Crypto investors see looming NFT bubble but tout staying power of the underlying tech

Crypto investors see looming NFT bubble but tout staying power of the underlying tech

“Certainly there’s a lot of hype,” said Mike Shinoda, musician and co-founder of the band Linkin Park, who launched a new NFT mixtape this week. “Most people believe there’s some version of a bubble happening. But most of us who are in the space think that whether it goes up or down, it’s a new thing that’s here to stay in some version of itself.”

The new asset class is raking in roughly $2 billion per month, up from $400 million in January, according to recent estimates from JPMorgan. Analysis by DappRadar shows NFT volume skyrocketing 38,000% year-over-year to $10.7 billion in the third quarter.

Musicians, artists and celebrities are clamoring to launch NFTs, or non-fungible tokens, which are unique digital assets with ownership rights verified and stored on a blockchain. It’s a way to have ownership over content that’s been historically easy to replicate online.

Crypto enthusiasts and venture capitalists flocked to Miami Beach, Florida this week during one of the world’s premier art events. For the first time, Art Basel Miami featured multiple NFT exhibits. But the city also hosted upwards of 200 other events, where the focus was more on the technology behind these digital collectibles.

MIAMI BEACH, Fla. – Even if NFTs are a flash in the pan, cryptocurrency investors are betting that the underlying blockchain technology is here to stay.

Tristan Yver, head of strategy at Miami-based FTX U.S. said the hype benefits all corners of the crypto industry, even if parts are overvalued. Digital art can be a less intimidating way to introduce people to blockchain technology, according to Yver.

“We all have some basic understanding of art. We don’t all have a basic understanding of cryptocurrencies and blockchain — it’s the next step towards mass adoption,” Yver told CNBC. “NFTs are the first time a lot of people create a connection with cryptocurrency and blockchain.”

Blockchain technology used to be synonymous with bitcoin. But in the past few years, a variety of other blockchains have popped up that now support things like finance applications and video games.

Also known as distributed ledgers, the main draw for building on a blockchain is that they’re “decentralized.” There’s no central authority controlling these networks and no single point of failure. Advocates say it’s more transparent. Some tech investors see it as the next wave of the internet, dubbing it “Web 3.0”.

Adam Judd, head of crypto at LionTree, said some specific NFT projects feel “somewhat bubbly.” But he still sees room for growth in the category and new use cases around identity, community incentives, start-up funding, entertainment and fashion. He pointed to the cultural phenomena of the Bored Ape Yacht Club, and Beeple’s record $69 million NFT sale driving “immense interest” in Web 3.0.

“One of the biggest opportunities right now is around user-friendly interfaces and experiences for the everyday person that make NFTs approachable, valuable, and economical,” Judd said. “Once the everyday person feels as comfortable purchasing an NFT as they do buying a coffee, the rest of Web3 will benefit.”

Packy McCormick, founder of Not Boring Capital, was also in Miami this week and said NFT events were the key catalyst for getting like-minded people in the same room. But conversations were drifting more towards decentralized autonomous organizations, or DAOs, a new type of governance system, and other new use cases for blockchains.

“Once people get into NFTs, they want to learn about everything else going on in blockchain — it’s impossible not to go down the rabbit hole,” McCormick said. “There’s going to be a ton of people coming in to speculate. But the important projects will have staying power and over time, quality will win.”

— CNBC’s Ritika Shah contributed to this report.

Watch: Art Basel 2021 begins as NFT, crypto enthusiasts descend upon Miami

What are NFTs? Mapping the NFT Ecosystem

Mapping the NFT Ecosystem

NFTs have been the hottest topic and frothiest market of 2021, with sales volumes increasing by 100x while also becoming a topic of discussion on evening talk shows.

It took crypto nearly a decade to really penetrate the mainstream, but NFTs only needed a couple of years to capture people’s attention. As brands like Budweiser, Visa, and Adidas have purchased NFTs and entered the space, it’s clear that NFTs are more than just another hot new trend.

This infographic sponsored by Next Decentrum defines NFTs and explores the flourishing ecosystem that has quickly grown around them. Discover what non-fungible means, where NFTs are being minted and traded, and what the future holds for this asset class.

What are NFTs, and What is Fungibility?

NFTs are non-fungible tokens that have their history of ownership and current ownership cryptographically secured on a blockchain. These tokens can represent anything, whether it’s a piece of digital art in the form of a jpeg or a song as an mp3 file.

By storing transactions of these tokens on a blockchain, we can have digital proof of ownership and markets for these digital goods without the fear of double spending or the tampering of past transactions and ownership.

Figuring out Fungibility

This all sounds pretty similar to cryptocurrencies, so what makes NFTs so special? Their non-fungibility. Unlike cryptocurrencies like bitcoin or ethereum, non-fungible tokens represent goods or assets with unique properties and attributes, allowing them to have unique values even if they are part of the same collection.

Fungible: A good with interchangeable units that are indistinguishable in value. Examples: U.S. dollars, bitcoin, arcade tokens

Non-Fungible: A good with unique properties, giving it a unique value when compared to similar goods. Examples: real estate, paintings, NFTs

The most popular NFT collection, Cryptopunks, is a collection of 10,000 pixel art “punks”, with varying attributes like different hats, glasses, hairstyles, and more. The random combinations of attributes with differing scarcity results in each punk having a unique value.

Scarcity and subjective aesthetic preferences drive valuations for cryptopunks and other NFTs, with other factors like their historical significance, and even the blockchain they’re hosted on affecting their value.

The NFT-Capable Blockchains Compared

There are many different blockchains that are able to mint and host NFTs, with Ethereum currently the largest and most used by market cap and transaction volume.

Ethereum uses the energy-intensive proof of work consensus method but the network is planning to transition to proof of stake next year which should reduce energy usage by about 99%.

Blockchain Market Cap Consensus Method Ethereum $526B Proof of work Solana $63.93B Proof of stake Avalanche $26.22B Proof of stake Polygon $12.41B Proof of stake Tezos $4.57B Proof of stake Flow $4.07B Proof of stake

Source: Messari.io

As of Nov 29th, 2021

Along with concerns around its energy intensity, minting and transacting on the Ethereum blockchain incurs significantly higher fees compared to other blockchains.

The average Ethereum transaction fee varies between $30-80 (depending on the specific transaction) and the current NFT minting fee is ~$130, every other blockchain in the table above has transaction and minting fees that remain below $1.

While these high Ethereum fees have driven many users to explore other blockchains to mint NFTs, many secondary marketplaces help cover a portion, or even all gas fees, when minting on Ethereum.

The Secondary NFT Marketplaces

Alongside the primary blockchain networks where NFTs are minted and hosted, there are a variety of secondary marketplaces for NFTs where the majority of NFT exchanges take place.

These marketplaces enable users to more easily mint, buy, and sell NFTs, with OpenSea having emerged as the leading secondary NFT marketplace. It’s estimated that OpenSea had $1.9 billion of traded volume in November 2021, making up over 95% of NFT trading volumes.

Marketplace Trading Volume (November) Supported Blockchains OpenSea $1.9B Ethereum, Polygon Nifty Gateway $31.79B Ethereum SuperRare $18.77M Ethereum Foundation $15.33M Ethereum Hic et Nunc $4.48M Tezos MakersPlace $1.09M Ethereum Async Art $131,000 Ethereum

Source: The Block

Although some of the marketplaces (like OpenSea) allow anyone to easily mint and offer an NFT for sale, other platforms like SuperRare limit the art and artists on offer, resulting in a more curated marketplace. Similarly, some marketplaces like OpenSea host NFTs from multiple blockchains like Ethereum and Polygon, while other marketplaces like Hic et Nunc are faithful to one blockchain (Tezos).

While OpenSea currently dominates the secondary market, cryptocurrency exchanges are likely to offer some fresh competition soon. Coinbase is currently building out its own NFT marketplace, and FTX’s marketplace with Ethereum and Solana NFTs is up and running.

Digital Art, Gaming, The Metaverse, and The Future of NFTs

NFTs made a huge splash in 2021, giving creators digital and decentralized networks where they could host and exchange their work.

Currently, digital-first use-cases are at the forefront of NFT development, with ownership of in-game assets or goods in the metaverse two of the primary use-cases being explored. However, NFTs can be used to tokenize physical assets like real estate, physical artwork, and much more, opening up near endless possibilities for their application.

From removing the friction of paperwork and bureaucracy in today’s real estate exchanges to allowing for easy fractionalization of asset ownership, the tangible real-world use-cases of NFTs are just starting to be explored.

To learn more about NFTs, visit Next Decentrum.

Metropolitan Ministries and Metacity partner on local NFT drop for charity

At its annual “Business Breakfast of Champions” event, Metropolitan Ministries became one of the first Tampa Bay nonprofits to raise charitable dollars via a drop of Nonfungible Tokens (NFTs), raising $32,000 to fight hunger.

“Metropolitan Ministries prides itself on marrying compassion and innovation in the service of more than 72,000 homeless and at-risk families each year,” said President and CEO Tim Marks. “As Tampa Bay emerges as a hub for technical innovation, we want to keep pace with our community by accepting donations in cryptocurrency and by acknowledging donors with cutting-edge technology like NFTs.”

An NFT is a unique identifier that represents proof of ownership of an asset. NFTs are stored permanently on a blockchain and can be associated with everything from a work of art to fractional ownership of a beach house.

Six donors made the winning bids on the opportunity to help Metropolitan Ministries provide meals to the community and receive commemorative NFTs: Tready Smith bid $15,000 for the first ever NFT offered by the organization, and Cate Colgan, Sheryl Hunter, Laura Sherman, Rosa Shores and Gary Tillet followed on from $3,000 to $5,000 for the remaining 5 NFTs in the collection.

The NFT drop was organized and executed on their behalf by Metacity, which plans to offer NFT minting to the community on its forthcoming platform.

Metacity will authenticate each transaction and commemorate them via an NFT in the form of a photograph of each donor in front of the meal kits their donations make possible.

Prior to the NFT auction, the more than 300 business and nonprofit leaders assembled in Metropolitan Ministries’ Holiday Distribution Tent heard from a panel of blockchain experts that shared blockchain concepts and observations about how it will transform business, the internet and culture.

The program featured Rosa Shores, co-founder of BlockSpaces, Michael O’Rourke, co-founder and CEO of Pocket Network, and Miles Harrell, COO of Stratos Technology. Metacity’s Joe Hamilton (publisher of the St. Pete Catalyst) moderated the conversation.

Shores summed up blockchain technology as the latest evolution of the database. “Blockchain is a ledger that’s visible, permanent and validated,” she said. She explained that NFTs represent a record of ownership, backed by the blockchain. This innovation eliminates the need for many third-party functions provided by banks and governments, keeping the exchange of value directly between the parties to the transaction.

“Blockchain also enables the consumer to trace the origins of a product and to determine whether a brand is ethically sourced, for example. Or enable a farmer to connect directly with residents who live in a food desert,” Shores said.

“Blockchain adds guardrails to the internet, creating relationships that are reliable and stable,” Hamilton observed. He added that “cryptocurrency” is an unfortunate nomenclature. “It’s not a currency, it’s more like buying shares in a company or a project. It allows anyone to invest in a startup and stay liquid. Traditionally an investor would have to await a buyout or exit to recapture their value.”

Miles Harrell encouraged the audience to take the plunge and invest in blockchain technologies and cryptocurrency. “You’re not too late,” he said. “It’s still an emerging sector and Web 3 is still being built.”

Web3 is defined by industry leaders as the next, more decentralized, democratic internet, enabled by blockchain to be free from the dominant influence of a few major tech firms and large institutions.

The Metropolitan Ministries event also featured remarks from board member Gerry Coughlin, Tampa Mayor Jane Castor, and Dustin Portillo, a spokesperson for the event’s presenting sponsor, Casper Cares.

Claudia Ganns, associate vice president of care management services at Metropolitan Ministries, closed the program with a moving story of her journey from single mother and Metropolitan Ministries’ food pantry client to degree-holding social services professional who is now employed by the organization.

“We are committed to serving every client with the kind of dignity and compassion that I experienced here myself in a time of need,” she said.