Welcome to the first installment of PYMNTS’ series on non-fungible tokens, or NFTs, the newest craze in crypto.
In these 12 articles, we’ll be looking at every part of the non-fungible token craze sweeping the worlds of art, video games, social media, fashion and sports.
When it’s finished, you’ll have a solid grasp of the basics of NFTs — what they are, how they work, what they are going to be used for, what their drawbacks are, what you need to be aware — and wary — of, and why people are paying so much money for them.
So, what’s an NFT collectable? Let’s ask Ozzy Osbourne.
A couple of days after Christmas, the former Black Sabbath frontman announced the launch of an NFT collection called CryptoBatz — a reference to the infamous 1982 concert in which he bit the head off a live bat on stage.
The NFT collection features 9,666 unique digital bats — Ozzy does, after all, like to call himself the Prince of Darkness — that are able to “bite” other collectable NFTs — including avatars from the Bored Ape Yacht Club, SupDucks and CryptoToadz — and mutate.
Which makes it both a meta NFT collection and the perfect example for how collectibles work in the unique and immutable non-fungible token space.
Which is a good place to pause and ask, what the heck do you do with an NFT collectible?
Well, the other name for these collectibles is “avatar” and that gives a good hint. They are often displayed by owners on Twitter as profile portraits, which makes it a representation of themselves as well as a status symbol and membership in an exclusive community.
Which is why rarity is a feature of most NFT avatar collections. They are generally minted in limited runs, mirroring the 21 million bitcoin limit imposed by the pseudonymous cryptocurrency creator Satoshi Nakamoto. In the currency replacement world, this makes bitcoin non-inflationary, which has turned it into what mainstream investors increasingly see as a store of value, like gold.
From Kittens to Bats
NFT collectibles — and really NFTs in general — began in November 2017 with CryptoKitties, a game of sorts, in which you bought a picture of a cat with a dozen random “cattributes” — fur pattern, color, mouth shape, etc. — based on a 256 bit “DNA” genome. Each cat could be bred with other CryptoKitties, producing a new, unique cat randomly designed based on the DNA of the sire and matron.
The game — which had no purpose other than creating more collectable CryptoKitties — was a smash hit, with 1 million CryptoKitties minted in less than a year. It was so popular that for a while the transactions clogged the Ethereum blockchain. In doing so, CryptoKitties previewed the problems Ethereum is having hosting both DeFi and NFTs, which has delayed transactions and caused the gas fees to skyrocket has high as $50, even $100 at times.
CryptoPunks was the next NFT collection to pop, with prices climbing from the five to six to seven figures for the rarest punks, topping out at $11.7 million for an alien CryptoPunk wearing an earring, knitted cap, and a medical mask. The 10,000 Cryptopunks are differentiated by accessories — 2,459 have an earring, 419 a knitted cap, and 175 a medical mask (a pre-pandemic attribute that has boomed in value) — and some by templates including zombie (88), ape (24) and the rarest, alien (9).
CryptoPunks were crude, 8-bit pixelated renderings, an art style that has proven influential. Ozzy’s Batz are pixelated as well.
The next project to push the boundaries of avatar collectables was Bored Ape Yacht Club (BAYC), which combined (non-pixelated) head-and-shoulders images with varying attributes like fur color, clothing, eye and mouth shape with club exclusivity — there is a private, owners-only Discord server and The Bathroom, a graffiti wall/message board.
The BAYC developers added something new with the ability to change apes, first by adding the ability of BAYC members to buy pets for their apes and then by air dropping (crypto-speak for giving away) each owner a serum that create a new mutant apes. Another 10,000 were sold, so there can be 20,000 members of the MAYC.
Which brings us back to Ozzy’s mutating CryptoBatz. The addition of a second tier of mutated Batz not only expands the collection in a non-inflationary way — it’s something different, even though related — it creates a tiered value system. This can eventually make first-generation tiers more valuable, which is what happened with CryptoKitties.
Celebrity owners of the 10,000 apes have boosted the value, atracting big names like NBA star Stephen Curry, Snoop Dogg, Jimmy Fallon, Post Malone and — most recently — Eminem, who on Dec. 29 bought a white-furred bored ape with his signature khaki cap and gold chain for more than $450,000.
The Name Game
Other celebrities and organizations are getting in on the action with their own, non-avatar collectables.
Legendary Quarterback Tom Brady launched a collection of 16,600 NFTs focusing on his early days in the NFL. The “Live Forever: The Tom Brady Origins Collection” sold in December for a flat $80 each, and were snapped up in minutes. The NFTs were sold blind — you got a mystery box —with one of 30 images of sport memorabilia collectors’ items like his early jerseys, cleats and draft cards.
Some were rarer than others, with 1,300 Carbon-tier combine jerseys, 700 emerald-tier combine jerseys and just 50 ruby-tiered combine jerseys — all numbered like artist’s prints. (In pro football, the “Combine” is a pre-draft athletics showcase for top NFL prospects.) The tiers and the numbering provide artificial uniqueness, as many collectable collections selling multiple versions of the same images and clips. Which kind of undermines the unique, one-is-unlike-every-other nature of NFTs, but still allows for rarity.
Sports teams are getting in big, with professional basketball finding a huge hit with NBA Top Shots, NFTs combining video highlight moments — a slam dunk, a steal, a buzzer basket — with a digital version of trading cards. These were the first NFTs to break out of the strictly crypto community into the mainstream, thanks in large part to the NBA’s active promotion of the NFT collection during broadcasts — announcers saying things like “That’s a Top Shot!” when a big moment happened.
Then there’s just flat-out celebrities. Paris Hilton and Justin Bieber have launched collections — one of Hilton’s sold for $10,000 — and on Dec. 17, the former first lady announced the January launch of her “Melania’s Vision” NFTs. Whether they will have collectible value remains to be seen.
For every Bored Ape Yacht Club whose NFTs sell for tens or hundreds of thousands of dollars, there are scores of others that go nowhere. Hugely popular pro wrestler John Cena’s NFT collection, for example, fell flat.
What will a picture of Tom Brady’s cleats be worth in 10 years? How about an ape dressed vaguely like Eminem?
Like any other collectable, an NFT is worth what another collector will pay for it. And more than a few experts predict that the CryptoPunk/BAYC boom is a bubble.
Next Up: What’s an Avatar and Why are People Paying so Much for Them??
Avatars are the first way NFTs got any practical use — as a digital representation of the owner and their personality. Why would Eminem buy a $450,000 picture of an ape wearing his chain and cap? Prestige, being in an exclusive club, an expression of individuality, publicity, investment — there are many reasons.
And then there’s the important question: When will a Kardashian buy an NFT?