NFTs rose from being an intriguing initiative from its early adopters to becoming a mainstream investment vehicle in about three years.
NFTs are unique, non-fungible tokens that represent digital assets in the blockchain. Their uniqueness makes them ideal for storing and transferring value, especially when it comes to digital art, music, and other creative works.
With the help of blockchain technology, NFTs are immutable and transparent. This means they cannot be replicated or counterfeited, and their ownership can be easily verified.
But like all other fancied trends, NFTs had their ups and downs in their relatively short history. Some NFTs sold millions, while others faded into obscurity. Not every project managed to deliver on its promise, and some even, unfortunately, turned out to be scams.
Despite the occasional mishaps, the NFT ecosystem continues to grow and evolve. New projects get launched every day, and development is happening rapidly.
Right now NFTs are mainly used in gaming, sports, and art, but there are so many different applications that are possible. In the near future, they can be used to store sensitive medical information, buy or sell real estate, and help with supply chain issues – and that’s not mentioning all the metaverse possibilities. In short, NFT technology is only in the early stages and will likely be used as commonly as email or social media is today.
2021: The Year of the NFT
This annual report summarizes developments and events around the NFT space that have influenced the world, one way or another, in the past year.
The Highlights
- A look back at the biggest newsmakers
- The money flows
- Blockchain performance
- Collectors and buyers
- The crypto art market
- The collectibles market
- Virtual property assets
- Gaming
- Establishing an NFT's value
- What NFT ecosystem has in store for 2022
The Biggest Newsmakers
Everyone's heard of Beeple's $69-million haul in March, but it was just the tip of the iceberg. Several high-profile sales happened in the past year, and they were all jaw-dropping.
- CryptoPunk #8857 was sold for $6.6 million, one of the many characters fetched at least a million in the collection.
- The highly coveted Bored Ape #3739 sold for $2.9 million in September.
- The first tweet, courtesy of Twitter's Jack Dorsey, sold for $2.9 Million.
- The 'Disaster Girl' photo made headlines when it sold for $473,000 as an NFT.
- 'Nyan Cat,' another NFT artwork, sold for $590,000.
- And did you know that the World Wide Web's source code was also minted as an NFT and sold for $5.4 Million?
Talk about a crazy year for the NFT ecosystem, which was nothing more than just an experiment the year prior.
Investor Interest
This year, NFTs truly emerged as a mainstream investment prospect. The industry's trading volume peaked at $25 billion in 2021, which no one would have thought possible just a few years ago.
But where did all this money come from?
The answer is simple: investors pour money into the industry, betting on its future growth. A significant chunk of the trading boost happened in the latter part of the year, with $11.6 billion in the fourth quarter.
OpenSea dominated the landscape, with the marketplace accounting for $14.68 billion worth of NFT sales. Other major players include the NBA Top Shot, Rarible, and Cryptopunks.
Blockchain Performance
The Ethereum, of course, blockchain dominated the NFT space in 2021. It processed over 90% of all NFT transactions and held more than 95% of the total market value. The Ethereum blockchain is faster and more scalable than the competition, making it the natural choice for NFTs.
Solana and Avalanche are a distant second and third, which are, at best, emerging technologies. They processed $1 billion and over $600 million worth of NFT transactions in 2021.
Collectors and Buyers
NFT collectors in 2021 emerged from being "interested" parties to becoming highly aggressive investors carrying different profiles. With their enthusiasm and money, they could drive up the prices of digital assets. These people arguably played a significant part in putting the entire industry in the spotlight.
India's Metakovan, aka Vignesh Sundaresan, ended the year as the top collector after being named as the buyer of Beeple's $69 million crypto art. Tokenangels and Anonymoux both have multi-million dollar NFT collections.
Crypto Art Market
This year, labelling crypto art as the most influential development in the NFT ecosystem is quite an understatement. This market accounted for $3.5 billion in sales in just nine months. Pundits agree that it wouldn't be a surprise if crypto art will eventually equal or even surpass the traditional art market in a couple of years.
Traditional auction houses, i.e., Christie's and Sotheby's, made millions by auctioning artwork minted into NFTs, indicating the shift towards digital art.
The Collectibles Market
NFTs were not just about art this year - they have also permeated the collectibles market. The industry saw a lot of firsts in 2021, with major brands such as Louis Vuitton, Gucci, and even sports organizations like the NBA jumping into the fray.
High-end fashion brands have been quicker to adopt NFTs to create digital scarcity and exclusivity around their products. On the other hand, the NBA is using NFTs as a way to create a more engaging fan experience through their Top Shot project.
Virtual Property Assets
Last year saw the emergence of virtual property as a significant asset class. Game studios and elite collections, i.e., Cryptokitties and Epic Games, minted millions of dollars in virtual assets, which can be traded or sold on secondary markets. These games are just scratching the surface of what's possible with virtual property assets.
And then there's virtual real estate. Like how NFTs prove virtual ownership of digital art or collectible, virtual real estate NFTs provide proof of ownership for digital land in games and marketplaces. Decentraland and The Sandbox are two of the notable platforms in this space. The former's total "land" value as of 2021 is estimated at $100 million. This is borderline outrageous, considering that virtual real estate is still a relatively nascent concept.
The Crypto and Gaming Combo
Game monetization took a whole new level in 2021 with the emergence of blockchain gaming. The trend is driven by the concept of collecting in-game items and reselling them in secondary markets.
Axie Infinity rose to prominence in 2021 with its in-game economy run through Ethereum-based crypto. Players collect and breed creatures called "Axies" and make money by selling them to other players. The game saw $3 billion in sales at the year's end.
And CryptoKitties, the first-ever game built on the Ethereum network, is still around. The game raked in millions of dollars last year - a surprising development to what skeptics thought wouldn't be possible given its age.
Valuing NFTs in 2021
Get this: NFT transactions in 2020 totalled $83 million in 2020. Last year, that number turned to $17 billion. And no, this isn't a typo. The difference is mind-blowing, to the point that it makes one wonder: is the NFT space a bubble that's about to explode?
The answer is an absolute NO! The social and economic value of NFTs has been well-documented this year, and it's not merely about the total number of transactions.
The average price of each NFT in the market significantly increased; January saw an average of $8.07, while December had $2,548.31. That alone shows how the market is maturing and moving away from speculation.
The number of unique addresses (or wallets) that held NFTs also increased in 2021. This indicates a growing interest in NFTs and that people are starting to see their value beyond just the speculative aspect.
These figures epitomize the ever-increasing value of NFTs:
- 11,208 NFTs were sold in OpenSea in January 2021; in December of the same year, the platform sold 1,220,242 NFTs
- At least 1.1 million OpenSea users made at least one transaction in 2021
- NFT trading volume in the first quarter of the year was $1.2 billion; it rose to $11.6 billion in the last quarter of 2021.
What the NFT Ecosystem Has in Store
The NFT ecosystem is inevitably poised to impact the world financial system in ways we probably can’t even currently imagine. Right now NFTs are most used in the collectables industry but that is only the tip of the iceberg as they will probably impact almost every major industry.
The biggest issue right now is the carbon footprint. NFTs, being digital assets, don't have a physical presence. However, minting them still requires energy - and a lot of it. The solution to this is to develop energy-efficient NFT standards to lower their carbon footprint.
Ethereum 2.0 is trying to make that promise, focusing on bringing down the usual cost of minting an NFT. Doing so will entice more people to invest in NFTs without worrying about exorbitant fees.
The growth of NFTs will also lead to the development of new platforms and services that will make it easier for people to trade them. This will, in turn, increase their liquidity and accessibility, two essential factors in making NFTs a mainstream form of asset.
We can also expect more dApps built on top of blockchain networks in 2022. This is because developers are starting to see the potential of blockchain-based gaming and how it can be used to drive user engagement.
In short, the NFT ecosystem will only get bigger and better in the years to come. We're way past the question of whether NFTs are a fad, and 2021 is proof of that.
Other References:
https://nonfungible.com/news/analysis/yearly-nft-market-report-2021
https://www.fool.com/the-ascent/research/nft-market/#:~:text=NFT%20trading%20volume%20reached%20%2425,which%20tracks%20over%2030%20blockchains.
https://www.fool.com/investing/2022/03/07/my-top-3-blockchains-for-nfts/
https://markets.businessinsider.com/news/currencies/nft-market-41-billion-nearing-fine-art-market-size-2022-1#:~:text=By%20the%20end%20of%202021,which%20updated%20a%20previous%20report.
