30th March, 2021 — Dr. Raffael Huber

Ep4 Peak into NFTs Article Image

Non-fungible tokens, or “NFTs” for short, have attracted a lot of hype this year, accelerated by sales of art pieces at high valuations, such as Beeple’s “The First 5000 Days” which sold for $69M via traditional auction house Christie’s.

Overall, the market has shown strong growth over the past months, and NFTs worth more than $300M have been traded over the past 30 days.

Illustration 1: The most actively traded NFTs are NBA Top Shot and CryptoPunks, at 30-day trade volumes of $204M and $95M, respectively.
Source: cryptoslam.io, Bitcoin Suisse Research.

NFTs, with the exception of the highly successful NBA Top Shot (on the Flow blockchain), are commonly implemented on Ethereum using the ERC-721 standard created in early 2018. But where did NFTs come from?


Early Days: Punks and Kitties

Even before the implementation of a commonly agreed upon token standard for non-fungible, digital assets (or digital representations of real-world assets), developers and digital artists tinkered with NFTs on Ethereum. “CryptoKitties” is an early project that generated significant interest in 2017 and even almost single-handedly led to significant network congestions. CryptoKitties represent digital cats that are collectable and breedable, creating eggs of new kitties. They achieved sale prices of hundreds of ETH already in 2017, and attracted many users through a minimal gamification of NFTs.

Another project originally launched in 2017 and an inspiration for the ERC-721 standard is “CryptoPunks”. They have enjoyed a surge of great popularity in the second half of last year and this year as well – some of the rarer punks have been sold for millions of dollars, such as alien punk #3100. Originally, CryptoPunks were claimable for free; now, the cheapest punk currently for sale is listed at 17.75 ETH (or ca. $30k).

Illustration 2: Punk #3100, one of 9 “alien” punks, was sold for 4’200 ETH on March 11, 2021.
Source: larvalabs.com

In total, there exist 10’000 unique CryptoPunks. Each one has its individual traits and associated rarities. Most CryptoPunks are humans (9’879, of which 6’039 are male and 3’840 are female), but there also exist zombies (88), apes (24) and the rare alien punks (9). Additionally, there are a variety of other attributes or decorative items that a punk can have, such as shades, a smoking pipe, or a selection of headpieces (such as the headband of punk #3100 in Illustration 2).

Illustration 3: The rarer the type of punk, the higher the average achieved sale price. Alien punks sold for 3’000 ETH, on average.
Source: larvalabs.com, Bitcoin Suisse Research.

Today: Top Shot and Hashmasks

One of the major drivers in the NFT market of today is NBA Top Shot, backed by the NBA (National Basketball Association) and running on the Flow blockchain. It was launched by DapperLabs, who are also the creator of CryptoKitties. Top Shots are short video clips of memorable moments from NBA games, distributed via packs that can contain various shots. NBA Top Shots registered over 1.2 million transactions totaling more than $200M in sales over the past 30 days, with more than 300’000 users. The most valuable shots, such as one from Lebron James on February 6, 2020, can achieve prices north of $200k. Due to the high interest, including people from outside the typical crypto community, drops of new packs of Top Shots are typically heavily oversubscribed and results in a mini-lottery of who actually gets to purchase a new pack.

Another recent project that adopted a lottery format for the initial distribution is “Hashmasks”. Strongly popularized within the crypto community, Hashmasks were available for sale in a randomized manner – it was impossible to know which Hashmasks one would obtain as a buyer during the initial sale. Similar to CryptoPunks, Hashmasks have various traits and overall rarities. For example, they can have different eye colors, bodies (e.g. robot or human), masks, or carry items such as a book or a golden roll of toilet paper. Additionally, they can be named using “Name Change Tokens”, where each name can only be registered to one Hashmask at a time. The more valuable ones traded for 200 ETH or more on secondary markets.

Illustration 4: Hashmask #16251, with various rare “Mystical” traits (0.07% of all Hashmasks), was sold for 200 ETH at the beginning of March.
Source: thehashmasks.com

There are many other projects exploring the design space that NFTs offer – be it in the audio NFT area with EulerBeats, or in tokenizing Tweets with Valuables (and the $2.9M sale of Twitter CEO Jack Dorsey’s first Tweet ever).



With the growth of NFTs in general, their trading venues also started to gain traction. Whereas projects such as CryptoPunks or NBA Top Shot have implemented their own marketplaces, one of the more general NFT trading platforms is OpenSea, which recently raised $23M for their continued development from prominent backers. Traders can either list their NFTs for sale on the platform, or bid on any NFT available, both of which an interested counterparty could then accept to conclude the transaction. Over the past 30 days, more than $130M in value were transacted via OpenSea.


Where is the Value?

In principle, one could argue that especially digital-first NFTs can simply be downloaded or copied at will, and hence the NFT has little value. However, that misses the point of art NFTs: Original NFTs ensure digital ownership of the items and contain the digital signature of the creator to certify its authenticity – any copies would lack the legitimacy that the original NFT has, just as a photo of the Mona Lisa or even a near-perfect replica does not bear the same value as da Vinci’s original.


Beyond Art

In the long term, NFTs provide a highly flexible model for tokenizing assets with specific attributes. This extends beyond the art space – it could extend to insurance contracts and more. One could think of tokenizing, for example, a flight cancellation insurance policy for a seat in economy class from Zurich to New York on a specific date. It could be freely tradable as long as the contract specifics do not need to change when their holder changes.

More generally, any unique object in the real world could be tokenized as an NFT to point exactly to it, for example as a land registry. Digitally, this already exists in the virtual realms of Decentraland.



NFTs have certainly sparked the imagination of many artists and other contributors worldwide and have managed to gain significant mainstream attention in a short time span. Their design space appears to be as unlimited as there are scarce, unique objects both in the analog and digital worlds. While there are clearly many open questions regarding their regulatory status before broader mainstream use can take place, they might play an important role in digital ownership in the future.

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