moving into the Mainstream?

We are still adjusting to the concept of material value for digital assets, but it cannot be long before the idea becomes mainstream. Gucci are selling virtual sneakers, wearable via VR and AR, for $17.99 per pair, and plan to roll out more pieces in the future. Although the shoes are not NFTs, they represent a shift in how consumers view these non-physical items.

As speculation around the market for NFTs continues to heat up, trend forecasters predict that most fashion brands will derive a portion of their revenue from digital products within the next decade.

Too Hot to Handle?

The climate around NFTs is hotting up in more ways than one. The computer networks – the ones needed to power the cryptography of Ethereum and verify the validity of NFTs – use vast amounts of energy. While artists are becoming overnight millionaires, an incipient energy use crisis is unfolding.

Until recently, the majority of energy use in Ethereum was derived from crypto speculation. All that has changed with the explosion of the NFT market. At this time, only a few digital creators have expressed any concern over the massive energy use. The developers of Ethereum, meanwhile, have made some less than concrete promises about clean energy sources – but there is not yet anything solid to show. Unless this issue can be satisfactorily resolved, it could eventually be what brings the NFT boom to a close.