Arhaan Goyal

Non-Fungible Tokens

The digital world is a rapidly growing aspect of the 21st century. From the development of the internet
and the world-wide-web, all the way to artificial intelligence. But now, the introduction of Non-Fungible
Tokens is bringing innovation at a rate never seen before. Non-Fungible Tokens, known as NFTs are
digital assets representing real-world objects. They are bought and sold online using cryptocurrency, the
most popular being Ethereum. The development of NFTs has created a new, online market where users
can buy and sell digital assets like music, art, videos, gifs, and more. In recent times, the NFT market has
encountered nothing but rapid growth. In this essay, I will be discussing the history and current state of
NFTs, as well as their function, and their future.

The concept of non-fungible tokens had come into existence in 2012 when it was highlighted in a paper
that introduced ‘Colored Coins’ by Meni Rosenfield. Colored Coins were the term used to describe
non-fungible tokens at the time. For 2 years, Colored Coins just remained a concept until May 3rd, 2014
when digital artist Kevin McCoy minted (published) the first ever NFT known as ‘Quantum’. After this,
in 2016 a significant amount of development went into NFTs and a bitcoin-based platform named
Counterparty was established. After months of experimentation with various cryptocurrencies based on
their efficiency when handling NFTs, a major shift took place from Bitcoin to Ethereum. NFTs went
mainstream in 2017 only after software developers John Watkinson and Matt Hall created a collection of
their very own pixel-art NFTs in which each character was unique, CryptoPunks. CryptoPunks is by far
the most popular NFT collection even today. Just after CryptoPunks, Vancouver-based studio Axiom Zen
introduced CryptoKitties which is a virtual game where people could adopt, breed, and trade online cats
and store them in their crypto wallets. According to Investopedia, the game had 1.5 million users who
were responsible for 40 million dollars worth of transactions on the platform. This increased popularity of
NFTs to a large extent. Finally, we reach 2021, the year of the non-fungible token. This year has been by
far the most prominent for NFTs there was a huge surge in NFT supply and demand. The largest NFT sale
took place this year, Beeple’s The First 5000 Days for a whopping 69 million dollars!

A timeline to represent the history of Non-Fungible Tokens.

To represent the growth of the market in a statistical format, the NFT market cap was 6.96 million dollars
in Feb 2021 and it grew to 846.3 million dollars in January 2023! As overwhelming as this statistic
sounds, OpenSea, the leading NFT marketplace surpassed 20 billion dollars in all-time sales volumes in
2023! OpenSea is an NFT marketplace, think of it to be the Amazon of the NFT world. An NFT
marketplace is exactly like it sounds, a place where people can buy and sell NFTs. Let's first understand
how NFTs are sold. NFTs are either sold individually or in collections. A collection usually has a group of
NFTs that are brought and sold individually that are focused around a certain theme. The most popular
NFT collections are CryptoPunks and the Bored Ape Yacht Club existing from June 2017 and April 2021
respectively. They have total volumes of over one million Ethereum and seven hundred thousand
Ethereum respectively, to put into perspective, Ethereum was worth 4500 dollars at its peak.

NFTs are fairly straightforward to create, as per Investopedia, there are several key steps. Starting with
deciding what you want to make. Then, you choose a blockchain, and most people choose Ethereum, but
recently, Solana is gaining popularity as well. After that, you select an NFT wallet, there are two very
popular options, MetaMask and CoinBase Wallet, and connect it to an NFT marketplace, the most popular
by far is OpenSea. Then, you create the NFT on whatever platform you want, either pixel art, photoshop,
in person, etc, and then upload your media on the marketplace. Remember to fill out the details like name
and description correctly, and price logically. Till here, the NFT is created, but it isn’t available for sale
yet, this will be done by listing it by clicking the sell button. As stated previously, the most used NFT
marketplace is OpenSea, and its popularity is unmatched by any other marketplace. This is for a reason,
the marketplace has many features that help user functionality and navigation. An eye-catching feature is
Lazy Minting which allows the seller of an NFT to pay the gas or transactional fees only after the NFT
has been sold this was done to maximize profits and minimize losses. This feature received a great public
response, and increased the number of sellers on the marketplace, thus, others implemented it. Another
feature that was recently implemented in OpenSea is the Gifting feature. NFTs have grown immensely in
popularity and people want them, thus, making them a giftable item that people can gift to each other.
Buying NFTs couldn’t be simpler, you either go to the explore tab in your chosen marketplace and find an
NFT you like, or just search for one if you have something in mind. Then, you should buy the
cryptocurrency that your chosen NFT is based on, this is usually done on CoinBase. Finally, you just
press ‘make offer’ where you enter the amount the buyer asked for and the NFT is yours!

This is just what the user can do in an NFT marketplace, in reality, there are complex technologies to use
to make such a sophisticated platform and concept function with ease. Let’s start with why NFTs are
usually brought using Ethereum instead of more popular cryptocurrencies like Bitcoin. Ethereum is a
cryptocurrency, meaning that it is fungible(mutually interchangeable) like its predecessor, bitcoin.
However, Ethereum is used for NFTs because of its interface. The original and fungible Ethereum runs on
the token standard which is a set of rules of a smart contract(computer programs), ERC-20. To create a
network for the non-fungible side of things, creators William Entriken, Dieter Shirley, Jacob Evans, and
Nastassia Sachs created ERC-721. ERC-721 is a standard for representing ownership of NFTs. It is a
more complex standard compared to ERC-20 with extensions allowing for the entire concept of NFTs to
function. These smart contracts are based on an extremely complex technology known as the Blockchain.
The blockchain is a system of recording information in an impossible-to-hack, change, or cheat way. It is
essentially a digital record of transactions across the entire network of computer systems on the
blockchain. A simple way of understanding the blockchain function is to think of it as a digital certificate
of ownership and authenticity of your asset which can be any media.
Now that you know NFTs, smart contracts, the blockchain, and marketplaces, let's move on to the future
of NFTs. Many things are held in the future for NFTs. According to a report released by the consulting
and global research firm VMR (Verified Market Research), the overall value of the NFT market is
expected to rise to $231 billion by 2030! Which is going to get this classified into a new industry of its
own. However, this is not where the growth stops because NFTs are also being implemented into Video
Games and even sports like the NBA(National Basketball Association) top shot website which is already
a collection of NFTs that are media of professional basketball(NBA) moments. There are other future
applications as well and the most interesting by far is that NFTs can be used in the Metaverse.

The term metaverse is rapidly increasing in popularity with one of the biggest companies in the world,
Facebook, now known as Meta has changed its name to be focussed around this term, and has spent 36
billion dollars on the development of the metaverse. Companies like Sony and KIRKBI each invested
over 1 billion dollars into Epic Games, the creator of some of the most popular video games to support
their metaverse project. The metaverse is a single and shared 3D world where we can play as a character
by doing virtually anything we can do in the real world, online. NFTs are related to this technology
because they are used as the Metaverse’s real estate. You buy the land on marketplaces like OpenSea as if
it is an NFT because it is a digital asset, which is exactly what the term non-fungible tokens define. Like
the real world, this land can appreciate or depreciate just like real estate and you can construct houses in
the plots that you own inside the world and sell them for profit. Also, the art, videos, or GIFs NFTs that
people buy can be imported into their houses as a piece of artwork or in an exhibition for display within
the metaverse soon. Companies have also been coming up with ideas like avatar clothing, accessories, etc.
This idea is already under construction as in the Roblox Metaverse, a digital Gucci bag was sold for
$4,115!

Over 1.9 billion dollars worth of real estate was purchased in the metaverse so far and there are over 400
million monthly active users! Currently, the most popular metaverse is Roblox, however, the target
audience of this metaverse is largely focused on younger audiences since it is focused on video games.
The company is already adapting to make its audience the largest possible with other metaverses starting
up like Decentraland and The Sandbox who are all focused on giving the true metaverse experience. The
biggest thing to look out for is that Meta, previously known as Facebook, will launch their metaverse
which is expected to be the most advanced by far shortly. Meta, led by Mark Zuckerberg has already sold
10 million units of Meta Quest 2 headsets that will be used to access the metaverse using Virtual Reality.

In conclusion, NFTs have a lot of popularity in the technological world! This is facilitated not only by
unrealistic sales throughout a variety of marketplaces but also because of the metaverse. The
technological history of the NFTs along with future projections is an integral part of understanding what
this relatively new technology can achieve. Since a wide array of large countries are creating their
innovative spin on this technology it would without a doubt be a fundamental aspect of the digital world.