Who invented NFTs? A brief history of non-fungible tokens
A non-fungible token (NFT) refers to a digital asset created through tokenization, which turns a piece of sensitive data (think of your credit card information, for example) into cryptographic data – a string of numbers and letters linked to the original data. . As their popularity exploded, so did the search for who was investing NFTs.
The concept of tokenization dates back to the 70s, but in 2020 – 2021 it gained prominence thanks to blockchain technology and the emergence of NFTs. Everything can be tokenized, from physical assets, such as real estate and art, to digital files such as photos, videos, albums, etc.
When something is tokenized, it has unique metadata stored on the blockchain. The blockchain can track this metadata to prove their authenticity, so no two NFTs can be the same. These tokens represent ownership of unique items, hence the name “non-fungible.”
But when did it all begin?
The History of NFTs: Colored Coins, CryptoKitties and Namecoin
Although it is difficult to talk about the exact date NFTs were invented, Meni Rosenfield, founder of Israel’s first BTC exchange, is considered the first to explore the idea of NFTs in 2012 with Colored Coins, considered the forerunner of NFT -is.
The idea behind Colored Coins was to use the Bitcoin blockchain to prove ownership by tracking the metadata to a real value. The problem was the limited capacity of Bitcoin’s blockchain. However, the idea of ownership, origin and tracking are what today’s inherent characteristics of NFTs are.
The first NFT ever minted dates back to early 2014. On May 3, Kevin McCoy minted Quantum on the Namecoin blockchain, one of the earliest cryptocurrency networks in the industry, launched in 2011. The NFT is a pixelated octagon that pulsates and changes colors. It sold for just $4 and featured a video clip made by McCoy’s wife.
As NFTs began to mainstream in early 2021, Quantum gained immense value for NFT enthusiasts. It sold in June 2021 for nearly $1.5 million.
Enter Blockchain Gaming
Quantum was the first NFT. But what about the first NFT collection? Well, the first collection was a blockchain-based virtual world game called Etheria World, launched three months after Ethereum.
Etheria is a metaverse game that consists of hexagonal tiles that act as plots of land where users can build properties. Each tile was an NFT that users could buy and sell for 1 ETH at the time (less than a dollar). Like Quantum, the game resurfaced in 2021 amid the NFT craze, with land holdings reaching between $130k -$150k
Two years later, CryptoKitties was launched as one of the first blockchain-based card games built on the Ethereum network by Dapper Labs, a Canadian studio now considered an NFT powerhouse. These animated cats had different characteristics that would make them potentially valuable. These collectible cats surged in popularity in December 2017, reaching a record transaction volume and overloading the Ethereum network.
Over the years, blockchain gaming was just an underground niche known only by crypto enthusiasts. That industry went largely unnoticed until Axie Infinity turned the mainstream eye to blockchain and NFT gaming.
Axie Infinity was one of the most successful play-to-earn titles from the GameFi world. It combined gaming and finance through the use of blockchain technology. Users purchase a set of three axes, which are NFT creatures, to progress through the game’s campaign and battle other players in the arena to win AXS, the game’s native currency, which can be used to buy and sell NFTs or trade against other cryptocurrencies. The game’s popularity generated over $1.5 billion in revenue for development studio Sky Mavis.
Negative sentiment dominated the cryptosphere in 2022. Nevertheless, blockchain gaming grew by around 2000% from Q1 2021, and gaming DApps account for 52% of all blockchain activity. In fact, by 2022, over $2.5 billion has been invested in blockchain games, according to a report by DappRadar.
This increase clearly shows the interest of investors and VCs in blockchain games and metaverse despite the poor performance of the current cryptocurrency market.
The development of NFTs
In 2022, the cryptocurrency market witnessed million-dollar NFTs reduced to just a few hundred—even dozen—dollars, which is what happened to Logan Paul’s Bumblebee NFT.
Overpriced artwork and limited images of Bored Apes are no longer the center of attention. Instead, institutions, artists, and influencers are exploring NFTs as a potential solution for specific pain points in certain industries, supporting artists and content creators through royalties, improving business operations, and even charity.
NFTs in the gaming industry
What benefits does blockchain technology bring to gamers? There are three main advantages.
- Own: users don’t actually own in-game assets in today’s game. The gaming industry is considered to be highly centralized; Therefore, players have little control over the assets they “own” and the income they can generate by selling them. With NFTs, players have full control over their assets, verify their provenance and sell them on secondary markets for real money.
- User identity and account control: Web2 gaming platforms such as Roblox and Steam allow users to customize their avatars and present themselves to other players. The same concept applies to NFT and Web3 games. By keeping a chain record via the blockchain, players can see their reputation, success and experience based on in-game activities. The main difference is that blockchain games are decentralized and cannot close an account like Web2 platforms can.
- Community management: a decentralized autonomous organization (DAO) serves a form of community-led governance, where each member has a voice in the changes and development of a cryptocurrency protocol; the same concept can be applied to games. For example, game developers can create DAOs where players use tokens to vote on game tweaks, changes, or submit their ideas for other players to discuss. On-chain gameplay mechanics also allow players to unlock community management tokens through gameplay.
It is worth noting that different blockchain and Web3 games use these features in different ways. Some may allow users to control their own in-game assets while having centralized management, for example.
How do non-crypto players feel about NFTs? Ubisoft’s Tom Clancy’s Ghost Recon and GCS’s STALKER were some of the first game titles that dared to introduce NFTs to their players, but they did not react very well. The two companies received a massive dose of backlash as players believed it was just an attempt to squeeze more money out of players –
For example, Nicolas Pouard told Finder: “I think players don’t understand what a digital secondary market can give them.” Therefore, it may take some time for traditional players to realize the benefits of NFTs. However, the problem may not be centered on the monetization of NFTs or NFT-related games, but the over-monetization of them, and most importantly, the lack of utility of these NFTs and appealing game mechanics and narratives for players.
NFTs in real estate
NFTs present several advantages to real estate companies and users who want to participate in this market but do not have the necessary budget. As we know, the real estate industry has a high barrier to entry due to a lot of expenses and slow processes. For example, certain pain points in this industry are an overwhelming amount of intermediaries (banks, lawyers, auditors, agents) that add up to expenses and slow processes due to paperwork and management delays.
With the boom of the metaverse, real estate companies have decided to buy virtual real estate in open world games like Decentraland and Sandbox. These properties are sold as plots of land in the form of NFTs, and they can be sold or leased to companies or individuals without so much paperwork and intermediaries thanks to a peer-to-peer transaction using smart contracts.
Outside of the virtual world, physical real estate NFTs exist. Two examples are:
- Michael Arrington, TechCrunch founder, sold his apartment in Kyiv through an auction conducted by Propy, an NFT marketplace that allows users to buy and sell real estate using Web3 technology.
- Jared Kenna, founder of Traderhill Exchange, created tokens with embedded information related to all the rooms in his San Francisco-based apartment. Therefore, the person who owns the token has a bearer asset that can be enforced by contract. He symbolized the rooms and rented them out to developers, managers, artists and other entrepreneurs for $1 per month for 75 years.
NFTs in charity
NFTs are an excellent way to fundraise, especially for charities. The main advantage of NFT auctions is that donors receive NFTs as a reward after donations. This allows donors to market their NFTs as merchandise, event tickets, a fundraising effort, etc.
For example, NFT artist Beeple sold his Ocean Front piece for $6 million. The artist donated the money to the Open Earth Foundation in an effort to fight climate change.
When the Russian-Ukrainian war started, several crypto-influencers and companies donated their NFTs to the government, which it sold to fund the military in the fight against Russian forces.
The famous Australia Zoo launched a fundraiser using NFTs through the Algorand blockchain. Proceeds were donated to animal hospitals across Australia.
The future of the NFT market
The potential use cases of NFTs and blockchain technology were largely overlooked by the mainstream audience during the 2020-2021 bull run, most likely due to overpriced NFTs and hyped projects by extravagant monkeys. After the frenzy has cooled, artists, influencers, leaders and entrepreneurs are exploring NFTs as a technological instrument across multiple industries.
The NFT market is expected to grow north of $211 billion by 2030. The main driver of this growth is digital art, but NFTs are now showing a new value to the market in addition to art; they are being used as tools to solve pain points in certain industries, supporting artists, fundraising, charity and even the supply chain.
Image credit
Featured image via Unsplash.
