Unraveling the Early Days: Tracing the Genesis of NFTs
Emerging from the roots of Bitcoin's colored coins in 2012–2013, nonfungible tokens (NFTs) blossomed into a global sensation in 2021. A significant role in this evolution was played by the Ethereum blockchain.
The technology behind NFTs, while it came to the spotlight in 2021, was not a novelty of that year. The historic first NFT, "Quantum," was minted by Kevin McCoy on the Namecoin blockchain back in 2014. But the seeds of this technology were sown with the advent of Bitcoin-based colored coins in 2012–2013. This nascent idea, originating from a paper by Meni Rosenfield, set the stage for BRC-20 tokens and the exploration of digital tokens on the Bitcoin blockchain.
However, it wasn't until 2017, with the advent of the Ethereum blockchain, that the world began to truly take notice of NFTs. Ethereum surpassed the capabilities of preceding blockchains in facilitating NFTs by offering a robust mechanism for tasks such as token creation, storage, coding, and trading, making it easier for NFT projects to take flight.
The Path of Transformation: From Colored Coins to Rare Pepes and Spells of Genesis
The initial stride was taken with colored coins, which were devised to signify and manage real-world assets' ownership on the blockchain. These coins, distinct from Bitcoin (BTC) due to their unique functionality, presented a monumental advancement in Bitcoin's capabilities.
Colored coins, as fragments of a Bitcoin, could be as minute as a satoshi. The realization of their potential uses in representing property, coupons, digital collectibles, subscriptions, shares, and access tokens amplified people's faith in blockchains for asset issuance.
Although Bitcoin wasn't designed to serve as a token database, the concept of colored coins spurred a sequence of experiments culminating in NFTs, starting with "Quantum," an octagonal animation. Ethereum's arrival provided the necessary platform for NFTs to thrive.
The Counterparty platform, built on Bitcoin, was a significant project of this era, which led to the creation of a series of "Rare Pepes" NFTs, introducing the use case of NFT as artwork. The Ethereum-based "Spells of Genesis" followed, creating a significant milestone in the NFT journey.
The Dawn of NFTs in Gaming and the Metaverse: From CryptoPunks to Axie Infinity
With Ethereum laying out a set of token standards, the migration of NFTs towards blockchain became more streamlined. The success of Rare Pepes gave rise to Larva Labs' CryptoPunks, a generative series of NFTs that gained immense popularity and formed the bedrock for several other NFT projects, including the massive Bored Ape Yacht Club collection.
CryptoKitties, launched during the ETHWaterloo hackathon in October 2017, paved the way for NFT gaming. The game, which allowed players to trade and create NFTs representing virtual cats, triggered the rise of NFT gaming.
The fusion of NFT gaming and metaverse projects crafted a new wave. Decentraland, a virtual world built on Ethereum, empowered players to explore games and amass assets. Axie Infinity, an NFT-based battle game introduced in October 2018, spearheaded the play-to-earn (P2E) model, enabling gamers to earn rewards while playing.
Diversification Beyond Ethereum: The Emergence of Non-Ethereum Blockchains and the NFT Ecosystem
A surge in NFTs in 2021 was driven by multiple factors, with several blockchains devising new standards specifically for NFTs.
The year 2021 saw a supply and demand surge for NFTs, with NFT trading escalating about 21,000% to surpass $17 billion. A significant contributor to this rise was the utilization of NFTs in the art market, offering artists a new medium to exhibit and securely store their creativity.
Around the same time, prestigious auction houses like Christie's and Sotheby's transitioned their auctions online, with artworks that bolstered the popularity of NFTs. The sale of Beeple’s "Everydays: the First 5000 Days" NFT at Christie's for a whopping $69 million grabbed the attention of non-Ethereum blockchains and blockchain enthusiasts.
Inspired by the NFT frenzy, blockchains such as Cardano, Solana, Flow, and Tezos began developing their own NFT platforms. Furthermore, Facebook rebranded to Meta and ventured into the metaverse, boosting the demand for NFTs.
Bouncing Back: The Revival of NFT Market and the Launch of Bitcoin-native NFTs
After a brief dip in 2022, the NFT market rebounded in 2023, restoring the enthusiasm of NFT enthusiasts.
Despite the cooling-off period in 2022 due to macroeconomic factors, 2023 brought a resurgence in the NFT market. Ordinals launched in January 2023, utilizing the 2021 Bitcoin Taproot upgrade, enabling on-chain Bitcoin-native NFTs. By February 2023, Yuga Labs, a leading NFT issuer, had announced the launch of "TwelveFold," a new NFT collection on the Bitcoin network. The NFT market remains promising, with a projected value of $125.60 billion by 2027, demonstrating a compound annual growth rate of 27.7% (2022–2027).