"Just as we had digital currencies (think airline points, in-game currencies) before cryptocurrencies emerged, we’ve had non-fungible digital assets since the dawn of the internet."

"Domain names, event tickets, in-game items, even handles on social networks like Twitter or Facebook, are all non-fungible digital assets; they just vary in their tradeability, liquidity, and interoperability."

"We have tons of digital stuff, we’ve just never really owned it."

"if digital ownership is more like ownership in the physical world (the freedom to hold and transfer indefinitely), this doesn’t always seem to be the case with digital assets. Rather, you own these assets in specific contexts, which may or may not make moving them around easy."

"Blockchains provide a coordination layer for digital assets, giving users ownership and management permission. Blockchains add several unique properties to non-fungible assets that change the user and developer relationships with these assets."

"Standardization"

"By representing non-fungible tokens on public blockchains, developers can build common, reusable, inheritable standards relevant to all non-fungible tokens."

"These include such basic primitives as ownership, transfer, and simple access control. Additional standards (specifications for how to display an NFT, for example) can be layered on top for rich display inside of applications."

"These are analogous to other building blocks of the digital world, like the JPEG or PNG file format for images, HTTP for requests between computers, and HTML / CSS for displaying content on the web. Blockchains add a layer on top that gives developers a brand new set of stateful primitives on which to build applications."

"Interoperability"

"Non-fungible token standards allow non-fungible tokens to move easily across multiple ecosystems."

"This is possible because open standards provide a clear, consistent, reliable, and permissioned API for reading and writing data."

"Tradeability"

"The most compelling feature enabled by interoperability is free trade on open marketplaces. For the first time, users can move items outside of their original environments and into a marketplace where they can take advantage of sophisticated trading capabilities, like eBay-style auctions, bidding, bundling, and the ability to sell in any currency, like stablecoins and application-specific currencies."

"Game developers no longer have to manage every piece of their economy: from the supply of resources to pricing to capital controls."

"Liquidity"

"Instant tradeability of non-fungible tokens will lead to higher liquidity."

"Immutability and provable scarcity"

"Smart contracts allow developers to place hard caps on the supply of non-fungible tokens and enforce persistent properties that cannot be modified after the NFTs are issued."

"a developer can enforce programmatically that only a specific number of a specific rare item can be created, while keeping the supply of more common items infinite."

"Developers can also enforce that specific properties do not change over time by encoding them on-chain."

"This is particularly interesting for art, which relies heavily on the provable scarcity of an original piece."

"Programmability"

"Pioneered by CryptoKitties, ERC721 was the first standard for representing non-fungible digital assets."

"ERC721"

"ERC1155"

"ERC1155, pioneered by the Enjin team, brings the idea of semi-fungibility to the NFT world."

"One advantage of this type of system is efficiency:"

"With ERC1155, the developer need only call transferFrom with quantity 1,000 and perform a single transfer operation. This increased efficiency, of course, comes with the loss of information: we can no longer trace the history of an individual sword."

"Due to these advantages, we’ve recently witnessed growing adoption of the ERC1155 standard."

"Composables"

"Composables, led by the ERC-998 standard, provide a template by which NFTs can own both non-fungible and fungible assets."

"On-chain vs. off-chain"

"The first decision for developers is what metadata to represent on-chain vs. off-chain. That is, do you bake the metadata directly into the smart contract representing the tokens, or do you host it separately?"

"On-chain Metadata"

"The benefits of representing metadata on-chain are: 1) it permanently resides with the token, persisting beyond the lifecycle of any given application, and 2) it can change in accordance with on-chain logic."

"a piece of digital art is expected to persist throughout the ages, regardless of whether the original website that was used to create the art is still around. It therefore is important that its metadata persist alongside the lifecycle of the token identifier."

"Additionally, on-chain logic may need to interact with the metadata"

"Off-chain Metadata"

"most projects store their metadata off-chain simply due to the current storage limitations of the Ethereum blockchain."

"At OpenSea, we want to give developers the ability to build rich metadata that can be displayed inside of our marketplace, so we’ve added extensions to the ERC721 metadata standard that allows developers to include things like traits, animations, and background colors."

"If you’re storing your metadata off-chain, you have a couple of options:"

"Centralized servers"

"The simplest way to store metadata is on a centralized server somewhere, or a cloud storage solution like AWS."

"Of course, this has disadvantages: 1) the developer can change the metadata at will, 2) if the project goes offline, the metadata could disappear from its original source."

"IPFS"

"An increasing number of developers, particularly in the digital art space, are using the InterPlanetary File System (IPFS) to store metadata off-chain. IPFS is a peer-to-peer file storage system that allows content to be hosted across computers, such that the file is replicated in many different locations."

"This ensures that A) the metadata is immutable, as it is uniquely addressed by the hash of the file, and B) as long as there are nodes willing to host the data, the data will persist over time."

"the virality of CryptoKitties can be boiled down into:"

"Speculative mechanics"

"The breeding and trading mechanics of CryptoKitties led to a clear path to profit: buy up a couple of cats, breed them to make a rarer cat, flip the cat, repeat (or simply buy up a rare cat and hope that someone will come along and buy it)."

"Viral story"

"Another piece of CryptoKitties’ success was the story. CryptoKitties were adorable, shareable, and fun — and the idea of buying a $1,000 digital cat was so absurd that it made a great news story."

"The period after CryptoKitties saw the emergence of innovative “layer two” games, games that were built on top of CryptoKitties by third-party developers with no affiliation to the original CryptoKitties team."

"In January 2018, a game called CryptoCelebrities launched. The mechanic was simple. First, buy a collectible celebrity NFT. Immediately, the celebrity becomes purchasable (or “snatchable”) for a higher price, some increment of the previous price. When someone buys your celebrity, you make the difference between your purchase price and the new purchase price (minus a developer fee). As long as there’s someone willing to buy your celebrity, you’ll profit. However, if you’re caught as the last one holding the celebrity, you’ll be in for a loss."

"In 2019, minting tools matured significantly, though still faced friction in the onboarding process. Mintbase and Mintable built sites dedicated to making it easy for regular people to create their own NFTs"

"UPDATE: In 2020, evolutions of these platforms emerged, along with Rarible and Cargo, with more features for bulk creation, unlockable content, and rich media. This allowed artists, digital creators, and even musicians to mint NFTs without having to program a smart contract."

"Japanese games have pioneered the way for more advanced user gameplay, appealing to the early adopter demographic."

"yCryptoHeroes, an RPG game featuring a sophisticated in-game economy, came onto the scene and continues to top the charts of DappRadar."

"The most exciting element of CryptoVoxels (as well as Decentraland) is the ability to show off your NFTs inside of the world. Collectible enthusiasts have created CryptoKitty museums, cyberpunk art galleries, an NFT advent calendar, towers populated with the top NFT projects, and in-world stores where you can purchase wearable items for your avatar."

"Other virtual world projects have also come onto the scene, including Somnium Space, as well as High Fidelity, a project from the creators of Second Life. The Sandbox recently launched a land sale for its Roblox-like universe designed to empower builders and content creators."

"The third-largest NFT “asset class” (after gaming and digital art) is naming services, similar to “.com” domain names but based on decentralized technology."

"Crypto Stamp—a project by the Austrian Postal service—offered purchasers of official, physical stamps a convenient route into the world of digital collectibles. Each physical stamp featured a section with an opaque, scratch-off covering. Beneath the scratch-off area, purchasers would find a private key that held a small amount of ETH and a digital counterpart of the physical stamp, which they could then list for sale on OpenSea."

"The project was particularly interesting because it tied the scarcity of the digital asset to a useful physical asset, and engaged an existing community of collectors."

"Fascinatingly, some of these projects were brought back to life by community members. Both CryptoAssault and Etheremon (now Ethermon) have been revived by their community."

"In the early days of the non-fungible token ecosystem, there was a belief that users would care about the provable scarcity of NFTs, and that they’d rush to buy NFTs simply because they were on a blockchain. Instead, we think demand is driven by more traditional forces: utility and provenance."

"Smart contracts mean assets last forever"

"There was also the belief that just because a smart contract was deployed, the assets would last forever. This overlooked the fact that there are other entities (websites, mobile apps) that serve as the portal for regular users to interact with these applications."

"Of course, there may be a future where decentralized applications can be deployed in a fully distributed, “unstoppable” way, but for now, we live very much in a hybrid world."

"In 2018 and 2019, some projects took the approach of “abstracting away the blockchain”, hiding all the mechanics of NFTs to users by providing a hosted wallet with username-password authentication."

"This was an interesting approach because it allowed for the same streamlined onboarding experiences as centralized applications. The problem was that the interoperability with the NFT ecosystem (virtual worlds, wallets, marketplaces) was lost."

"We’ve found that projects that plug into the existing NFT ecosystem and perhaps sacrifice some pieces of usability in the short term tend to be more attractive to the current community of early adopters."

"Current market size"

"NFTs are currently sold primarily for ETH on decentralized exchanges. Surprisingly little trading happens in stablecoins like DAI or USDC, likely due to the friction of acquiring stablecoins."

"A question one might ask is: what’s the overlap between various NFT projects? Are communities around projects relatively isolated (Gods Unchained players only play Gods Unchained), or is there a large bleed-over between communities?"

"But there are other smaller regimes of co-ownership — such as between Cryptovoxels and Decentraland, and between ENS and many other projects, indicated by the connections “fanning out” across different projects."