A brief history of non-fungible tokens

A Brief History of NFTs: From Beginnings to Global Recognition

What started with Bitcoin-based colored coins in 2012-2013 became a phenomenon in 2021 and is still flourishing. The Ethereum blockchain played a central role in the popularization of NFTs.

Although 2021 turned out to be the year of Nonfungible tokens (NFTs), it was not the year the technology was invented. Kevin McCoy minted the first NFT, “Quantum”, on the Namecoin blockchain in 2014. Nevertheless, the beginning of Bitcoin-based colored coins in 2012-2013 marked the beginning of the concept that led to the development of BRC-20 tokens. This idea originated from an article written by Meni Rosenfield in 2012, and it paved the way for the development of digital tokens on the Bitcoin blockchain.

However, the world took notice of NFTs in 2017. This was mainly due to the arrival of the Ethereum blockchain, which overcame the limitations of the blockchains before it when it came to hosting NFTs. Ethereum not only provided NFTs with a reliable solution for critical things like token creation, storage, programming and trading, but also lowered the entry barrier for launching NFT projects.

A brief history of NFTs can be divided into a timeline:

The Evolution of NFTs: From Colored Coins to the Rise of Rare Pepes and Spells of Genesis

As mentioned, history took off with colored coins, which were created to represent and manage ownership of real assets on the blockchain. They differed from Bitcoin (BTC) because of the “non-fungible” element that gave them a unique utility.

Demonstrating a huge leap in Bitcoin’s capabilities, colored coins were composed of tiny fractions of a Bitcoin, which can be as small as a satoshi. The use of colored coins, such as representing real estate, coupons or use as digital collectibles, subscriptions, shares and access tokens, helped people realize the potential of blockchains to issue assets.

However, Bitcoin was never intended to be used as a database for tokens, which meant that colored coins remained only at the concept level. However, the development set in motion a series of experiments that culminated in NFTs. The first of the NFTs was “Quantum”, as mentioned before, an octagonal animation. The arrival of Ethereum gave NFTs the platform they needed to flourish.

A major project during this period that enabled the development of digital assets was The Counterparty platform built on Bitcoin. A range of “Rare Pepe’s” NFTs were released on The Counterparty, starting the use of NFTs as artwork. “Spells of Genesis,” created on Ethereum, was another major NFT project after The Counterparty.

The Rise of NFTs in Gaming and the Metaverse: From CryptoPunks to Axie Infinity

Ethereum introduced a set of token standards facilitating the smooth movement of NFTs towards the blockchain. The token standard informs developers how to distribute new tokens.

The success of Rare Pepes was followed by Larva Labs, a software development company that launched CryptoPunks, its own generative line of NFTs, created by John Watkinson and Matt Hall. The project is inspired by London’s punk culture and features 10,000 unique pieces, with no two characters alike. CryptoPunks became a huge success and was the basis for many other NFT projects, including the Bored Ape Yacht Club, one of the largest NFT gatherings.

The next big launch was CryptoKitties, which came up during the ETHWaterloo hackathon, back in October 2017. The game allows players to buy, sell and create NFTs that represent virtual cats with desirable characteristics on Ethereum. After CryptoKitties, NFT games became increasingly popular.

NFT games combined with metaverse projects to formulate a new momentum. A major project in this era was the Ethereum-based Decentraland, a virtual world that allows players to explore games and build and collect assets.

In October 2018, Axie Infinity, an NFT-based fighting game, was released. It set the ball rolling for play-to-earn (P2E) gaming, which allowed players to earn in-game rewards while playing. It is a groundbreaking video game on the Ethereum blockchain involving Axies, creatures that are rare NFTs with unique properties. Players fight battles using Axies and build multiple attributes into them.

Expanding beyond Ethereum: Non-Ethereum blockchains and the NFT ecosystem

Certain factors drove NFTs to a sharp rise in 2021. Different blockchains set new standards especially for NFTs.

NFTs in 2021 witnessed an increase in supply and demand. According to NFT data company NonFungible.com, NFT trading jumped about 21,000% to top $17 billion during the year.

The use of NFTs in the art market was an important factor behind the increase. The rise of digital art gave artists another place to showcase their creativity and store their work, which could also be verified. Thanks to these advantages, digital art gained traction and helped propel the NFT blessing.

This was the time when renowned auction houses such as Christie’s and Sotheby’s moved their auctions online. Moreover, these auctions included art that pushed the popularity of NFTs. It was at Christie’s that Beeple’s “Everydays: the First 5000 Days” NFT made a record sale of $69 million. A sell-off on that scale drew the attention of non-Ethereum blockchains and blockchain enthusiasts towards NFTs.

Buoyed by the NFT craze, blockchains such as Cardano, Solana, Flow and Tezos started working on their own platforms for NFTs. In September 2021, smart contracts became functional on Cardano, enabling the development of NFT applications on the platform. A few new standards were set up by various blockchains to determine the authenticity of non-functional assets.

An important event of the year was that Facebook rebranded itself as Meta and strolled into the metaverse area. NFTs were always an integral part of the metaverse, which led to the rise in demand for NFTs.

Revival and resurgence: NFT market rebounds and issuance of Bitcoin-native NFTs

The sector took a step in 2022, but regained an upward trend in 2023, bringing joy back to NFT enthusiasts.

For large parts of 2022, growth in the NFT sector plateaued. Macroeconomic factors dampened enthusiasm in the NFT market. Even the metaverse had been a talking point before it fell off the radar. Mark Zuckerberg’s metaverse division lost $13.72 billion in 2022.

However, 2023 brought smiles back to the NFT enthusiasts. Launched in January 2023, Ordinals took advantage of the 2021 Bitcoin Taproot upgrade, which enabled on-chain Bitcoin-native NFTs. In February 2023, Yuga Labs, the premier issuer of NFTs in the world, had announced the rollout of “TwelveFold”, a new collection of NFTs to be issued on the Bitcoin network. Ordinals, an advancement of the concept of colored coins, are serial numbers imprinted in a single, unique satoshi.

According to data from DappRadar, the NFT market reached $2 billion in total trading volume in February, which was a 117% increase from the previous month. The momentum continued into March, with data showing only a slight decline to below $2 billion. BCC Research foresees a market value of the NFT sector of $125.60 billion by 2027, with a compound annual growth rate of 27.7% (2022-2027).

Cumulative data from DappRadar and Dune revealed approximately 5.8 million total NFTs sold in March compared to approximately 6.5 million NFTs in February. Ethereum NFT trading in February ($1.81 billion) was almost identical to March ($1.82 billion).