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What is an NFT – and why did one sell for USD69 million?

Non-fungible tokens, or 'NFTs', have become a focus of global crypto attention this year, which has seen the native tokens of NFT platforms Rarible, Terra Virtua and ENJIN all hit all-time-highs in 2021. So what is an NFT, and why is there so much interest in the category? David Freuden investigates.

A non-fungible token (NFT) is a type of cryptographic token which represents something unique. Or put another way, non-fungible tokens are not mutually interchangeable by their individual specification in the way that crypto assets such as Monero are. Non-fungible tokens can be used to create verifiable digital scarcity. NFTs are especially useful for any applications that require unique digital items such as digital art, digital-collectibles, and in-game items.

NFTs are not new. The launch of the first NFT-like token was in 2012 with the introduction of Coloured Coins, aka Bitcoin 2.x, which was to be built on top of the Bitcoin network, but the most common example of an NFT is the ERC721 that operates on the Ethereum network. There are others, such as the ERC 1155 which was developed by Enjin as a new standard for defining video game tokens, which also runs on the Ethereum network.

Ledger Nano X - The secure hardware wallet

One NFT is not equal to any other NFT, either in value or in the properties of the token itself. Each token is assigned a digital hash that distinguishes it from every other NFT of its kind. This feature enables NFTs to act as a proof of provenance. There is a growing recognition that there is value in being able to prove the ownership and authenticity of intellectual property such as original artworks and in-game tokens, as well as a representation of real world assets such as shares and real estate. In the world of gaming and collectibles, NFTs are also referred to as Digital Collectibles.

The record for most expensive NFT ever sold was set on Thursday March 11th. After over a 100 bids were made in the last hour of its auction, the piece “EVERYDAYS: THE FIRST 5000 DAYS” created by Mike Winkelmann AKA the digital artist Beeple, sold for USD69,346,250. The artwork was minted exclusively for Christies and is a collage of digital creations that Beeples posted everyday online for 13 years.

Beeple everyday

Christie’s became the first major auction house to offer a purely digital work that was authenticated and had provable ownership using an NFT smart contract. They are also the first major international auction house to accept a cryptocurrency, in this case Ether, in addition to standard forms of payment for the singular lot of 5000 individual pieces collected together.

The piece is the third most expensive item ever sold by a living artist, NFT or otherwise. This speaks to the present excitement and hype around NFTs and NFT art.

“Christie’s had never offered a new media artwork of this scale or importance before,” explained Noah Davis, a specialist in Post-War & Contemporary Art at Christie’s in New York. “Acquiring Beeple’s work is a unique opportunity to own an entry in the blockchain itself created by one of the world’s leading digital artists.” Davis’s comments speak to the emergent, historically significant nature of EVERYDAYS: THE FIRST 5000 DAYS. The sale perhaps represents an inflection point for the NFT art space, is this the top? Or, are we set to NFT artworks going to have ten figure USD valuations in the near future?

NFTs in DeFi

One of the reasons for the renewed interest in NFTs is the incorporation of yield-farming into Rarible’s (RARI) adoption strategy. Rarible is a dapp that enables users to create original artwork as an NFT and sell it through their marketplace. Users are rewarded/incentivized with the RARI governance token, with the largest share of tokens allocated to users when they sell their NFTs. This meant that DeFi traders began creating NFTs and promoting it to their networks.

NFTs get their own category

In September Coingecko added a dedicated NFT listing category to showcase a curated list of NFT-focused blockchains. This wasn’t just a response to the current hype, but part of a larger NFT strategy that dates back to April 2019 when Coingecko first announced its interest in NFTs.

NFTs are now being developed across multiple industries. The first applications are across the Gaming, Artwork, and Collectibles industries, however, Virtual and Augmented Reality, Real Estate, Event Ticketing, Brand Licensing, and Tokenizing of real world assets are also showing promise. Nike even applied for an NFT patent back in 2019.

Traditional animators are also getting in on the action. For example, Rick and Morty creator Justin Roiland has an NFT collection available through Nifty Gateway – the digital collectibles platform purchased by Cameron and Tyler Winklevoss in 2019.

Pic 3
An NFT from Rick & Morty creator Justin Roiland

NFT case studies

Below we profile three NFT projects from the following categories: Art & Collectibles, Gaming, and 3D animated collectibles that incorporate VR & AR.

  1. Rarible (RARI)
  2. Terra Virtua (TVK)
  3. Enjin (ENJ)

1. RARIBLE (RARI) | User generated digital collectibles and marketplace

Rarible enables users to easily create a digital collectible (no coding skills required) and sell it on their marketplace. RARI brings together some of the more interesting DeFi trends of 2020, with digital collectibles being combined with yield farming, and liquidity mining – with users rewarded in $RARI governance tokens for using the platform.The RARI price has surged strongly in 2021 – up 1400% between January 1 and February 15th, from $1.62 to $24.29.Rari Token Price

With a focus on user generated artwork, RARI enables intellectual property through the user creation of new artwork with a proof of provenance provided by the NFT. It also facilitates the sale and terms of sale on its marketplace, and at near zero costs.The Rarible market placeThe Rarible Marketplace

Since its launch in November 2019, 36,336 artworks have been created on Rarible, with 26,574 sales and a total transacted of 9.63M.

Lindsay Lohan Bitcoin NFT Bitcoin advocate and actress Lindsay Lohan is active on Rarible

In early September, Rarible announced that it had raised an undisclosed amount in a pre-seed round led by CoinFund. They stated that this investment would help develop a community-governed, blockchain-based NFT marketplace as well the $RARI governance token. In February 2021 Rarible closed a $1.75m seed round with investors including CoinFund, Coinbase Ventures and ParaFi Capital.

The $RARI token is best described as a reward for genuine buyers and sellers who use the platform: 75,000 $RARI are distributed every Monday (starting from July 20th 2020) among active marketplace participants. $RARI is designed to allow the most active creators and collectors on Rarible to vote for platform upgrades, request features, and curate and moderate content.

Rarible is a community-governed marketplace, aimed at becoming a fully Decentralized Autonomous Organization (DAO). The $RARI token is the first step in this direction.

2. TERRA VIRTUA (TVK) | A 2D & 3D animated NFT ecosystem

Terra Virtua is a digital collectible ecosystem. Terra Virtua aims to provide its users with “a deeper sensory experience” by taking digital collectibles into a multiplatform VR and AR world. It is a similar concept to the Pokémon Go integration of AR gaming with the real world. (Pokemon Go accrued more than 550 million installs in its first 80 days from launch!)

Terra Virtua Art GalleryInside the Terra Virtua art gallery

Whilst some digital collectibles are game-related, lending them an intrinsic value by using them in-game, most digital collectibles are simply static images; the digital equivalent of a trading card. This was one of the biggest challenges Terra Virtua chose to confront and is the reason behind the development of VR and AR integrations.

Terra is launching its own range of character-based 3D animated creatures, called ‘vFlects’ along with licensed collectibles in 2D and 3D from The Godfather, Top Gun, Sunset Boulevard and Lost in Space. Later in the year the company will release licensed collectibles from Pacific Rim and World War Z.

In addition to offering a marketplace for an interactive range of unique and licensed digital collectables, Terra Virtua is launching an entire ecosystem where owners can store, display, interact with and show off their collection via an app which allows the user to take a photo or video of themselves interacting with their collectible in a real-world environment.

The company has created the Terra Virtua Fancave: a personal, customizable, 3D environment where the user can display their collectibles. The VR version of this has also been developed and is planned for release in 2021. The company has also created the TerraDome: a larger version of the Fancave where users will store and play with larger items, such as the F14 fighter jet from Top Gun or the giant Pacific Rim mechs.

Gary Bracey CEO at Terra Virtua says, “The key mission of Terra Virtua is to bring NFTs to the mass-market. The videogame experience of the core team gives us a strong focus on UX and UI and by making the process both frictionless and compelling we hope to bring the world of interactive Digital Collectibles to the mainstream.”

Heading into Halloween Terra Virtua are working towards an event that will feature artworks by a top-tier comic book artist and will hold a ‘VIP Preview’ event prior to launch and a Twitch-based Q&A with the artist. For 2021 they are planning licensed collectibles and enabling user generated content. The Terra Virtua token (TVK) is trending in 2021 – up almost 600% between January 1 and February 15th, from $0.056 to $0.38.

3. ENJIN (ENJ) | Gaming

In 2009, Enjin launched the Enjin Network, a gaming community platform which now has over 20 million users. In 2017, Enjin began building a suite of blockchain products that enable users to easily manage, explore, distribute, and integrate blockchain assets.

Enjin EcosystemThe Enjin ecosystem, Platform, Wallet, Marketplace and Currency

Rather than using the ERC721 standard for NFT, Witek Radomski, Enjin co-founder and CTO, developed ERC-1155, a new standard that will define video game tokens on the Ethereum blockchain. The Enjin token already powers over 1 billion digital assets. The ERC1155 is not just for gaming, its application will benefit a wide range of industries, from entertainment and finance to industrial design, artificial intelligence, real estate, and more.

The core concept behind ERC-1155 is that a single smart contract can govern an infinite number of tokens. An ERC-1155 contract made for a game could contain a wide variety of items, from weapons and armor to health potions, magic spells, superpowers, etc.

Enjin’s tools enable game developers and studios to utilize tokenized digital assets as part of their acquisition, retention, engagement, and monetization strategies. The ENJ token is up 360% between January 1 and February 15th, from $0.12 to $0.55.

The future is NFTs

Can a digital asset be both unique and valuable? The examples above and other NFTs such as Crypto Kitties suggest yes. Additionally, these projects stand out because their users don’t have to interact with the underlying blockchain technology, but can still benefit greatly from the tech, making such projects ripe for mainstream adoption. Eventually, Non-Fungible Tokens open the door to potentially digitising all intellectual property rights, and tokenizing all assets.

Article by David Freuden | Monsterplay | LinkedIn
Banner Image: Terra Virtua Collectibles


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