With the news of OpenSea raising $23 million to extend its non-fungible token (NFT) services, it is worth looking at the whole NFT space a little closer. For quite some weeks now, non-fungible tokens have been in the news almost every day - and not only in the crypto world. They are making headlines even outside the crypto & blockchain industry. A rather complicated technology (=blockchain) packed in an easy-to-grasp application, NFTs make their way to individuals all over the world. Ranging from digital art to sports collectibles, in-game items, and even tweets, the concept of NFTs gained popularity through various use cases.
The NFT landscape
Non-fungible tokens are one-of-a-kind tokens. They are unique but tradeable blockchain assets, which can be used to represent all types of virtual and real-world goods. The exciting thing is, NFTs have virtually limitless potential and open up new possibilities. On March 11th, digital artist Beeple sold an NFT artwork for $69 million using the auction house Christie’s. The music group Kings of Leon released their new album in the form of an NFT. And Twitter CEO Jack Dorsey sold an NFT of his first-ever tweet for $2.9 million. These high-profile examples show us the wide range of use-cases possible for NFTs.
The NFT landscape is developing and changing continuously. Whether you have a new entrant in the space, or providers adding new products and services, the NFT space cannot be easily pinned down to some players - yet. Although the industry is still young, we see several main categories emerge in the NFT landscape:
Marketplaces are platforms that let individuals buy and sell NFTs. You can distinguish between broad marketplaces and niche marketplaces. Broad marketplaces, e.g. OpenSea, offer different kinds of NFTs such as art, music, domain names, and trading cards. Niche marketplaces, on the other hand, focus on a specific NFT type, e.g. SuperRare selling only (rare) digital art, or Valuables specializing in Tweets.
- Issuance protocols:
Issuance protocols facilitate the creation of NFTs. They let users build their own NFTs. These then can be sold directly using the issuer’s platform or sold on other marketplaces. Rarible is an example of such a provider combining the issuance of an NFT with a marketplace.
- Utility NFTs/collectibles:
Utility NFTs or collectibles were the starting point of NFTs. These are in-game creatures, items, etc., or digital collectibles that can be created and then traded online. Some of the most famous are CryptoKitties and CryptoPunks. This category also entails games such as Axie Infinity, as well as NBA Topshot, the platform showcasing and selling the best moments from NBA games.
A sharp increase in key NFT metrics
Traded since around 2017, NFTs have surged to new heights in 2021. Total NFT trading volumes on the Ethereum blockchain amount to over $500 million, nearly half of which were in the past month, according to NonFungible.com. Total NFT sales from the marketplaces shown in the graph provided by Messari have grown exponentially in the month of February - a 766% increase month-over-month.
Looking at OpenSea, the self-proclaimed eBay of NFTs, shows the rapid ascent. Monthly sales on OpenSea hit $95.2 million in February, up from $8 million in January. On March 17th, sales volume already surpassed $80 million.
OpenSea’s daily trading volume one year ago was around $27k. As of March 2021, daily trading volume has risen to about $5.8M, an increase of more than 21,000%, showing an exponential rate of growth during the recent NFT-hype. Year-to-date trading volume is currently about $200 million, which would put it on pace to a total of $800 million by the end of the year.
Is there an end to the NFT hype?
The dramatic increase in the interest and evolution of NFTs seems unstoppable. With more and more big names getting into the space, the industry is prone to expand rapidly. Retail and wealthy investors, as well as institutions, are flocking in. Crypto exchanges are using that to expand their services - Gemini already owns Niftygateway, a niche NFT marketplace; Crypto.com just announced launching an NFT platform - while celebrities are trying to profit from it, as well - Billionaire Mark Cuban is building a digital art gallery for NFTs.
The more interest the sector sees from a variety of people and companies, the more use cases will pop up. When art, collectibles, and gaming is the primary focus right now, applications will extend to broader digital asset categories such as video and music. NFTs could be the future of ownership. All kinds of property - from event tickets to houses - might eventually have their status tokenized. For artists, NFTs are a tool to monetize their artworks and directly connect with their audience. They can receive more income from NFTs, as they can get a royalty each time the NFT is traded after the initial sale. And for fans to gain from their idols’ success.
However, there are some pitfalls to remember. The widespread adoption of NFTs might be a good sign for crypto but as with the DeFi summer hype of 2020 it leads to a lot of congestion on the network. Most NFT platforms are based on Ethereum growing the gas price issue we face since the beginning of the year already. Although NFT platforms on other blockchains (e.g. Flow, or WAX) gain popularity, for now, Ethereum is the go-to protocol for NFT providers and users.
Further, as the industry is still very young, and the landscape is not yet organized, new entrants are coming in almost daily. Competition increases, and with it copycats and scammers. Some of these copycats gather impressive sales (Binance Punks, Bashmasks), and while the DeFi space is getting used to forks and scams, it remains to be seen how this will play out with NFTs. Copycat attempts somehow show the downside of open-source technology in the NFT market. It’s still unclear how intellectual property can be protected or how the rise of these copycats could potentially devalue the original NFT collection. Given that anybody can create NFTs, the scarcity of each piece does not guarantee value. Users need to remember that losses can stack up if the hype dies down. However, even if copies threaten the value of an original, we have seen many copies in the physical world. So as long as the true value of any non-fungible digital asset is widely accepted and documented on the blockchain, the possibilities for NFTs are endless.
Explainer: NFTs are hot. So what are they? - Reuters ; March 17, 2021 
Beeple sold an NFT for $69 million - The Verge ; March 11, 2021 
Kings of Leon Will Be the First Band to Release an Album as an NFT - Rolling Stone ; March 3, 2021 
Twitter CEO Jack Dorsey sells NFT of first-ever tweet for $2.9 million - The Block Crypto ; March 22, 2021