“History may not repeat itself. But it rhymes.”
– almost certainly not Mark Twain.
Back in the heady days of late 2017, when the world was going bonkers for crypto, a new kind of game emerged called CryptoKitties.
CryptoKitties were little cartoons of kittens that you could collect, trade, breed and sell.
Each cartoon kitten was basically just a graphical representation of a token on Ethereum.
But the key thing about them was that no two kittens were the same.
That’s because they were built using something called an ERC-721 token. And ERC-721 tokens are non-fungible.
CryptoKitties was actually the first big application for non-fungible tokens, or NFTs.
And I do mean big.
Within a few weeks of CryptoKitties’ launch, the most desirable kittens were selling for hundreds of thousands of dollars.
The game became so popular that it slowed the Ethereum network down to a crawl and sent transaction fees soaring.
But that didn’t really matter because this was right around the time the crypto winter of 2018 hit.
Bitcoin lost about 65% of its value in less than two months and Ethereum’s price crashed by more than 50% in less than one month.
As crypto prices continued to languish over the next three years or so, no one gave much thought to CryptoKitties… or the technology used to make them.
Now crypto is firmly back in mainstream consciousness. Bitcoin has more than tripled its 2017 all-time high. And Ethereum – riding a wave of DeFi hype – recently hit $2,000 (£1,459) for the first time in history.
Then boom… just as crypto starts getting mainstream attention again, CryptoKitties reappears on the scene.
Or rather, the company that created CryptoKitties does.
CryptoKitties 2: this time it’s basketball
During the crypto winter, the people who created CryptoKitties formed a company called Dapper Labs… with the help of some venture capitalists and a $12 million (£8.75 million) funding round.
And their next product, called NBA Top Shot, started making headlines.
This time Dapper Labs was using its own blockchain (flow) rather than Ethereum to build its new venture on.
The idea behind NBA Top Shot is you can “own” a video of a basketball highlight.
Each video is coded to an NFT on the flow blockchain and you can use the NBA Top Shot App to watch it.
The reason I put “own” in quotation marks is because you don’t really own anything, the NBA does.
As decrypt writes:
You don't own the underlying copyright of the highlight; the NBA does. That means you can't use the images to create merchandise. You can't "commercialize any elements" of the NFT without the "prior written consent" of the NBA.
You also can't modify the image without the NBA's permission. And you can't use the image alongside anything the NBA considers offensive or hateful.
Still, people have now traded these “Top Shots” more than 3 million times, and they have more than $500 million (£365 million) in sales. (Source: Dapper Labs.)
According to Dapper Labs, NBA Top Shot is now the most popular decentralised app (dApp) in the world.
It also has deals in place with UFC and will be launching UFC Digital Collectables soon… no-doubt without any rights for users either.
Here’s what everyone is missing about the NFT craze
Now, there’s a lot more to the current NFT craze than Dapper Lab’s games.
Over the course of March a whole host of creatives got in on the action…
An artist called Beeple sold his “The First 5,000 Days” digital artwork as an NFT and it fetched a record-breaking $69 million (£50 million).
The New York Times auctioned off a column as an NFT and it raised $560,000 (£409,000).
Even the famous internet meme of Bad Luck Brian was sold as an NFT and raised $36,000 (£26,000).
In the last few weeks there have been thousands more examples of things being auctioned off as NFTs and selling for crazy sums of money.
And while all of this money sloshing about is bringing a lot of exposure to NFTs, there is a much bigger story here.
NFTs are just one application of crypto, out of a virtually limitless number of possibilities.
Security Tokens – moving stocks onto crypto – are another.
(Which will one day be much bigger than NFTs – more on that here: How Security Token Offerings will forever change global finance)
Automatic insurance using crypto is another.
Supply chain tracking using crypto is another.
Tokenising real estate and selling it via crypto is another (more on that here).
Decentralised finance (DeFi) is another, which is already a $52 billion (£38 billion) industry
(more on that here: What is DeFi and why is it such a big deal?)
Decentralised social networks – where each user owns their own data – are another.
“Machines that shop for themselves” – as the Wall Street Journal writes – is another.
Decentralising energy markets is another.
And there are millions more that no one has even thought of yet.
NFTs are getting massive press coverage now, but in another six months or so there will be another killer crypto application that grabs the headlines.
Because that’s the key thing here, crypto is an enabling technology. It enables new businesses, industries and ways of doing things.
Some other examples of enabling technologies are:
· The internet.
· The mobile phone.
· The combustion engine.
· The microchip.
· The “safety elevator” – a device that made lifts safe and allowed people to start making tall buildings.
· The Printing Press.
So, as you may have gotten from the tone of this article, I’m not a massive fan of NFTs.
I think they’re interesting, but I also think they’re overhyped.
I also think they will become a lot more interesting when they actually come with encoded contracts and rights (see my STO article for more on that).
And to be fair, there’s nothing stopping people minting NFTs with actual rights right now.
The thing that everyone is missing is that NFTs are just a tiny part of what crypto is going to enable in the coming years.
The fact NFTs have gained so much popularity in such a short space of time really shows the potential for more killer crypto applications in the future.
In a decade’s time people are going to look at the huge valuations of the top cryptos – propelled by those killer applications – and think it was all so obvious in hindsight.
But was it really that obvious… is it really that obvious right now?
Wait, why didn’t you mention energy usage like everyone else is doing?
As NFTs blew up, anyone and everyone felt the need to have an opinion on them in order to not seem out of touch.
The trouble was, as you’ll know if you’ve made it this far, NFTs are kind of complicated.
In order to understand them, first you need to wrap your head around crypto… which is a huge topic in itself. And then you need to build on that knowledge to begin to understand NFTs.
So most influencers, needing to have a strong and sharable opinion, just jumped on the “crypto uses too much energy” bandwagon.
Over the last month or so I’ve seen a lot of people from different industries giving their uninformed opinions on NFTs.
And a surprising number of them cite this article (which I’m loath to link to) as the misinformed basis of their argument.
The article starts out: “I am so mad I had to write this”, and it doesn’t get much better from then on.
Its main argument is that because Ethereum hasn’t yet moved from Proof of Work (which uses a lot of energy) to Proof of Stake (which doesn’t) it never will.
But the thing is, Ethereum already has a working Proof of Stake network called Beacon Chain. It’s been running since December 2020.
The next step is to merge Beacon Chain with the main Ethereum network and then turn off the Proof of Stake part. It’s a slow process, but it is happening.
And there are already plenty of Proof of Stake cryptos out there already working perfectly well (and also minting NFTs).
The author acknowledges this and then changes their argument.
They say that because richer people can buy more crypto then crypto is socially unjust. And “Climate justice is social justice”.
So even if Ethereum solves its energy issues – which it is doing – that doesn’t matter because it is socially unjust and therefore it is also bad for the climate because social justice is climate justice.
Yes. Their argument really is that convoluted.
And yet a whole host of big names are citing that article as the reason they are outraged at NFTs.
If you’re going to be outraged at NFTs, at least be outraged for the right reasons.
Personally, I’d be more outraged that most of them don’t actually give you any ownership rights over the thing they supposedly represent. But that’s just me.
To sum it all up, the attention on NFTs right now reminds me of the scene at the end of Men In Black
As the camera zooms out we discover that our entire universe is really just a tiny marble being played with by an alien in a much bigger universe.
You can watch it below:
Basically, people are focusing on this one tiny application of crypto, meanwhile, crypto really encompasses a whole universe of possibility.
And as time goes on, we’ll start exploring more and more of that universe.
This is really just the beginning.
Thanks for reading.
Subscribe for exclusive content
As a free subscriber, you’ll get our "this month in crypto" newsletter and access to members-only crypto guides, explainers, reviews and reports.