As entrepreneurs and developers transition to building in a world of Web 3.0, you would be hard-pressed not to mention NFTs in the same breath. While it's tempting to label NFTs as only digital art, their utility goes far beyond just the digital collectibles and profile pictures used for social media clout.
Although the ultimate impact of NFTs on business and culture remains to be seen, their growing popularity warrants anyone with a curious mind to take a deeper look into the existing ecosystem.
In this article, we'll briefly explore the past, present, and future of NFTs and highlight the key developments of how we got to where we are today.
What are NFTs?
Unlike traditional cryptocurrencies, NFTs, also known as non-fungible tokens, are unique, digital items with blockchain-managed ownership. Each unit of an NFT can be considered one of a kind. These can consist of collectibles, game items, digital art, event tickets, domain names, and even contract ownership records for physical assets.
At a more technical level, NFTs are non-interchangeable units of data stored on a blockchain, making them resistant to tampering, destruction, or replication. As such, NFTs can be verified by the blockchain, giving them extrinsic value as well.
'Non-fungible' refers to an asset's unique qualities and traits that make it completely standalone and non-replicable from other assets. Conversely, a good example of a fungible asset can be a currency. When dealing with currency, a five-dollar bill will always be replaceable by another five-dollar bill (or even five $1s).
Though non fungible tokens can seem complex, you can think of them as a vehicle to share virtually any form of media using the blockchain.
The Past: When was the first NFT created?
As is often the case with innovative technology, NFTs didn't just appear out of nowhere, becoming a household name overnight. Which naturally leads to the question: when was the first NFT created?
That depends on who you ask. Some believe Colored Coins, created in 2012, maybe the rightful owner of being the first. As investor Andrew Steinworld shared on his Medium page:
"One could argue that Colored Coins are the very first NFTs to exist. Colored Coins are made of small denominations of a bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin....
Colored Coins exemplified a huge leap in Bitcoin's capabilities, however, their downside was they could only represent certain values if everyone agrees on their worth. Bitcoin's scripting language was never meant to enable this type of behavior within its network, thus Colored Coins were only as powerful as their weakest participant."
Others may consider Kevin McCoy's "Quantum" NFT minted on the Namecoin blockchain May 2nd, 2014, the rightful owner of the "first NFT title."
In 2017, a project launched by Dapper Labs on Ethereum called “CryptoKitties” was the first widely-recognized implementation of NFTs, launching on the new ERC-721 standard for Ethereum. These digital cats became wildly popular in the crypto boom of 2017, selling for as much as 600 Eth (or $172k) at the time, and attracted mainstream attention across the world.
Since then, we’ve seen the rise of thousands of NFT projects with massive levels of success. From Beeple's $69 million NFT auction piece to the Bored Ape Yacht Club collection, the NFT space has changed many lives and continues to shape the new world of Web 3.0. Creating an NFT continues to become easier by the day.
The Present: Ethereum and NFTs, a love story
While the origins of NFTs are up for debate, Ethereum continues to play a critical role in them going mainstream, with the vast majority of NFT projects using the Ethereum blockchain to create, host, and distribute NFTs. The most used blockchain second to Bitcoin, the Ethereum ecosystem has also been incredibly favorable to NFTs, being the first blockchain to support the ERC-721 standard.
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 you can't exchange one company's loyalty points for another platform's credit even if there's a market for it."
As interest in cryptocurrency continues to surge, NFTs provide a unique onboarding opportunity for those who may not understand the technical complexities that make cryptocurrency run. For many, it's easier to "get" NFTs than it is to understand Bitcoin fully.
Furthermore, the success of projects such as CryptoKitties and CryptoPunks inspired other blockchains to invest more heavily in NFT infrastructure and further expand the functionality and access of NFTs cross-chain. While Ethereum continues to be the blockchain of choice for most things involving NFTs, there are numerous other ecosystems springing up to support the market demand for NFTs.
For instance, Dapper Labs originally built CryptoKitties on Ethereum but have since launched Flow, a new developer-friendly blockchain that also supports the wildly popular NBA Top Shot collectibles. Similarly, other blockchains such as Solana, Polygon, and Avalanche are innovating rapidly, creating healthy competition within the world of NFTs.
The Future: Decentralized vs centralized, and fractionalized ownership of NFTS
As the NFT industry continues to mature, we'll no doubt see more unique implementations and use cases that extend beyond art. The world of gaming, music, art, and ownership will continue to be disrupted. And naturally, there will be needed discussion on the direction of NFTs as an ecosystem. Some of the questions raised won't be easy.
For example, if NFTs should be fully decentralized, how do we approach the current heavy reliance on using AWS servers to host metadata and platforms? Should NFT marketplaces also be necessarily decentralized to fulfill the promise of web3?
Should the likes of OpenSea have a moral obligation to lock suspected accounts of foul play? Or is the potential of being hacked something we should all expect?
How will the development of other ecosystems advance the ease of use and onboarding of NFTs? With the likes of Phantom and Rainbow Wallet building for a mobile first world, there's plenty of opportunity for new players to grab a healthy piece of the NFT gold rush.
Will NFT royalties empower creators to the point of no longer needing a middleman to produce art and music?
How will the exciting development of fractionalized ownership transform how average consumers invest? From attempting to own part of the U.S constitution to owning a fraction of one of the most expensive CryptoPunks, the possibilities are truly endless.
While NFTs are still in their infancy, it's clear they will continue to play a significant role in the world we live in today.
Building Towards the Future of NFTs
If you’re looking for additional resources towards learning about NFTs or building your own, we’ve got you covered! One of our primary goals at Alchemy is to help educate blockchain developers on the tooling available in the space, and to provide resources to help you become a better developer. Here’s a few tutorials that might help you get started minting your own NFTs that we’ve published to Web3 University:
Additionally, we’ve just released an NFT API that will help you fetch this metadata without relying on the limited toolset available to you via web3.js or ethers.js! Sign up for the waitlist below.
And finally, we're always available to help 24/7 on our Alchemy Discord. Stop by and say hi - we'd love to help you on your journey to becoming a full-fledged blockchain developer!