In the past few years, digital artworks have explored the possibility of using NFT (Non-Fungible Token), a new digital medium form, for asset transactions.
A large number of item transactions in the future can be carried out in the form of NFT. In addition, NFT can digitize asset ownership to facilitate more full realization of value.
The emergence of NFT represents the urgent need for traders to transform from paper-based contracts to digital contract-based transactions.
Digital artwork refers to a set of data with a certain artistic value generated by computer technology. Similar to traditional physically created artworks, digital artworks are considered unique and collectible. Since digital art transactions are mostly conducted through cryptocurrencies, it is also called CryptoArt.
As early as 1993, Hal Finney (also an early Bitcoin expert) discussed the idea of ​​​​”encrypted trading cards” on the cryptographic forum Cypherpunks, which may be the earliest discussion on cryptographic artwork and NFT.
Digital artwork mainly includes the following characteristics:
Based on the blockchain platform, once the generation rules are determined, artworks cannot be additionally issued or modified, nor can they be counterfeited;
With more use of encrypted currency transactions, all records are publicly visible and can be effectively traced;
After the user purchases, the ownership is recorded on the distributed ledger and cannot be tampered with or counterfeited;
Artwork transactions are completed directly and immediately, and there is no traditional third party;
Digital artwork itself is not scarce, and it is even easy to be copied, but its ownership is unique and recognized by the market.
In 2014, Robby Dermody, Adam Krellenstein, Ouziel Slama, and others launched the Counterparty trading platform based on the Bitcoin network. The platform provides peer-to-peer financial transactions through the metadata token protocol and supports the creation of tokens, decentralized asset transactions, and more. In September 2016, the “Rare Pepe Frog (Rare Pepe)” project was launched, becoming an early digital artwork.
On June 23, 2017, Larva Labs launched the CryptoPunks project. The project created 10,000 punk avatars, each a unique 24x24 8-bit pixmap. Initially, the project was distributed for free on the Ethereum network, hoping to honor the spirit of punk. Later, with the publicity and participation of enthusiasts, the project attracted the attention of a large number of users and even investment institutions. It is still very active today, and the single price is often tens of thousands of dollars. In June 2021, the sale price of the avatar numbered 7523 reached 11.8 million US dollars. CryptoPunks have unique cultural interests as collectibles and are considered to be the beginning of the trend of encrypted digital art. Since then, Larva Labs has also developed the Autoglyphs and Meebits projects, which have also aroused popularity in the market.
On November 28, 2017, the Axiom Zen team (later incubated Dapper Labs) launched the CryptoKitties game based on Ethereum transactions. Each player can buy a digital kitty through ETH, breed offspring, and sell them. All records are publicly visible on the Ethereum network. Through this game, players can learn to master the basic usage of Ethereum. The game was once very popular, and the price of a single digital cat once exceeded 100,000 US dollars. Related transactions accounted for nearly 20% of the transaction traffic of the Ethereum network, causing transaction delays and congestion. The success of the game has also inspired many imitators. The ERC-721 standard that the project follows is widely adopted.
In April 2021, Yuga Labs launched the Bored Ape Yacht Club project on the Ethereum network, which includes 10,000 different ape portraits, generated by computers. Among them, the portrait numbered 8817 was once auctioned for a high price of 3.4 million US dollars.
Although many NFTs are currently digital artworks, the connotation of NFTs is actually broader. Anything that can circulate in the digital world can be considered an NFT. Including paintings, photography, music, books, games, etc.
NFT literally means non-homogeneous tokens. Traditional encrypted digital currencies are homogeneous (Fungible Token), there is no difference between any two tokens, they can be replaced with each other, and can often be split into smaller units, such as Bitcoin. The NFT is unique and cannot be replaced by other NFTs, and often cannot be divided into smaller units. For example, a painting NFT represents the painting itself and cannot be replaced by other NFTs.
At present, NFT products often have the following characteristics:
cannot be split into smaller units;
Often the only one that exists.
The non-homogeneous nature of NFT makes it easy to anchor to items in the physical world, such as real estate, cars, collectibles, etc. The property rights of any real item can be bound to an NFT. Therefore, NFT is considered to have great potential.
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In 2020, with the massive issuance of sovereign currencies around the world, NFT will become more and more popular. In 2021, the NFT project ushered in a big explosion, so 2021 is also called “the first year of NFT” by many people. At present, most NFTs are traded through platforms such as Opensea, Rarible, and Nifty Gateway, and are stored on the Ethereum network and IPFS.
The emergence of the NFT idea is very natural. Its earliest prototype can be traced back to the Bitcoin-based ColoredCoin (ColoredCoin) that appeared in 2012. Colored coins have color attributes, and colors can be used to represent different assets. This provides feasibility for real assets to be chained.
But the Bitcoin network does not support smart contracts, limiting its expressive power. The Ethereum network launched in July 2015 has strengthened the support for smart contracts, making the emergence of a large number of NFTs a reality. Especially in September 2017, the ERC-721 specification was officially proposed and became the reference standard for a large number of NFTs based on Ethereum projects. During this year, the CryptoKitties project was launched, and the concept of non-homogeneous tokens was formally established. In 2018, the Ethereum community also proposed the ERC-1155 standard to support batch transactions, which is currently supported by the trading market Rarible.
Sky Mavis developed the game Axie Infinity in 2018, which later became one of the popular games on the Ethereum network. It allows players to trade virtual pets and land resources through NFT. At the same time, players can earn points and redeem them by playing games. The price of some virtual pets is as high as 300 Ethereum (about one million US dollars).
In October 2020, Dapper Labs cooperated with the NBA to launch the NBA Top Shot game project. It uploads the highlight video clips of a certain player in the game to Flow, a public chain developed by Dapper Labs, and makes them into NFT products. After the NBA Top Shot project was launched, it attracted a large number of users to participate. The total turnover has exceeded 200 million U.S. dollars, and the price of some products, such as the NFT of LeBron James’ slam dunk video, once soared to 400,000 U.S. dollars.
In addition, the British Museum, the Russian Hermitage Museum, etc. have also auctioned NFT products of world-famous paintings.
In February 2021, Linkin Park (Linkin Park) band member Mike Shinoda released an NFT music work on the platform Zora, which sold for as much as $400,000.
In February 2021, digital artist Mike Winkelmann (aka Beeple) took 13 and a half years to create 5,000 digital paintings “Every day — The First 5,000 Days” since May 2007, spliced ​​into a 316 MB image NFT, sold at Christie’s at a historic price of $69.34 million (42,329 ETH) to cryptocurrency investor Vignesh Sundaresan.
In April 2021, Centrifuge successfully obtained a MakerDAO loan using the house as collateral.
In December 2021, the digital artist code-named Pak will include 312,686 digital paintings “The Merge”, sold on the digital art auction platform NiftyGateway, 28,983 buyers participated in the purchase, and the total transaction price was 91.8 million US dollars. This is also the NFT work with the highest price at present.
Using NFT to conclude a transaction includes the following advantages:
Instant transaction: After the buyer and seller reach a transaction from the platform and write it into the blockchain, the ownership of the NFT is transferred, and the transaction records are stored on the distributed ledger and cannot be tampered with;
Not easy to falsify: Once the NFT product is confirmed, its transaction history will be fully recorded, and it is difficult for others to forge;
Improve efficiency: NFT-based transactions are automatically processed through smart contracts, and the processing efficiency is much higher than manual operations;
Reduce costs: The handling fees of NFT platforms are usually much lower than the intermediary fees of real transactions, and reducing transaction costs can also promote the prosperity of the market.
The rapid development of NFT has also led to some problems:
Auditing issues for NFT: Before becoming an NFT and being traded, the platform or auditor needs to confirm the actual ownership of the bound items. Once a false property right occurs, there needs to be a way to roll it back, which puts new demands on the current distributed ledger technology;
Rational regression in the market: At present, excellent NFT products are very scarce, resulting in many products being hyped at inflated prices after they go online. Excessive prosperity in the early stages of the development of new things often leads to the rapid creation and bursting of bubbles. Trading platforms should design a more rational auction mechanism and raise the threshold for participation.
Interconnection between different platforms: NFTs based on different platforms often adopt different standards, and it is difficult to interconnect with each other, which limits the circulation of NFTs in a larger market.
