Adventures in NFT land

"This is early days in the development of digital art and NFTs, but token scarcity is likely to become a tool that impacts many things. Today it is widely used to acquire a unique digital avatar, tomorrow it will be used to transact objects and many more exciting use cases." - Toby Lewis, CEO of Novum Insights

This week, CEO of Novum Insights Toby Lewis takes you on an adventure in NFT land.

Crypto Punks, Bored Ape Yacht Club, Damien Hirst’s Currency and Gary Vaynerchuk’s VeeFriends are just some of the new digital art projects being fired around on the most popular NFT marketplace OpenSea for hundred of thousands and millions of dollars. At the same time leading digital artists like Beeple and Munky are seeing their art change hands for significant amounts.  

Being a digital citizen has never been more fascinating than it is today, and arguably one of the more exciting areas of expansion is this non-fungible token (NFT) arena. It is early days of adoption in this sector but it can be perplexing if you are on the outside, and I say this as someone who has worked in and around the blockchain and crypto space since 2016. 

The big driver creating the large valuations is scarcity - there are 10000 of the original Cryptopunks held by 2500 people. The only way you can buy them is by making an offer, and a scan of OpenSea suggests you will need to pay 16 Eth ($53000) and upwards. Yet what is perplexing as an outsider is the value of this scarcity. Barely a day goes by without some form of knock off of the Apes or the Punks, and a JPEG of an original Ape can easily be downloaded. There are attempts to set up private discords or rights to certain things, but the privileges afforded hardly chime with the huge sums being passed back and forth. The most valuable Cryptopunk (pictured below), sold for 4200 Ethereum ($7.58m).

Yet spending time in a new up and coming community Satoshibles from day one, you begin to sense the value of what is being created, and diving in headfirst finally brought home to me what was really going on in NFT world and why the valuations were skyrocketing.

It started with me seeing a tweet by my friend Trevor Owens, who is a venture capitalist at the Stacks Accelerator, about Satoshibles and how these NFTs named after the pseudonymous creator of Bitcoin Satoshi Nakamoto should have been on Bitcoin not Ethereum. Each of the 5000 art works had been algorithmically created based on a picture of a photo of Dorian Nakamoto, who had been pinpointed as Satoshi incorrectly - a very crypto in-joke. Working with my analytics company Novum Insight as one of the companies in the Stacks Accelerator batch, and figuring out how to bring decentralised finance properly to Bitcoin, among other things I was curious about the community especially as the art was very striking (a typical random example pictured below, with Bitcoin eyes and a cowboy hat).  

That day the 5000 tokens had been minted each for 0.02 Eth ($65.93), and were trading hands on Opensea for 0.05 Eth ($165) or thereabouts. I bought a couple, changed my Twitter avatar to one of them, joined the group’s Discord social media channel, and went on with my weekend. Yet popping in to the Discord you began to realise people were really seriously studying the characteristics of each NFT, and there was a tremendous build up as the project got listed on popular sites Rarity Tools and Rarity Sniper. Given this dynamic it was just hard to stop thinking about acquiring more of these things with slightly rarer qualities at higher prices. Suddenly specific digital avatars that had been trading for 0.4 Eth, were being sold for 1.6 Eth. I believe the record sale at the time of writing is 7.5 Eth, and this is one week into the project. The return profile of assets that can go up three times in 24 hours is easy to be excited by if you are interested in finance, even though given these characteristics they are also likely high risk and volatile. 

Having already spent a significant time thinking about NFTs and how they work I am incredibly excited to follow the developments of Satoshibles and many more new digital art projects. Am pretty certain we will turn some of our data mining muscle at Novum Insights, where we have tracked all the pairs on Uniswap, the biggest decentralised exchange, towards the NFT space. One of the reasons I was spending more time on the subject was noticing that volumes on Opensea had recently overtaken Uniswap itself.  

This is early days in the development of digital art and NFTs, but token scarcity is likely to become a tool that impacts many things. Today it is widely used to acquire a unique digital avatar, tomorrow it will be used to transact objects and many more exciting use cases.