What Are NFTs and Why Do People Pay Millions for Them?
In late 2017, a collectible game, CryptoKitties, clogged the network of Ethereum, a cryptocurrency second only to Bitcoin by market capitalization. Trades of digital cats from this game accounted for 95% of all Ethereum network transactions at the peak. That was the time NFTs first hit the headlines of mainstream media.
Over three years later, the NFT hype is back and now stronger than ever. It is no longer limited to die-hard crypto believers and a couple of primitive collectible games. Celebrities and big brands have jumped on the bandwagon and have already made millions of dollars on unique digital collectibles. If you are wondering what is even going on, let’s figure it out together.
What Is an NFT?
NFT stands for a non-fungible token. It’s a digital item that is stored on a blockchain and has a unique ID. Everyone can check an NFT’s origin, history, and ownership but no one can change it, delete, duplicate, or replace it with another item. This makes each NFT unique. Nothing will change if you swap a one-dollar bill for a bill of the same value. You can also trade one bitcoin for another without any consequences. But a non-fungible token is one of a kind, and you can’t confuse such an item with something else.
Since an NFT is essentially a file stored on a blockchain, anything digital can be a non-fungible token: a song, video clip, picture, virtual in-game item, or a badge issued by a sports or eSports club.
What Makes NFTs Valuable?
Since each NFT is unique and you can easily prove its originality, it gains significant collectible value. Unlike other digital assets, an NFT can’t be duplicated or deleted. Think of a song or music video of your favorite musician. You can pay a certain amount of money to obtain and enjoy it. And millions of fans can do the same. If this song is put on a blockchain and becomes an NFT, it is no longer reproducible and can only have one owner. If this recorded content is exclusive as well, it’s nothing less than a unique piece of musical art that belongs to a single person. Just imagine how much music fans would be willing to pay in order to get their hands on such treasure. Especially since NFTs don’t wear out and can grow in value over time. No matter how expensive an NFT is to buy, it might be resold with a profit in the future.
What Are the Most Expensive NFTs?
On February 28, Grimes, a Canadian music artist, sold $6 million worth of NFTs during an auction on the Nifty Gateway marketplace. The most expensive piece was an exclusive music video called “Death of the Old”. The winning bid was $389,000. Yet, the main part of the sales was generated by two NFTs with many copies – short videos called “Earth” and “Mars”. Sold at $7,500 per copy, these works accounted for $5.18 million in total revenue.
The same day, electronic music producer 3LAU carried out his own NFT auction and earned a record-breaking $11,684,101.
The current NFT boom also focused the spotlight on older NFT projects like CryptoPunks, a set of digital collectibles developed by Larva Lab back in 2017. The Punk 6965 from this collection was recently bought for 800 ETH (Ethereum cryptocurrency), equivalent to over $1.5 million.
Buying a short video or an algorithmically generated image for thousands or even millions of dollars may look like a waste of money. But don’t forget about investment and speculation opportunities tied to NFTs. “Crossroad”, a video clip by digital artist Beeple, was initially bought for $67,000 and later resold for $6.6 million.
NFTs in Games, Sports and eSports
The above-mentioned Ethereum-based collectible game, CryptoKitties, has generated around $3.4 million in sales over the past month and over $41 million since 2017. The game’s sole purpose is to collect rare digital kitties. Yet, use cases for NFTs in gaming are not limited to simple collectible titles. With the development of blockchain gaming, we should expect NFTs to be used in more complex game mechanics, for instance, as cosmetic in-game items in massively multiplayer online titles.
CryptoKitties’ developers, Dapper Labs, are also bringing NFTs to sports. In collaboration with the NBA, the company digitizes short match highlights from star players and sells the footage as NFTs through the NBA Top Shot platform. The project has already amassed nearly $300 million in sales.
In eSports, NAVI is leading the pack. This celebrated eSports organization awards its fans with NFTs in the form of unique digital memorabilia through the NAVINATION program. It is powered by the DROP technology developed by DMarket.
NFTs and DMarket
The first NFT item appeared on the DMarket blockchain in 2017. It was the DMarket Founder’s Mark. More NFT collectibles were added over time. All of them are available for trading on DMarket. Their current market prices vary from a few dollars to several hundred dollars.
In late 2020, DMarket introduced its Drop.gg software and, together with NAVI, launched the first project based on this application, called NAVINATION. This enables gamers and eSports fans to receive drops of NFT items during live streams and craft more valuable NFT assets and physical prizes from these drops. NFT owners can then trade their items on the DMarket platform, and the most expensive NAVINATION NFT to date is the Navination Season One: Leader of the 1st Week item, sold for $100k.
Mentioned among the top six NFT platforms on eips.ethereum.org, DMarket continues to contribute to the NFT breakthrough, and more digital collectibles, unique and noninterchangeable, are coming to the platform soon.