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

This 24-year-old artist has made over $300,000 in 10 months selling NFTs: ‘I hope to inspire more creatives who look like me’

Since February, Lana Denina has earned over $300,000 from selling her art as NFTs, or nonfungible tokens, on various platforms. But only a month earlier, she just began learning what they are.

At the time, “I didn’t know anything about blockchain,” the 24-year-old tells CNBC Make It. She started looking into it, and “I was mind blown,” she says. “It was completely revolutionary.”

As a painter, Denina was instantly impressed with the technology and its ability to act as a vehicle for proof of ownership for artists, she says. “Traditional galleries are kind of like the old world,” since there isn’t much diversity, Denina says. “I never felt fully attracted to it, especially as a woman of color.”

Unlike traditional markets for art, NFTs and Web3 allows artists to create their own galleries and set their own prices online, Denina explains. Artists can also earn royalties on secondary sales of their work with NFTs. Denina herself earns 10%.

“I hope to inspire more creatives who look like me to step a foot into tech,” she says.

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.