The History of NFTs

The popularity of non-fungible tokens (NFTs) has exploded in recent years, largely driven by the rise of blockchain technology and cryptocurrency. NFTs are unique digital assets and are highly sought after by collectors and investors involved in Web3. However, the idea of non-fungible tokens is not new and has its roots in an earlier concept known as coloured coins.

Coloured Coins

Coloured coins were first proposed in 2012 as a way to represent assets on the Bitcoin blockchain. The idea was to create a system where users could "colour" their Bitcoin to represent a specific asset, such as a piece of artwork or a collectible. This would allow the ownership and movement of these assets to be recorded on the blockchain, providing a secure and transparent method of tracking ownership.

Coloured coins were the precursors to NFTs but ran on the Bitcoin blockchain and had issues with interoperability and fungibility.

However, the implementation of coloured coins was not without its problems. One of the main ones was the lack of interoperability between different coloured coin systems. This made it difficult for users to exchange and trade their coloured coins, as each system had its own set of rules and requirements.

Despite these challenges, coloured coins continued to gain traction, and in 2014 a group of developers proposed a new standard for representing assets on the Bitcoin blockchain. This new standard, known as the Open Asset Protocol (OAP), aimed to provide a more flexible and interoperable system for coloured coins.

The OAP allowed users to create and manage their own coloured coins, using a simple and standardized set of rules. This made it easier for users to exchange and trade their coloured coins, and allowed for the creation of more complex and sophisticated assets.

However, the OAP did not fully address the issue of non-fungibility. While it allowed for the creation of unique assets, these assets were still considered interchangeable and could be easily replicated or counterfeited. A new standard was needed.

Non-Fungible Tokens

Enter the ERC-721 (Ethereum Request for Comment-721) standard. Developed in 2017, this standard allows for the creation of Non-Fungible Tokens (NFTs) on the Ethereum blockchain, and paved the way for the growth of the NFT market. NFTs are built on top of blockchain technology, and use smart contracts to enforce the uniqueness of the assets they represent. This allows for the creation of truly unique and non-replicable digital assets, such as collectible artwork or rare virtual items.

ERC-721, along with ERC-20, the protocol which governs fungible goods on the blockchain, are probably the most well known ERC standards in the Ethereum ecosystem.

NFTs are also available on other blockchains such as Tezos and Solana, but the Ethereum blockchain is by far the most popular for their development and sale, especially since The Merge (Ethereum’s transition from a Proof of Work protocol to Proof of Stake).

In 2021, NFT trading was valued at $17 billion, and 28.6 million wallets were engaged in it, up from 545,000 in 2020. In 2022, a crypto winter began and the total value of NFTs dropped off a cliff. In the first 9 months of the year, NFT trading volume fell by 97% to just $466 million.

Despite the crypto winter however, there were still plenty of high-profile sales. These included XCOPY’s All Time High in the City which sold for 1,630 Eth ($6.2 million) in January, and Pak’s Clock NFT, which sold for 16,953 Eth ($52.7 million) in February. The latter was created with the aim of raising money to liberate Julian Assange, the notorious Wikileaks founder.

Since the development of the ERC-721 standard, the use of NFTs has exploded. There’s now a wide range of applications and industries adopting the technology. From collectible artwork and virtual real estate, to digital collectibles and gaming, NFTs have become a popular way to represent and trade unique digital assets.

Famous NFT Collections

Bored Ape Yacht Club

The Bored Ape Yacht Club (BAYC) collection was launched on April 23 2021 by Yuga Labs. It’s built on the Ethereum blockchain and features 10,000 procedurally generated cartoon apes. 

Owners of a Bored Ape NFT get access to exclusive events and a private online club, as well as IP rights to the image, some of which are worth more than $5 million. Many are owned by celebrities including Justin Bieber, Neymar, Snoop Dog, and Madonna (they might be regretting it now).

It’s perhaps now the most famous NFT collection in the world. Although many (including Vitalik Buterin himself) have used it as an example of all that’s wrong in the Web3 space. Why are people using Web3 technology to trade seemingly useless images, rather than build apps to disrupt society and decentralize the world? And is this just another form of gambling?

Perhaps the most famous NFT project is the Bored Ape Yacht Club (BAYC) collection.

CryptoPunks

Probably just as famous as the BAYC NFT collection is the CryptoPunks collection. Like BAYC, it’s also built on the Ethereum blockchain. It was launched in June 2017 and was reportedly inspired by the London punk scene, the cyberpunk movement, and the electronic music artist, Daft Punk. 

The collection was developed by Larva Labs (which was acquired by Yuga Labs, the same company that created BAYC, on March 11, 2022) and features 10,000 images of (mostly) unusual-looking characters.

The CryptoPunk NFT collection is often credited with starting the NFT bull market of 2021.

Some CryptoPunks are rarer than others and there are 88 dark green-skinned zombie punks as well as 9 light-blue skinned punks. They also have different accessories including pipes, cigarettes, and glasses.

Azuki

The Azuki collection was launched on January 12 2022 by Chiru Labs, a group of artists and developers based in LA. It was one of the first large NFT projects to feature anime-style characters. 

In April 2022, Azuki gave NFTs in the new Azuki Beanz collection to holders of the original Azuki NFTs for free (a process often referred to as “airdropping”). The Azuki Beanz collection has nearly 20,000 NFTs and helped lower the barrier to entry into the Azuki ecosystem, whilst also allowing the creators to capitalize on the brand without diluting the original 10,000 Azuki NFTs.

The team behind the project said “The dream is for Azuki to have such a big IP (intellectual property) that there’s an animated series, maybe even games and all kinds of merch”.  The project‘s NFTs sell for about 10-20 Eth ($12,000 - $24,000) and there are 5020 Azuki NFT owners at the time of writing.

Takeaway

Today, the NFT market continues to grow and evolve, with new applications and uses being developed all the time. While the concept of non-fungible tokens has its roots in the colored coin systems of the past, NFTs have proven to be a powerful and transformative technology, with the potential to revolutionize the way we think about ownership and value in the digital world.