Non-fungible tokens (NFTs) are a new type of digital asset that has the potential to revolutionize the way we own and manage digital property. NFTs are unique and cannot be replaced, which makes them ideal for representing ownership of digital goods such as art, music, and videos. In recent years, there has been a growing interest in NFTs, and their value has skyrocketed. This shows that there is a growing demand for NFTs, and they are likely to play an increasingly important role in the future of digital ownership. This article discusses the history of NFTs, their potential benefits, and some of the challenges that they face. It concludes by arguing that NFTs have the potential to revolutionize the way we own and manage digital property. Read the full article to learn more about NFTs and their potential impact on the future of digital ownership.
NFTs have gained enormous traction since 2021 and have formed the base layer for innovation and creative paradigms in web3. Most of us are already familiar with NFTs and how they work. If not, please check out our blog on NFTs for a complete explanation.
But a majority of us are unfamiliar with how NFTs came to be. Where did it all start? Who was behind the first NFT ever?
We will answer all of those in this article.
There's a fair argument for Colored Coins being the first NFTs to exist.
In December 2012, a paper by Meni Rosenfield introduced the 'Colored Coins' concept for the Bitcoin blockchain.
The idea of ‘Colored Coins’ was simple. Take small denominations of bitcoin, as small as a single satoshi(smallest unit of a bitcoin), and mark them in a way that they are now unique to other bitcoin and satoshi.
The notion colored meant that this particular bitcoin or satoshi were a part of the Genesis transaction(1st ever transaction in the bitcoin blockchain) at one point in history.
Since transactions were easily identifiable through bitcoin's public ledger(blockchain), these colored bitcoins were equivalent to rare coins.
These coins could now have unique benefits in addition to their underlying value.
Let's understand this with an example.
Think of a $1 bill. Now, imagine if someone were to wipe out the face of the $1 bill and draw a pic of a sports star. It would make the bill unique from other $1 bills as it has been 'colored.'
Now, you could trade this colored bill with a sports card collector for a much higher value than $1(say $10) or buy stuff with it for its original underlying value of $1.
The inherent idea was to use these Colored Coins that represented a multitude of assets and had multiple use cases, such as:
Even though, at that time, Colored Coins seemed a fascinating concept, their drawbacks were apparent. They only represented specific values if everyone agreed on their worth. Suppose three people decided that 50 Colored Coins represented 50 shares of the company ABC. If even one participant decided they no longer equate Colored Coins to represent shares of company ABC, the system would fall apart.
Plus, Bitcoin's scripting language couldn't handle this behavior within its network without compromising decentralization and security.
Nonetheless, colored coins paved the way for creative innovation and possibly laid the foundation for modern-day NFTs.
After Colored Coins, people started to realize the potential of creating and distributing assets on the blockchain. But, due to Bitcoin's blockchain not being capable of handling these features, assets on blockchain remained a far-fetched dream. Counterparty was founded in 2014 by Robert Dermody, Adam Krellenstein, and Evan Wagner as a peer-to-peer financial platform and distributed, open-source Internet protocol based on the Bitcoin blockchain.
Counterparty enabled data embedding to regular Bitcoin transactions. To the bitcoin software, these transactions looked like standard Bitcoin transactions, with one user sending another user a minimal amount of Bitcoin.
A Counterparty node (which runs the Bitcoin client and the Counterparty client software) recognized and interpreted the data in these Bitcoin transactions based on specific rules.
The best way to think about this is from the analogy of a Russian nesting doll, with the larger doll representing the Bitcoin transaction and the next doll (inside it) representing the Counterparty transaction.
Counterpart enabled users to issue assets called 'user-created-token' in the Counterparty protocol. Additionally, Counterparty also introduced a peer-peer decentralized asset exchange where users could create, send, trade, and pay distributions on assets, in a fully decentralized and trustless manner.
Use cases included:
The launch of Counterparty birthed on-chain asset exchange. After just a year, a game called - Spells of Genesis pioneered in-game assets via blockchain. The creators of Spells of Genesis were also the first to launch an ICO(initial coin offering). ICOs back then was called crowdfunding. Spells of Genesis also launched a token called BitCrystals, which was the in-game currency.
Counterparty, in August of 2016, partnered with a popular trading card game, Force of Will, in order to launch their cards on the Counterparty platform. Force of Will quickly gained popularity, selling cards in over 30 countries and becoming the fourth-best-selling card game in North America, trailing only Pokemon, Yu-Gi-Oh, and Magic: The Gathering.
The entry of Force of Will into blockchain gaming was a significant event as they were a large mainstream company with no prior background in blockchain or crypto. Their admission into the ecosystem signaled the value of putting assets on-chain.
If there's one thing faster than light, it's probably memes. Memes found a home on the blockchain after only two months. People began issuing rare pepes as assets in October 2016 using the Counterparty platform.
Pepe the Frog is a green frog with a human body that is popular on the internet. Pepe first appeared in Matt Furie's Boy's Club comic in 2005.
The fan base for 'Pepe the Frog' memes is so gigantic that there exists a meme exchange called the Rare Pepe Meme Directory.
The directory had specific 'experts' that certified the rareness of the Pepe memes, which signaled a clear interest from users in owning rare digital items.
Counterparty currently has a plethora of projects, many of which involve NFT-like assets built on its platform.
After Ethereum paved the way for mainstream smart contract development, memes rose to prominence. In March 2017, a project named–– Peperium announced its intention to be a "decentralized meme marketplace and trading card game (TCG) that allowed anyone to create memes that live eternally on IPFS and Ethereum."
Peperium also had its own token, RARE, used for meme creation and listing fees.
As the trading of rare pepes on Ethereum started to rack up the numbers, a new NFT project with a slight variation was created and launched by two technocrats –John Watkinson and Matt Hall, founders of Larva Labs.
After looking at rare pepes, John and Matt had a light bulb moment where they realized there could be a space for unique digital characters that people could own.
They created 10,000 unique characters called Cryptopunks, where no two are exactly alike, and it was possible to own each one of them on the Ethereum blockchain.
The Cryptopunks NFT was a reference to the Cypherpunks who experimented with precursors to Bitcoin in the 1990s. Interestingly, Watkinson and Hall opted to let anyone with an Ethereum wallet claim a Cryptopunk for free. All 10,000 Cryptopunks were swiftly claimed and started a thriving secondary marketplace where people bought and sold them.
One could argue CryptoKitties gaslighted mainstream NFT adoption. CryptoKitties is a virtual game on the Ethereum Blockchain that allows players to trade virtual cats. The game also allows players to adopt, raise and breed them. Each cat is one-of-a-kind and 100% owned by the players; it cannot be replicated, taken away, or destroyed.
Here's what CryptoKitties currently offers:
Axiom Zen –– the team behind CryptoKitties had been working on the project for a few months when they released the alpha version during the ETH Waterloo Hackathon, the world's largest hackathon for the Ethereum ecosystem. The hackathon oversaw more than 400 developers in attendance, and it was the perfect place and time to introduce the game.
The CryptoKitties team won first place in the hackathon, and the game quickly went viral.
CryptoKitties became so popular that they clogged up the Ethereum network, and people were making insane profits. Some virtual cats were even selling for over $100,000.
CryptoKitties quickly became the talk of the town and caught the attention of news publications such as CNN.
After the incredible rise of CryptoKitties, the potential of non-fungible tokens was evident. Axiom Zen later founded Dapper Labs, which secured $15 million in funding from the top investors in the space, such as a16z and Google Ventures.
After 2018, the growth within the NFT ecosystem has been massive. With 100+ projects in the ecosystem and more yet to arrive, NFT marketplaces are thriving, led by OpenSea. We also saw other blockchains, such as Solana, coming up with their NFT Marketplace, MagicEden.
A project named Bored Ape Yacht Club(BAYC) became the talk of the town, with sports stars, musicians, and social media influencers who started buying in.
BAYC is a collection of 10,000 Bored Ape NFTs—unique digital collectibles living on the Ethereum blockchain, created by Yuga Labs. The Bored Ape NFT also acts as your Yacht Club membership card and grants access to members-only benefits.
NFT avatars exploded in 2021 when Twitter introduced NFT profile picture verification for users of its Twitter Blue subscription service. The move allowed anyone to check whether a user's profile picture was 'legit' by including a link to the NFT marketplace, Opensea, after clicking on the profile picture, bringing an end to the narrative that anyone could 'right-click' save the NFT and claim it as their own.
As a result, NFTs commanded millions of dollars for an individual piece that could be collected and used on social media, resulting in billions of dollars in total trading volume.
As the Ethereum organization highlights: "NFTs and Ethereum solve some of the problems that exist in the internet today. As everything becomes more digital, there's a need to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership. Not to mention that digital items often only work in the context of their product. For example, you can't re-sell an iTunes mp3 you've purchased or exchange one company's loyalty points for another platform's credit even if there's a market for it."
As interest in cryptocurrency grows, NFTs offer a unique onboarding opportunity for those who may not understand the technical complexities that enable cryptocurrency to function. Many people find it easier to "get" NFTs than comprehend Bitcoin & other blockchains fully.
The idea of 'Digital Scarcity' is powerful and has inspired projects like CryptoKitties, CryptoPunks, and BAYC(Bored Ape Yacht Club) and other blockchains to invest more heavily in NFT infrastructure and broaden the functionality and cross-chain accessibility of NFTs. While Ethereum remains the blockchain of choice for most things involving NFTs, there is a slew of new ecosystems sprouting up to meet market demand for NFTs.
We have no doubts that we are on our way to a 'Non-Fungible' future.