What are Digital or Crypto Collectibles?

Cryptocurrency collectibles are digital media that can be authenticated as an original through blockchain technology. Almost all of these digital collectibles use Ethereum’s blockchain network, as it’s the most robust smart contract-enabled blockchain on the market. Smart contracts are code that’s uploaded to the blockchain, and it allows for new tokens to be minted, such as nonfungible tokens (NFTs). These are the type of tokens used for digital collectibles.

What makes these tokens different from traditional cryptocurrency is that these tokens are nonfungible — each token can hold its own distinct value.

Why are NFTs so Popular Right Now?

Nonfungible tokens have gained popularity extremely quickly. The demand for NFTs is driven by 2 main types of collectors: art collectors and crypto enthusiasts. Since most NFTs are sold for Ethereum tokens, cryptocurrency investors support the NFT ecosystem by collecting crypto collectibles to hopefully sell at a profit in the future.

Art collectors drive demand for specific crypto collectibles made by certain artists. Since most artists who create NFTs advertise their collections on their social media, the artist’s fans have been buying crypto collectibles to support their favorite artists. With big celebrities like Steve Aoki, Beeple, Grimes and Kings of Leon all creating their own NFTs, more and more people are being exposed to digital collectibles. 

Long-Term Investment Skepticism

Prominent figures in the financial sector have been outspoken about the potential for NFTs. Among these influencers, the most notable are Elon Musk and Gary Vee. However, even Vee acknowledges that most of the NFTs today won’t hold their value. 

Digital “art” can be made into an NFT by anyone who creates a token, which is a surprisingly easy process. While these random tokens most likely won’t hold their value, the technology behind NFTs has recently been a great investment.

What can NFTs be used for?

Nonfungible tokens are commonly used to authenticate original media through the blockchain. The uniqueness of each token allows for distinct prices for each asset minted as an NFT, making it possible to tokenize almost anything as a nonfungible token.

A new use case for NFTs will be used in the upcoming Uniswap V3 upgrade, which is slated to release on May 5, 2021. Uniswap is the leading decentralized exchange, and it uses Ethereum’s smart contract capability to swap cryptocurrencies. Uniswap will use nonfungible tokens as liquidity provider tokens for its decentralized exchange. 

Instead of providing liquidity to all possible price ranges of an asset, liquidity providers will be able to provide liquidity to specific price ranges of a given asset. To distinguish the unique price range for the liquidity investors' stake on Uniswap, the platform issues NFTs to represent the user’s unique stake in the liquidity pool.

It’s speculated that NFTs will be used for a wide range of financial services in the near future. NFTs can be used to tokenize loans, verify real estate deeds and authenticate original documents. These are far from the only use cases, and as the technology behind NFTs develops the use cases for the technology will become more clear.

Converting to Crypto Collectibles

Among the first people to convert their art into crypto collectibles are digital artists and electronic dance music (EDM) artists. Since digital artists make their art in computer files, they’re able to authenticate the original piece of art using NFTs. 

Similarly, EDM artists like 3LAU, Steve Aoki and DeadMau5 use NFTs to create original music to sell to their fans. In wake of the COVID-19 pandemic, these crypto collectibles offer a new way for artists to make additional income without needing to perform for live audiences.

Digital Collectibles as Money

Although cryptocurrency tokens, digital collectibles aren’t used as forms of payment and don’t resemble a currency in any way. This being said, investors can still make money from digital collectibles. While most NFTs go down in value or never sell, certain sought-after NFTs that are scarce can net investors high-profit margins.

Popular Digital or Crypto Collectibles

The first popular digital collectible clogged the Ethereum network in 2017. The collectible, CryptoKitties, were digital cats minted as NFTs. It wasn’t until late 2020 that NFTs really started to become popular. Popular artists have made music and digital art through NFTs, and the NBA makes NBA Top Shots as NFT collectibles.

NBA Top Shot

NBA Top Shot is a joint venture between the NBA and Dapper Labs, the company behind CryptoKitties, one of the first NFT projects. These crypto collectibles can be bought directly from NBA Top Shot’s website, but Top Shot packs often sell out quickly. The website has a secondary marketplace for users to buy and sell specific Top Shots from other collectors. 

The digital collectibles on NBA Top Shots are similar to trading cards in that each Top Shot features an NBA player you can collect. However, Top Shots offer more than traditional trading cards. Top Shots feature game records, and the collectibles show in-game highlights from players’ best moments. The highest sold Top Shot, “Lebron James Dunk,” sold for more than $200,000 on NBA Top Shot’s website.

Beeple

Mike Winklemann, better known as Beeple, recently made the front cover of The Wall Street Journal for his record-breaking NFT art sale. His piece, “Everydays: The First 5,000 Days”, sold for over $69 million, making Beeple the 3rd most valuable living artist in the world. With his recent success and his past collections appreciating in value, Beeple plans to continue using NFTs to authenticate his digital artwork.

CryptoPunks

CryptoPunks are digital collectibles made in the early days of NFTs. These collectibles were made in 2017 and largely forgotten up until recently. The collectibles feature pixelated characters generated by algorithms; most are human, but some more rare CryptoPunks are aliens and zombies. Just last year, CryptoPunks were selling for under $100 for some more common characters. Today, CryptoPunks fetch 5-figure prices on auction, as there were only ever 10,000 characters ever minted as NFTs.

Best Marketplaces to Buy NFTs

Some popular marketplaces for NFTs are OpenSea, Nifty Gateway and Rarible. OpenSea has the largest variety of NFT collections on its platform and it works directly with your Ethereum wallet to conduct transactions for digital collectibles. If you don’t already have an Ethereum wallet to store your crypto and NFTs on, Coinbase Wallet and Metamask are both great options you can use for free.

Depending on the type of digital collectible you're looking to buy, you may want to use a certain marketplace. For example, Nifty Gateway works with specific artists to release digital art on the primary marketplace. Also, NBA Top Shots has its own marketplace for their NBA collectibles, and the only place to buy Top Shot packs is through the NBA Top Shot website.

Are Digital Collectibles a Bubble?

With NFTs selling for ridiculous prices, some investors see the recent phenomenon as a bubble. This may not be the most accurate representation, however, as a bubble implies a boom and bust scenario where NFTs won’t be relevant in the future. It’s clear nonfungible tokens have a wide use, and although certain NFTs may be overvalued, the underlying technology is here to stay.

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