NFTs have become very popular recently and you may find yourself trying to understand the phenomenon. Maybe you’re asking yourself if this is the next Bitcoin or another big technology breakthrough that you missed out on investing in early. Rivyn is going to analyze NFTs and try to propose new and innovative ideas for them. The Oasis wants you to steal our ideas and turn them into reality. We work to improve the world, and certainly don’t have the time, manpower, or resources to bring these ideas to fruition. But before we get to those ideas, it is wise to invest some time updating your digital literacy and understanding, and you have made a good start by opening up the first article on NFTs.
First, let’s get past the acronym. NFT’s are Non-Fungible Tokens, which basically means they are unique digital items. Critically, these NFTs are minted on the blockchain which decentralizes the token. We will get into more details and specifics later. We’ll stick with the big questions for now.
One big question often debated is the worth of an NFT. Many people have probably heard about some of the big-ticket NFT sales, like Beeples Everyday collage, which sold for $69 million, and there have been a fair amount of other digital art pieces that have sold for in the $3 – 8 million dollar range. Worth is a term for the value assigned to an item. For centuries, mankind has wanted gold, a rare resource, placing a high value on it. The value of NFTs, similarly, are determined by their demand. When Facebook announced that they were rebranding to Meta, it helped fuel increased excitement about NFTs driving up their publicity and increasing the pool of interested buyers.
The factors that raise demand for an NFT are a vibrant community, rarity factor, the blockchain medium in use, utility, and perceived continued demand. For this first article, let’s walk through some of these concepts.
The Crypto/Meta/NFT world leverages Twitter and Discord to build communities. There are a lot of communities based using Generative Art. Examples include Bored Ape Yacht Club, Crypto Punks, and CryptoKitties. These communities have seen NFTs sell quite regularly in the tens of thousands of dollars and occasionally into the millions. The NFT itself is 1 of 10,000 or another predefined number and the art behind it is easy to make, but the community and engagement behind it is what drives the price up.
- Generated Art: It is worth discussing generated art early on since it is the dominant share of the overall NFT market. Generative Art is a process where you can use programs like Photoshop and other layer-based editors to produce an image type. Basically you create a bunch of possible pieces that could render into the image, but still have one dominant feature that always remains the same. Then the render engine will produce 5,000, 10,000, 20,000 or however many images you want. This allows you to make a community revolving around one theme, but ensure that every recipient of the community gets something slightly different. The skill level required to make generative art is rather low. Anyone who knows how to use Photoshop and can follow Youtube instructions can make a set of generative art. This underpins the importance of an active community in raising those types of NFTs value.
If an NFT is an original piece of art (versus generated art) it is going to have a high rarity factor if the artist sells only one copy. If the artist mints 10 or 100, the rarity factor will decrease significantly. For generated art, organizations use rarity tables to determine the parts that are particularly rare. When many of these rare pieces combine, you end up with an NFT that can be one of the rarest in the community. For big communities like the Bored Ape Yacht Club, the rarity factor raises the worth significantly.
Example of Generated Art Collection:
The Blockchain Medium
NFTs can be created and distributed on many different types of blockchain. Ethereum was the first and the main medium for NFTs due to it being the first crypto to have smart contracts. As time progressed, more and more next generation cryptocurrencies spawned and surged their way into the forefront with superior technology, scalability, and low transaction costs. Examples of these include Cardano and Solana, which have their own NFT marketplaces, smart contracts, and decentralized apps. Within the Ethereum chain, there have also been many coins and advanced swap mechanisms that have created sub-coins tied to ethereum but reducing certain costs.
Items listed using ethereum often have higher value, since it is seen as the original and, like Bitcoin, the original often becomes the benchmark tool. However, Ethereum has a major problem with a thing called ‘gas fees’, which are basically fees you have to pay those who run the mining computers that maintain the blockchain and perform the calculations necessary. You may think a gas fee wouldn’t be very significant, but they have risen to averages in the $100s of dollars. On the other hand, Cardano has a gas fee of around 0.30 cents, and Solana– 0.00025 cents.
There is also a utility factor that can be considered with NFTs and their value. We have spent a good deal of attention on art-based NFTs, but it’s important to know that NFTs are not only art-based. Due to the smart contracts and the ability to mint unlockable content that only the owner of an NFT can see, a creator can make an NFT have utility and serve a purpose. This is something we highlighted in our first NFT collection– The Six Crowns of the Metaverse. Hint: Utility is a focus area for Rivyn. Many of our posts will revolve around it.
Perceived Future Demand
The last variable we will discuss that determines NFT worth is the perceived future demand. Is someone going to want the NFT you bought in a month, a year, ten years? If you buy into a generative art NFT community that is not mainstream and sustainable, it is likely your NFTs value will decrease to nothing, even if it is the rarest NFT of the collection. There are a lot of factors that could increase future demand. Namely, an NFT has to be able to give back something to the user. Rivyn articles will focus on this topic as well, explaining how smart contracts and utility can catalyze Generation II NFTs.
Next Up: A Tale of Two NFTs