The NFT Ecosystem Explained
CryptoPunks, Bored Ape Yacht Club, Greg, and more
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I apologize for the irregular posting this week! I am in the process of moving and well we all know how that goes.
This week I wanted to cover the NFT madness and how it seems we are right back into the thick of things along with going over:
What are NFTs
What are Cryptopunks, Bored Ape Yacht Club, and other projects
Why are NFTs valuable
As most of us know, cryptocurrencies come in and out of topic quite frequently. One week all of Twitter can’t stop talking about Dogecoin and then the next it’s Bitcoin or Ethereum. There are cycles of the different currencies exploding in price and along with cycles of crypto dipping significantly sending everyone into a panic. This nature of volatility in popularity and price is no different with NFTs as we can see in this google trend chart below.
Wait, What’s an NFT?
I thought you might ask and in my article explaining Ethereum I go over how Bitcoin solely transfers payment data. Ether (the currency used on the Ethereum blockchain) can not only be exchanged as a form of currency but also decentralized applications and smart contracts can be embedded into the blocks of the blockchain allowing for companies to build their ecosystems integrated into Ethereum itself. An NFT is a “non-fungible token” which in the most simple terms is a photo, audio file, video file, or any type of digital file embedded onto a smart contract on the Ethereum blockchain. The NFT is “non-fungible” meaning you can't swap it for another thing of equal value like you can for money. Still, confused? A way I like to explain what an NFT is to beginners goes like this: You see a picture on the internet. That image has an “Image address” as you can see below.
That image address allows anyone on the internet to go to that photo since in a way it is a “digital signature” for that image file. Now, imagine you can own this image address. Imagine you can own this image address and you could therefore prove you are the sole owner of this image and any replication of it is merely a copy. Along with this, this address is public to everyone and whenever it is bought or sold everyone can publically see the price it was bought for. Could you copy and paste the image? Sure, but you could also be a great artist and paint a painting that looks like a Picasso… but at the end of the day, it will never be a Picasso.
Although not a perfect example above, an NFT is a digital signature embedded on the blockchain that includes a digital file of any type, on a public ledger, for everyone to see and/or buy, trade, or sell. More often than not most NFTs are bought and sold on the Ethereum network but other cryptocurrencies can be used.
One of the first big NFT projects that came to light was CryptoPunks which were 10,000 NFTs created by two Canadian software developers in 2017. The example I used above to explain NFTs is one of the 10,000 CryptoPunks created by Larva Labs (the Canadian developers).
Currently here are the top-selling CryptoPunks:
Yes, you read that correctly - a digital photo that sold for $7.8 MILLION!
Let’s begin to answer why
As I said before, there are only 10,000 CryptoPunks and no punk is the same. All punks were made through computer code and no punks are alike but some punks have special characteristics that make them rarer than others. The 12 you see above have attributes that are widely different than the vast majority. For instance, out of the 10,000 punks, there are 6,039 male punks and 3,840 female punks. The few remaining are zombies, apes, or aliens (and that’s why those sell for much higher). Although I will go deeper into what makes NFTs valuable later, I do believe that the CryptoPunk project has incredible merit. It is the first big NFT project and in the same way that Vincent Van Gogh was one of the first artists that pioneered the Modern Art genre, there is merit in being first. By owning a CryptoPunk you are owning a piece of digital art in a completely new genre of art and that’s a part of the reason why the asking price is can be in the thousands or even millions. What’s crazy is that when this project was released they were given out for free!
If you want to check out CryptoPunks click here.
Bored Ape Yacht Club
The second biggest NFT project came out this past year, the Bored Ape Yacht Club (BAYC). “BAYC” is a collection of 10,000 NFTs that like punks are individually unique, can have scarce traits, and all are bought and sold on the Ethereum blockchain.
Something different about this project is that the word “club” is tossed around frequently. Owning a bored ape is a token of membership into the club and being a member comes with perks as explained above. Along with this, the NFT project as a whole has a roadmap in which perks for the club as a whole are unlocked. You can see this roadmap below.
Now BAYC has its own Youtube channel, radio, merch store, virtual clubhouse, and more. So more than just being a holder of a digital photo - when you own a BAYC NFT you own membership into an exclusive club that not only has social/digital perks but is a status symbol.
If you want to check out Bored Ape Yach Club click here.
In our journey to understand NFTs, this phrase will pop up frequently. As I said in my Peloton breakdown months ago, Americans (and human beings in general) LOVE status symbols. There’s no way to deny that CryptoPunks and BAYC have become digital status symbols of the highest order. The “cheapest” apes go for tens of thousands of dollars and punks go for even higher. If you have a punk or ape it is common to put that NFT as your Twitter profile picture or even in your bio have “Owner of Punk #1234”. Is there anything wrong with that? Absolutely not, as I have said in the past this is no different than people wearing Lulu, renting expensive cars, or buying thousand-dollar stationary bikes. We live in a status symbol economy.
To hammer this point down even more - above is my $CULT ETF that at one point over the past year was above 150% in performance. This fictional ETF I created through YCharts tracks companies that I hand-picked and feel like have a product that revolves around being a status symbol and/or has a certain “cult-like following” to it.
Most recently, this NFT project exploded onto the scene in just a matter of a couple of days. I will let the image below do the talking…
Pudgy Penguins are 8,888 unique penguins that have all the attributes like punks and apes. The only difference is I feel like this project introduces a different factor: cuteness. Many people found themselves buying penguins because they thought they were cute and resembled themself in penguin form. I won’t lie there was a penguin that I almost bought because I found myself saying “If I was a pudgy penguin I would be that one” and that is powerful. To be transparent, I didn’t buy it because it quadrupled in price in 24 hours before I could get my funds in order.
If you want to check out Pudgy Penguins click here.
My NFT Journey
My journey with NFTs has been quite interesting. I have created, bought, and even sold several NFTs. One of my hobbies is graphic design/final cut pro so I created several GIFs of my interests. In all honesty, a pivotal point in me understanding Ethereum (and becoming extremely bullish on the currency and network as a whole) was when I went through the steps of creating my own NFTs.
If you want to see what my NFTs I created and currently selling click here.
Yesterday I went deeper into this journey on my podcast with Allison Reichel (a fantastic Twitter follow) in which we covered the entire ecosystem of NFTs. I highly recommend watching it and I would love it if you could give my channel a sub!
Multiverse of gregs
Most recently I bought two “gregs” from the Multiverse of gregs project. What was awesome about this project is half the sales from the drop were donated to St. Judes charity (which ended up being around $64,000). This was one of the big reasons why I decided to jump into this project along with the factors that I will describe at the end of this article. Greg is a force on Twitter and some well-known people have bought into the project. Along with this, the Twitter community that I’m a part of bought in and it honestly has been more fun than anything being on Twitter and connecting with fellow greg holders. So far the floor price of the project is 1.3 ETH and over 110 ETH has been traded! (around $357,000).
To be completely transparent, I have sold one of my gregs but I still own Greg #108 which you can see in the middle above. Greg chrome just stuck out to me so I had to buy it.
What makes a successful NFT project?
In conclusion, after being in the space for a good amount of time I have come up with several factors that can induce a successful NFT project.
Scarcity - If there are 100,000 individual NFTs in a single project the likely hood that the project will get a lot of movement is low. Scarcity and exclusivity drive price.
Notoriety - Punks have the most notoriety because they are the first big NFT project and that status will likely never change. So moving forward a huge notoriety factor is who else owns an NFT in your project. For instance, if Snoop Dogg bought a Greg NFT, therefore now all Gregs are inherently more valuable due to Snoop’s fame (we aren’t 100% certain he did but he followed greg on Twitter and followed the project - he could of used an anon opensea account to buy).
Community - A very important factor when deciding on apeing into (a slang term used to describe spending a ton of money on anything using crypto) an NFT project is how strong the community is. Is there a community discord in which members can chat about their NFT? People like to feel that owning an NFT is also being a part of a community. Along with this having an active community will raise the liquidity of the project and NFTs will exchange more hands and the project will spread more.
Eye Catching - At the end of the day it is a form of art. People like to look at good art and if the NFT is visually appealing it has a better chance of doing well in my opinion.
I hope this was a good introduction to what NFTs are and what to look for when buying your first one.
Thank you all who read this far 😤
As always, I know nothing and these are all my opinions, not advice…
Have a great weekend!
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