Could NFT be the biggest hit in crypto world in 2021?
NFT has been the focus of public attention over the past few months and tends to grab the spotlight in the crypto world in 2021. The crypto world has a relatively short history, with the ICO boom in 2017, the smart contract era in 2017–18, the stable-coin era in 2018–19 and the DeFi boom in 2020.
NFT has also seen a steady rise in trading volume in recent months. In a way, it’s an extension of the DeFi excitement.
What is NFT
Non-fungible token, aka NFT, is a tokenized version of an asset such as art, real estate or collectibles. NFTs possess a variety of attributes that make them unique and valuable. An NFT is like Mona Lisa by Leonardo da Vinci. It is rarity and scarcity that make it valuable. Due to its uniqueness, it cannot be replaced with another identical token — this is a property known as non-fungibility. NFT is enforced by smart contracts that prevent duplication.
The popularity of NFT
One of the first NFT projects thrust into the limelight was CryptoKitties launched in November 2017. CryptoKitties is a game built on the Ethereum blockchain that allows users to collect, breed and exchange virtual cats. Known for causing congestion in Ethereum network by stirring up a lot of activity back in 2017, this game exemplifies a blockchain use case geared towards entertainment and leisure rather than cryptocurrency. Some of the virtual cats are worth millions of dollars, while the most expensive CryptoKitty, named Genesis, was valued at $114,481.59 at one point.
After the CryptoKitties boom in late 2017, the NFT market was fairly stagnant throughout 2018 and 2019. The past two years have witnessed the lackluster performance of many NFT projects, with the vast majority of them alive for three months or less in 2019.
However, now there are ongoing developments in the NFT sector, particularly in recent months, and a number of events and projects have attracted attention. Auction house Christie’s announced the sale of a digital portrait in Bitcoin code for $130,250, more than seven times the work’s highest estimate. Blockchain-based digital card of Paris Saint-Germain striker Kylian Mbappé sold for $66,850. A digital sports car F1 Delta Time Apex Race Car “1–1–1 “ (415.9 ETH, $113,124) and a piece of land called “Secrets of Satoshi Tea Garden” (1.3M MANA, $80,663) in Decentraland are the two most expensive NFT in 2019. Even celebrities are getting involved in NFT industry, such as Paris Hilton, who auctioned off a coded painting of her pet cat Munchkin for 40 ETH (worth $17,000 at the time) to raise money for charity.
These signs show that NFT is becoming a sought-after collectible item.
Advantages of NFT
The standardisation of NFTs and the detailed properties of their smart contracts make each one of them uniquely identifiable and authentic. NFTs cannot be replicated or copied, and ultimately there are no fraudulent items. The transparency of blockchain technology also means that authenticity can be verified and proven.
Blockchain technology enables people to gain the complete ownership of their possessions. It is worth noting here that NFTs can only be traded and transferred by the owner of the asset due to their smart contracts and associated rights. This means that even the issuer of an NFT cannot replicate or transfer an NFT without the permission of its owner.
As NFTs are decentralised, there is no need for a central issuer and they can be circulated more easily. It allows users to access unauthorised peer-to-peer interactions, transactions and marketplaces without third party interferences which might slow down or complicate the process.
NFT + DeFi
2020 will undoubtedly be the year of decentralised finance, a market that has grown more than twentyfold since last January, according to DeFi Pulse.
Despite the growth in popularity of NFT, it remains relatively illiquid compared to other cryptocurrency markets. This kind of illiquidity significantly limits the value of NFT. More and more projects are now seeing the potential to combine DeFi with NFT to increase the value of both.
While this is still an emerging area, there is a core feature emerging that allows NFT holders to stake tokens in DeFi applications. If someone owns a rare crypto cat, or a piece of land in Decentraland, they can use them as collateral to obtain a loan. This is the simple principle behind NFTfi, also known as the “simple marketplace for NFT mortgages”. The borrower agrees to pledge the NFT to a smart contract that will unlock the NFT to the lender if the borrower fails to repay.
Aavegotchi goes a step further; Aavegotchi is an ERC-721 token, representing a pixelated collectible artwork. Each token has specific properties that determine its overall value and rarity in the Aavegotchi universe. Each Aavegotchi ERC-721 token manages an escrow contract address that holds an Aave-backed aToken and generates the proceeds of the Aave lending pool.
The game sector and the art sector are currently the two main directions for NFT development, but NFT could then be expanded to other industries such as real estate, certification and so on, which carry huge commercial value and hold a lot of opportunities. With the explosion of Defi, we see the hope of changing traditional finance, and in 2021, NFT may change the way we think about games, art, and other assets. That day is not really too far away, and we can look forward in 2021.