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NFT: how do crypto collectibles work?

Since Bitcoin came to life over a decade ago, developers have explored the infinite potentialities of blockchain technology, including the crypto collectibles.

Smart contracts are one of the main use cases, which have powered a myriad of different projects in the crypto ecosystem. When Ethereum was created, back in 2015, it opened an array of possibilities for blockchain.

Blockchain and smart contracts showed to be useful in certificating physical works of art. Soon enough, it would breed all-digital artworks that live entirely in the blockchain.

What is an NFT?

Non-fungible tokens or NFT are a type of cryptographic assets with their own specific rules, different from the likes of BTC, LTC, or the other fungible coins. The main difference is that an NFT can’t be traded for another. Each token has a different price, depending on its features and the market demand.

This is possible because every token is different from the other. They’re not mutually interchangeable and can’t be fractioned like Bitcoin.

Due to this, they are traded on marketplaces. NFTs, or crypto collectibles, work like a physical trading card or art object: you pay for it, instead of paying with it.

Since Ethereum is the most popular blockchain with smart contracts, most of the NFTs run on this network. From CryptoPunks and CryptoKitties to the Liverpool and Real Madrid crypto collectibles.

Obviously, Ethereum is the one who made smart contracts mainstream and one of the safest chains with this feature. However, other blockchains have also included this feature and provided an environment for NFTs to be developed.

You can find NFTs in EOS, NEO or Tron, although not as many as you could find in Ethereum. WAX deserves a special mention because it’s a blockchain entirely created to foster NFT projects.

Read also: NFT – what are they and how to profit?

The name stands for Worldwide Asset Exchange and claims to be “the world’s leading decentralized video game and entertainment network”. The developers of the blockchain focus on providing tools and frameworks for companies and celebrities to launch crypto collectibles. Thanks to it, deadmau5, Capcom, William Shatner, and many others have used the platform.

However, since Ethereum was the pioneer and is still the biggest NFT host, let’s focus on it.

How an NFT looks like - sometimes
How an NFT looks like – sometimes

CryptoArt beginnings and Ethereum standards

Despite Ethereum being the most popular NFT platform, the birth of CryptoArt didn’t happen on it. If we trace back to the first art certification on a blockchain we must talk about Monegraph.

Monegraph was launched in 2014 and it allowed Twitter users to certify their digital images in a blockchain. The works of art were assigned a key that they could store in a wallet. The key could be sold afterward, similar to how NFTs work. This piece of code, despite not being written on a specific protocol or standard, gained a different value than other similar coins.

The project worked for a couple of years, but it’s kind of dead now. The website is down and the Twitter page has not been posted since 2017.

The seed, however, grew on other projects. The CryptoArt movement gained traction. In 2016, a RarePepe market started trading cards on the Bitcoin blockchain, using the Counterparty protocol.

2017 is the year CryptoArt definitely moves to Ethereum, with the launch of two of the biggest NFT projects: CryptoPunks and CryptoKitties.

CryptoPunks was launched in June. They are the first important CryptoArt to be created in a blockchain, instead of using it to certify the origin. This event put the idea of creating a specific standard for token creation dedicated to digital art (ERC-721).

ERC-721

CryptoKitties came to life later into the life of crypto collectibles that year, in November. Based on CryptoPunks, the developers behind it proposed the ERC-721 protocol to allow:

the implementation of a standard API for NFTs within smart contracts. This standard provides basic functionality to track and transfer NFTs.

This standard became popular and was used by other big projects, like Decentraland.

CryptoKitties, the first implementation of ERC-721, gained a lot of fame too. It launched on November 28th and on December 3rd it had already processed over 1 million dollars. The number of transactions caused network congestion and gas prices on Ethereum got really high. The CryptoKitties, apart from being traded, could be bred to get new ones. So the gamification of NFTs caused a frenzy in the ecosystem.

Today, with all the growth we have seen in the NFT arena, CryptoKitties are ranked 8 in the NonFungible list, with an all-time volume of 39 million dollars.

ERC-1155

In 2018, the developers behind Enjin proposed the ERC-1155 standard as an improvement to ERC-721. While the latter created a unique smart contract for each token, the new standard allows the same contract to create many unique tokens.

Enjin is a blockchain platform built on Ethereum that offers tools and frameworks to create videogames and dApps.

NFTs have become increasingly popular, with a lot of artists and companies joining the frenzy. In the first half of 2020, the total traded volume reached 100 million dollars. Today, less than a year later, it’s above 3 million.

Most expensive NFT

People have spent a lot of money on these unique tokens. Let’s see the most expensive ones to date.

One of the most valuables to date is Dragon, a special CryptoKitty with a price of 600 ETH, equivalent to over a million dollars.

A CryptoPunk, called Alien #2089, was sold for 605 ETH in January 2021. It’s one of the only 9 Alien CryptoPunks, a rare set of items in this collection.

A few plots of land were recently sold in Axie Infinity, a virtual reality game, on February 8th. The total value of the sale was 888.25 ETH, accounting for 1.5 million dollars. This is, for now, the largest NFT sale ever made.

The largest NFT sale - Axie Infinity
The largest NFT sale – Axie Infinity

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