NFTs Took the World by Storm in 2021
Two days ago, Meta announced that Facebook and Instagram will soon allow users to create, show off and sell NFTs on their platforms. It’s not surprising news, seeing that NFTs expeditiously became a $40 billion market in 2021.
As the metaverse and Web 3.0 begin to become predominant in our lives, expect different types of NFTs to become integral parts of new digital ecosystems.
Different Types of NFTs
Often, when people hear the word NFT (Non-Fungible Token), the first thought that comes to mind is a JPEG image of an ape with obnoxious accessories (a “Bored Ape”), or a pixilated hoodlum (a “CryptoPunk”). NFTs such as these are, for sure, the most well-known type of NFT, but in actuality, there are numerous different types of NFTs.
So what are some of the most common types of NFTs?
(Keep in mind that some NFTs may overlap into more than one category.)
1) Computer-Generated NFT Collections
Computer-generated collections of NFTs were what originally propelled the idea of NFTs into mainstream popularity. Most people who know about NFTs, know about NFTs that belong to a computer-generated collection.
How Exactly Are Computer-Generated Collections of NFTs Created?
These NFTs are produced when an artist creates one “bare” template image, plus a variety of other smaller images of different accessories, traits and attributes. Then, a computer program algorithmically matches together various different accessories, traits and attributes onto the original template image.
The computer program will then repeat that process to create a collection of dozens, hundreds or even thousands of similar images. Each image in the collection will end up containing a unique combination of traits that assure that no two images will be identical.
Take a look at CryptoPunks, a computer-generated NFT collection containing 4 of the top 10 highest-selling NFTs of all time.
How Were CryptoPunks Generated?
Cryptopunks all originated from the same base template image. Somebody then designed a variety of different attributes, including colors and accessories that made slight modifications to the base image.
A computer then algorithmically generated 10,000 different combinations of these different attributes onto the base template image. The attributes of CryptoPunks include variables in types and colors of hairstyles, hats, glasses, skin, facial hair, earrings, tobacco products, eyes, mouths etc. Mixing and matching these different attributes resulted in a collection of 10,000 different CryptoPunks that are unique; no two CryptoPunks are exactly the same.
The CryptoPunks collection is one of the initial rudimentary examples of an NFT collection being created using this method (in 2017). However, as of now, there is an exceedingly vast number of NFT Collections that have been created by computers algorithmically mixing and matching different attributes (“traits”) onto a base image.
Why Are NFTs from Some Generated Collections So Popular?
Collecting an NFT from a popular and famous NFT collection allows owners to feel a sense of prestige and exclusivity, especially when prominent celebrities also own NFTs from that particular collection:
Showing off a popular NFT is the digital-world equivalent of rocking a product from an expensive, renowned brand such as Rolex, BMW or Louis Vuitton; it’s basically a status symbol that other people in the NFT space will easily recognize and respect. Many NFTs of this type are often referred to as “Profile Picture NFTs” (PFP NFTs).
NFTs of this type are art in the sense that an artist had to first design the base image as well as the attributes that were then fed into the generating software. However, it’s more the owning-a-part-of-a-collection aspect that usually makes these NFTs valuable. That is what differentiates this first category of NFTs from the next category.
2) “Handmade” Works of Digital Art NFTs
If computer-generated NFTs are like products generated on a precalibrated assembly line, then the NFTs in this next category are like handmade artifacts.
These “handmade” pieces of digital art are more comparable to traditional forms of artwork such as paintings and drawings. Actually, real-life paintings, drawings and sculptures have even been made into NFTs.
Generally, the NFTs of this type are individually created from scratch using digital design software, and aren’t generated by a computer as part of a collection of other similar-looking NFTs.
Artistic Expression Captured in an NFT
The reasons why people buy NFTs from this category may be different from the reasons why people buy NFTs from the previous category. People may feel inclined to buy “handmade” NFTs based on their intrinsic feelings that the piece is extremely beautiful or distinctive. Perhaps the work of art resonates with them in some way.
Generally, “handmade” works of digital art NFTs are significantly more complex, personal, detailed, aesthetic, time-consuming and manual to create than computer-generated NFT collections. However, that doesn’t always make them worth more money.
The 2nd highest-selling NFT of all time is a JPEG image containing a collage of 5,000 tiny digital images. These 5,000 images were individually created by digital artist “Beeple” over 5,000 days (13.6 years). The title of this NFT is “Everydays: the First 5000 Days” and it sold for $69 million in 2021.
“Handmade” works of digital art NFTs are most commonly in image form, usually as JPEGs. However, NFT artists often create digital art as GIFs or short videos as well.
Although the majority of current NFTs take the form of images, last year also saw an explosion in the popularity of NFTs as objects and entities that inhabit digital worlds. These digital worlds are usually NFT video games and/or rudimentary metaverses.
3) NFT Assets inside of Video Games and Metaverses
For the last few decades, most video games have had small economies contained within them. Many of these games have their own (fictional) currencies, and you can buy and sell possession within the game.
However, these economies have more or less had absolutely zero relevance in the real world. Data documenting your “money” and “possessions” in a game were only stored on the game company’s private servers and carried no weight in the real world.
NFTs Allow People to Truly Own Their Virtual Possessions
Cryptocurrencies and NFTs completely change this. Many new “play-to-earn” games and metaverses are populated with NFTs that people can truly, exclusively own. That means that you have the ability to independently sell (for real money) any NFT that you obtain from a video game or a metaverse, even on 3rd-party NFT marketplaces not affiliated with the game company. Data documenting your possessions of NFTs are stored on a blockchain, not on a game company’s private servers.
As of now, this concept is a recently emerging trend. However, in the near future, NFTs within videos games and metaverses could take the form of avatars (player skins), characters, clothing, accessories, creatures (such as Axies), cards (for card-based games), decorations, furniture, items, weapons, vehicles or other sorts of objects and entities relevant to that particular game or metaverse.
NFT Fashion in the Metaverse
2021 witnessed fashion companies (such as Gucci and Louis Vuitton) starting to expand into developing NFTs. In December 2021, Nike bought a company that specializes in creating virtual shoes (RTFKT Studios) as a step toward creating and selling virtual Nike sneakers in the metaverse.
4) NFT Virtual Real Estate
Within some metaverses, digital plots of land are bought and sold as NFTs. As NFTs exist on a blockchain, the land cannot be duplicated, disputed or stolen (unless somebody tricks you into giving it to them). As each NFT is unique, each piece of land is unique, just like land in real life.
In metaverses, people often buy virtual real estate NFTs as investments that they believe will appreciate in value. Furthermore, owners of real estate inside of a metaverse are often able to construct buildings and structures upon their digital land, which they might then be able to monetize, depending on the metaverse.
An NFT virtual property inside of the metaverse can represent an individual’s or company’s location in the metaverse, similar to how websites on the traditional internet represent an individual’s or company’s location on the internet.
5) NFT Domain Names (“Crypto Domains”)
Most people don’t actually own their website domains. People almost always rent out web domains on a monthly or yearly basis. Traditional domains are the types of domains that typically end in “.com”, “.org”, “.ca” etc.
However, it is now possible to purchase an NFT web domain. NFT domain names commonly end in “.crypto“, “.eth” or “.nft“.
There are a few differences between a traditional domain and an NFT domain. Once you purchase any type of NFT, you are the permanent owner, until you choose to sell that NFT. Therefore, after making the initial purchase of an NFT domain, you don’t ever need to pay any more renewal fees for that domain; it is yours forever (as long as the blockchain your NFT was minted on continues to exist).
As well, an NFT domain can be linked to your crypto wallets so that people can easily send funds to your wallets. Rather than say, “Please send my payment (or NFT) to 3FZbgi27cyjq2GjdwV8eyHuJJnkLtktZc5.”, you can say, “Please send my payment (or NFT) to james.crypto.”
Furthermore, NFT domains are completely decentralized and untouchable. No central authority can ever censor, remove or take control of an NFT domain (short of hacking the blockchain where that NFT is stored).
The majority of NFT domain names are still very affordable, but with that being said, Budweiser paid almost $100,000 for the NFT domain “beer.eth” last year.
As of now, the deal-breaking issue with NFT domain names is that popular web browsers don’t yet support these domains. This renders these domains inaccessible on these browsers, unless you tweak the settings.
6) Text-Based NFTs
Occasionally, even pieces of text are made into NFTs. Display names that are bought and sold in metaverses such as Decentraland are an example of NFTs that consist simply of a string of text.
As well, images of historically significant social media posts are sometimes minted into NFTs and then sold. The most high-profile example of this was in March 2021, when Twitter CEO Jack Dorsey sold the first tweet ever made for $2.9 million.
Although not yet popular, theoretically, pieces of literature (from a stanza to an encyclopedia) could also be minted and then bought and sold as NFTs.
7) Ticket/Membership NFTs
NFTs can act as digital “codes”, “passwords” or “secret knocks” that grant admittance to a game, event or society. For example, in order to enter The Sandbox metaverse while it’s still in Alpha, users need to possess an “Alpha Pass” NFT. Essentially, it’s like a digital ticket to a digital event.
Furthermore, NFTs can signify membership to an exclusive group or club, along with access to certain members-only perks. Bored Ape Yacht Club NFTs actually double as this type of NFT.
8) Sports NFTs
These NFTs are basically an evolution of traditional sports trading cards. Many sports NFTs are simply digital sports trading cards. However, NFT cards from the 2nd most successful sports NFT collection, “Sorare“, also act as players in a global fantasy football (soccer) game.
NBA Top Shots, the highest-selling sports NFT collection of all time, took sports NFTs to the next level by turning short clips of famous NBA moments into NFTs. Some of these have sold for upwards of $100,000.
9) Meme NFTs
Memes have been around for a while. For years, people have freely used memes; the people in the memes and the original photographers of the memes hadn’t really received much compensation from them.
However, recently, the people who are the subjects of famous memes and the original photographers of famous memes have begun minting the original images on the blockchain as NFTs. Some have then been able to sell the NFT of their meme for hundreds of thousands of dollars, allowing them to receive over a decade’s worth of compensation in one sale.
Anyone can freely download an image of a meme onto their computer. However, buying the NFT of a meme is like the original owner of that meme handing the meme over, with a digital autograph on it certifying (for everyone in the world to see) that the buyer is now the new exclusive owner of that meme.
10) Music NFTs
Similarly, musicians often only receive a fraction of the revenue that their music has generated. After streaming platforms, distributors, labels and other parties take their cut, musicians are often left with a small percentage of the income that their music brought it.
Alternatively, music NFTs allow fans to buy a song, or an entire album, directly from their favorite artists. This allows the musicians to receive almost 100% of the money from the sale.
Are NFTs Limited in Size or Format?
Can something as large as an entire album or a digital piece of land really be made into an NFT?
With NFTs, the actual asset (the image, video, game/metaverse item, audio file etc) is usually not actually contained on a blockchain. Rather, what is written on a blockchain is the “deed” that points to, and verifies ownership of, the actual asset.
Therefore, almost anything, large or small, could theoretically be “tokenized” (minted) and made into an NFT. As of now, almost all NFT data on a blockchain points to (and declares ownership of) only digital assets. However, it’s anticipated that in the near future, NFT data on a blockchain will also commonly be used to declare indisputable, exclusive ownership of real-world assets.
11) Real-World Assets NFTs
As NFTs are actually just pieces of data (on a blockchain) that point to and verify ownership of an asset, it is not too much of a stretch to utilize this technology to declare ownership of items in the real world, essentially turning these real-world items into NFTs.
Tokenizing (“minting”) real-world items as NFTs would bring about the advantages of security, immutability, anonymity, and incontestability that come with storing data on a blockchain.
Relevant applications of this technology could include tokenizing real-world art, real estate, tickets to events, academic certifications, medical records, supply chain records, identification documents, travel documents and other types of official documents.
As of now, we have yet to see many real-world NFTs such as these, but keep in mind it’s only been less than a year since NFTs started breaking into mainstream popularity.
NFTs in 2022
Most people had never even heard the word NFT in 2020. However, NFTs blitzed the world in 2021, becoming Collins Dictionary’s word of the year. In a manner of months, different types of NFTs spread across the internet like wildfire. It will be interesting to see if 2022 will give rise to other, innovative types of NFTs that as of now have yet to be seen.