The history of investing in collectibles
Many consumer goods lose their value over the course of time. There are only some specific categories that can survive their assignment to obscurity. When certain things have been preserved for centuries on end, they become highly desirable antique collectibles. This leads to a tremendous jump in their value since many people start desiring the same thing. However, thanks to the latest tech advancements, there has been an increased demand for rare collectibles, which has triggered the largest and quickest jump in prices ever experienced in the world so far. Passionate collectors in today's world are prepared to spend a fortune on expanding their collections. Whether it’s fine wine, vintage cars, jewelry, or art, one thing is for certain – Investing in special collectibles has a remarkably entertaining history.
Between 1900 – 2012, musical instruments, stamps, and art have seen an appreciation of over 6.9% on a yearly basis. The ROI on collectibles has been higher than bills, government bonds & gold. However, it is important to also factor in operational costs that are pervasive in the collectible marketplace. They also experience high price volatility compared to other instruments and are also subject to fluctuating tastes. The likelihood of potential fraud is also greater in the collectibles’ world.
The Knight Frank Wealth Report in 2019 revealed that whiskey is the latest entrant to the collectibles industry, having surged by over 40% during the twelve months preceding Q4 2018. Whiskey is leading the Knight Frank Luxury Investment Index due to this phenomenal run. Rare Whisky 101 has also compiled the Knight Frank Rare Whisky 100 Index, which was featured on the KFLI index and contains the world’s top 100 rare Scotch whiskey varieties. This index tracks the prices paid for these bottles at several auctions and has shown that the values of these bottles have risen almost 600% in the last 10 years.
Rare Digital Non-Fungible Tokens as opposed to physical collectibles
How can one influence and change the existing physical collectibles market? If you attempt to reconcile traditional, offline business models & cultural perceptions with online economies that display completely new behaviors, it will always fall short.
However, the biggest advantage is that the most impactful shifts take place when people work to use advancements in technological capabilities to deal with individual consumer reflexes and ever-shifting cultural behaviors.
So, what are Non-Fungible Tokens or NFTs? Non-fungible tokens are unique digital assets. Bitcoins are fungibles assets in that every bitcoin is the same & completely interchangeable. On the other hand, pieces of art are non-fungible tokens.
History of NFTs
Colored Coins (2012 – 2013)
People often state that Colored Coins were among the first NFTs that ever existed. These are made using small bitcoin denominations and may be as minute as one single satoshi, which is the smallest bitcoin unit.
Colored Coins are used for representing a number of assets & can be used in many cases, like:
- Digital Collectibles
- Access Tokens
- Issue of stocks of companies
- Can be used for issuing new cryptocurrencies
Colored Coins are an example of the far-reaching abilities of Bitcoin. However, their disadvantage is that they can be used for representing specific values only if every participant agrees to accord the same worth to it. The underlying scripting language of Bitcoin could never encourage this kind of behavior, thus making Colored Coins only as strong as the weakest participant who used them.
For instance, 4 participants agree that 10 Colored Coins are equal to 10 company shares. But if a single participant decides to stop recognizing such an equivalence, this entire system only falls apart.
Colored Coins trace their origins from a 2012 blog post written by Yoni Assia. It was named ‘Bitcoin 2.X – Initial Specs’. While this post discussed Colored Coins, it did not talk about their applications or their ability to represent various assets. But he states that as Colored Coins were Bitcoins, which could be traced to the ‘Genesis Transaction’, these coins were identifiable and unique compared to regular BTC (Bitcoin) transactions. However, the applications of the new assets weren’t explored fully until Meni Rosenfield released a paper on Dec 4, 2012, called ‘Colored Coins - BitcoinX’. Not only did that paper analyze Colored Coins in greater depth, but it was also authored by prominent crypto experts like Meni Rosenfield, Lior Hakim, Vitalik Buterin, and Yoni Assia.
However, Colored Coins has a number of apparent flaws as well. This system could only work ideally in a special permission environment. A database was better than Colored Coins in a few cases, However, Colored Coins encouraged further experiments & laid down a lot of groundwork for Non-Fungible Tokens. While people started recognizing the vast potential that lay behind using distributed ledgers for representing real-world assets, it was also recognized that an enhanced malleable blockchain was needed to promote implementation.
Colored Coins helped people realize that there was a ton of potential for using blockchains to represent real assets. However, they also realized that BTC in its existing iteration wasn’t capable of enabling these features. This led to Evan Wagner, Robert Dermody, and Adam Krellenstein founding Counterparty, which is a P2P financial platform & distributor of open-source Internet protocols that leveraged Bitcoin blockchain. The company ran a decentralized exchange, permitted asset creation & even launched a crypto token that has the ticker XCP. They owned numerous assets and projects, including meme trading and a trading card game.
Spells of Genesis on Counterparty (April 2015)
Spells of Genesis was a game whose creators issued in-game special assets on a blockchain using Counterparty. They also launched an ICO, which was unheard of at the time. Back then, ICOs used to be called crowdfunding. Spells of Genesis increased funding for its development when it launched BitCrystals, a token that was utilized as in-game currency.
Trading Cards on Counterparty (August 2016)
Back in Aug 2016, Counterparty partnered with Force of Will, a highly renowned trading card game, for launching their cards using Counterparty’s platform. The game has the fourth-highest sales numbers in the North American region, right behind Magic: The Gathering, Pokemon, and Yu-Gi-Oh. This was an important event because Force of Will happened to be a mainstream company, which had no previous cryptocurrency or blockchain experience. Their move showed that there were advantages to be gained by placing such assets on blockchain.
Rare Pepe Trading Cards (October 2016)
Pepe the Frog’s community members & crypto enthusiasts are behind this project. Here, various users come up with meme cards, which are linked to special tokens called PEPECASH. This is issued via Counterparty’s protocol using BTC blockchain. However, after the community carried out a detailed inspection, they were listed on Rare Pepe Directory as well. These tokens are scarce and limited in number, making Pepe Cards valuable and rare assets. People can trade them by using Counterparty Wallets. This way, the community members no longer required middlemen to facilitate the transaction and could save enormous processing fees.
As Ethereum started rising into prominence in 2017, meme trading began to be done actively. In Mar 2017, the Peperium project was announced, which was a ‘decentralized trading card game and meme marketplace, where people could design memes, which lived on forever on Ethereum and IPFS. Peperium and Counterparty were quite alike in that they had associated tokens, which had RARE as its ticker symbol. It paid listing fees and aided meme creation.
- Meme exchange: Rare Pepe Meme Directory
Cryptopunks (October 2017)
With rare pepes being increasingly traded on Ethereum, Matt Hall and John Watkinson understood that it was possible to create unique Ethereum blockchain-generated characters. These characters were limited to 10000. No two characters could be similar as well. Their project was called Cryptopunks, which was a reference to Cypherpunks, who had experimented with technologies that were similar to Bitcoin back in the 90s.
Hall and Watkinson allowed anyone who had Ethereum wallets to claim 1 Cryptopunk completely free of cost. All 10000 Cryptopunks got claimed in a record period of time, leading to a secondary marketplace being created where people could buy and sell them. Interestingly, Cryptopunks did not follow ERC-721 standards as they hadn’t been created yet. However, their limitations meant that they weren’t ERC-20 either.
Cryptopunks may be best described as the hybrid child of both ERC-20 and ERC721.
Cryptokitties (October 2017)
Cryptokitties is a virtual game where users could breed, collect, sell, and buy virtual cats. Each of these cats are unique. CryptoKitties are kind of like modern Tamagotchis. But they are stored and live on Ethereum blockchain, not on egg-shaped small computers.
Axiom Zen, a company based out of Vancouver launched the CryptoKitties game in Oct 2017. The company had been developing this project for months now and decided to release its alpha version at the ETH Waterloo Hackathon. This was the world’s biggest Ethereum ecosystem hackathon. There were over four hundred developers at the event, making it the ideal time and place to launch this game. The team came first during the hackathon & this game went viral as well.
CryptoKitties was also launched at a time when the crypto market was experiencing a bull run, which added to its popularity. People start trading, breeding, and buying virtual cats at a surprisingly fast pace. People also started realizing the value of NFTs. Dapper Labs was launched by Axiom Zen after the success of this game. The company secured over $15M in investor funds from Google Ventures and a16z among others. After people witnessed the activity levels among members of the game’s community and how investors were funding Dapper Labs, many awoke to the true potential of NFTs.
Differentiation of Tokenized Assets in a nutshell
As there are various differences in ownership tracking & ensuring that a collectible is completely unique, there exist several differences between collectible tokens and standard tokens.
ERC-20 happens to be the current token standard used by most ETH-based projects. It is fully compatible with many wallets and exchanges, thus helping you trade tokens to multiple destinations. They are used in several currencies for purchasing in-app goods.
ERC-721 is used in most collectibles. The wallet was created with the intention of displaying basic information regarding a collectible and shares similar parameters with ERC-20. These basic standards enable the storage of data on a blockchain. Data may also be extracted from all assets without needing to know any details about the asset type.
However, there are a few differences. For instance, it tracks total supply, approved ownership upon transfer, and ownership as well.
Approving and tracking ownership is essential since it allows asset holders to confirm the fact that they own a unique, one-of-a-kind asset.
When collectibles are transferred to other users, this data gets broadcasted throughout the network, completes a verification procedure after which the event or transfer is marked complete.
This standard can be used for in-game goods and collectibles as well. ERC-721 isn’t fungible whereas ERC-20 happens to be completely fungible. ERC-1155 happens to be a highly configurable token, which enables creators to set various parameters during their creation.
For instance, in an MMORPG video game like WoW or Counter-Strike, some items are widely available whereas others are rare and epic. In this way, ERC-1155 is capable of solving scalability issues and aid games where there are intricate items with varying scarcity values.
Under the stewardship of Witek Radomski, Enjin has been making some remarkable progress in the implementation of this standard. The token data undergoes strict standardization, meaning that for integrating ERC-1155 tokens from a project to the app or game, it requires no extra efforts for integrating tokens from another ERC-1155 project. This enables the creation of projects that have high-value crypto tokens capable of providing perks across a number of different platforms. To put it differently, it is possible to access rare gaming goods across various games without needing to put in much effort.
At the moment, the collectible market is valued at over $370B. Even when you take blockchain tech out of the equation, collectibles and digital items are worth $35B, which is on the rise. In case crypto-collectibles capture even a tiny fraction of the collectible huge market, this space could be worth tens of billions over the course of the next few years.
- Kovels' Antiques and Collectibles Price Guide 2020; Terry Kovel (Black Dog & Leventhal)
- Cryptokitties - How To Buy, Collect, Breed and Sell The New Digital Collectibles; Aylove Katz (Self-Published)
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