In the early spring of 2021, the NFT acronym that stands for non-fungible token became viral across the internet landscape. According to Google statistics, the popularity of search queries for the term surged from almost zero in January-February to the highest score of 100 in mid-March. Even though the hype seems to have subsided, the United States, Canada and China continue to show a steady interest in the new tokens, which means there is significant potential for their continued popularity. What unexpected facets can this Ethereum platform product show? Perhaps we are witnessing a completely new page turning in the history of the blockchain technology.
Non-fungible tokens are a new type of cryptoassets which, unlike cryptocurrency, cannot be replaced by another equivalent cryptoasset. NFT is one and only. Perhaps that is why the first high-profile use of NFTs occurred in the digital art industry which is already responsible for a few records.
In early March, Mike Winkelmann, also known as Beeple, sold his digital painting, Everydays: The First 5,000 Days, for $69.3 mio at a Christie’s auction. His work of art is a collage of images he created every day for 14 years. Before that, in late February, the viral NyanCat GIF, created in April 2011, was sold as an NFT asset for $760K. Another high-profile auction involved the first tweet posted on March 21 by Twitter co-founder Jack Dorsey. The tweet that reads “just setting up my twttr” was converted into an NFT asset and sold for $2.9 mio.
Even notorious whistleblower Edward Snowden fell for the trend and sold his personal NFT asset on April 16 for $5.4 mio. The asset titled StayFree is a collage of pages containing rulings by a court of appeal in the whistleblower’s case, signed by Snowden himself. The pages of the legal document are laid out to create an image of Snowden’s portrait behind prison bars.
A portal created in 2018, NonFungible.com, shows real-time transactions on the NFT market. The most expensive item is CryptoPanks, a collection of 10,000 unique algorithm-generated pixel art images. In the past month alone, the sales of the images exceeded $80 mio. The runner-up is a series of digital works of art from SupeRare, sold for a total of $27 mio so far. Collectible digital cards of fantasy football players offered by Sorare are listed third with $12 mio. Notably, during Q1 2021, CryptoPanks accounted for 48% of all NFT transactions and SuperRare digital art sales accounted for 43%. This market concentration may be temporary because overall, the market was far more diversified in 2020, with CryptoPanks and SuperRare responsible for 11% and 24% of NFT transactions, respectively.
NFT market trends
There are three development trends on the NFT market: 1) the number and value of transactions are growing as well as the circle of participants; 2) new types of assets are emerging; 3) companies specializing in NFT asset generation are developing and becoming investment projects themselves, attracting an increasing amount of funding. It should be noted that these trends are typical both for the primary and for the rapidly growing secondary market of NFTs.
NonFungible.com reports that between 2018 and 2021, the total number of unique cryptowallets connected to the NFT market doubled, from 111K to 222K, the biggest growth happening in 2020. The increase in the number of buyers exceeded the growth in the number of sellers, which indirectly confirms that transactions with the previously issued tokens are getting increasingly popular on the secondary market. The volume of transactions has also been growing rapidly: from $150 mio in 2018 to $251 mio in 2021. As of the end of 2020, the market total capitalization reached $338 mio, 700% up from $41 mio in 2018.
Rapid growth continued in the first three months of 2021: as compared to the fourth quarter of 2020, the number of unique wallets increased by 26% and the transactions volume by 13,000% reaching over $2 bln.
New kinds of digital activity are getting increasingly more involved in the forming of NFT tokens: these are video games that use NFT standards that entail certain customizing and unique roles, characters and cards; metaverses, or collective virtual shared universes; sports projects where the roles of famous athletes can be played in simulated situations; domain names and various forms of giving access to online resources for online users that offer them certain rights. In 2020, the volume of transactions in the latter category exceeded $2 mio, which is 4% of the total volume of transactions on the NFT asset market. At the same time, the total number of transactions was comparable with the number of transactions with objects of digital art. It can be explained by the fact that prices for unique virtual services and are is significantly lower than those of collectibles or digital art. However, the market segment is worth looking at in the future.
The website nonfungiblealliance.com, which claims to be the organizer of a non-fungible space, accumulates information on various online resources that use relevant NFT standards, for instance, those that offer marketing services (Hashmark), licensing and digital art rights protection (Ecomi), financial services (AAVE) and others.
The growing market boosts the forming and growth of the capitalization of companies that specialize in technologies to create NFT assets. First of all, these are the Ethereum platform, which the basis for most of the currently offered NFTs. This is probably that is why the Ethereum price grew by 1,200% between January 2020 and the end of the first quarter of 2021: from $132 to $1,809. For reference, the price of Bitcoin grew by less than 700% in the same period.
It is more important to note the changes in the cryptocurrencies’ energy consumption index. According to digiconomist.net, in the above-mentioned period, Bitcoin’s energy consumption increased by 25% and Ethereum’s by 290%. In early 2020, Ethereum’s power consumption was only some 11% of that of Bitcoin. By the end of the first quarter of 2021, it reached 34%.
According to NonFungible.com, companies that develop NFT projects attracted some $70 mio in investment in 2020, and over $580 mio in the first three months of 2021.
Developing digital identity
The growing market of NFT assets is seen as one of prospective and soaring investment markets. Amid the ongoing soft monetary policy implemented by authorities across the world, investors are seeking new high-yielding assets. But this is only one side of the process we are observing.
One thing about development of NFT assets is a clear stake on enhancing uniqueness and particular identity of digital objects. In today’s networked world, a man becomes part of the branched virtual network, where it is easy to lose one’s identity. Posts and comments in social media are immediately seen by the network of contacts, and identifying the initial source of a popular narrative becomes difficult. Personification of a piece of work or any other created online object such as thought, photo, saying, story or image is highly problematic, given that a considerable amount of social media users choose to use pseudonyms and false avatars. A real person can quickly lose his/her identity before becoming a new digital individual, with no-one able to associate results of one’s online activity with an actual person.
Here is a simple question: how do we picture Leonardo da Vinci, Isaac Newton, Nicolaus Copernicus and other renowned figures of past eras? Normally, we see images of their creations, discoveries, formulas and other results of their activities. A person expresses his or her identity through actions and activities, which is, according to renowned French philosopher Michel Foucault, is the “technologies of the self,” or the technologies of self-identification.
In his 1982 lecture series, Foucault defined care of the self in terms of intentional actions. Historically, Foucault said, one of the first methods of self-care is “taking notes on oneself to be reread, writing treatises and letters to friends to help them, and keeping notebooks.” He argued that taking care of oneself became linked to a constant writing activity. Foucault obviously foresaw the development of the modern networked world, where each of us, in some form or other, expresses themselves through writing in the internet, as well as through visual objects we create that capture our everyday actions and thoughts.
But how can online activity be linked to the urge to seek, or at least to keep, one’s self? This is where an issue of uniquelization of internet objects arises. Foucault identified four technologies of the self, including those “which permit individuals to effect by their own means or with the help of others a certain number of operations on their own bodies and souls, thoughts, conduct, and way of being, so as to transform themselves in order to attain a certain state of happiness, purity, wisdom, perfection, or immortality.”
Today, these words that were said some 40 years ago receive new meaning and are complemented by advanced technologies that allow transformation of a unique physical person with its individuality into a digital identity that preserves individuality and develops it.
Some may see these thoughts as too philosophical; yet, it is quite possible that the process of individualization of the results of digital activity is one of initial and essential steps on the twisting road to digital identity.
By Vladimir Milovidov, Deputy Director of IMEMO RAS, Department Head at MGIMO University