The Newbies Guide to Crypto - NFTS -

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no online database will replace your daily newspaper, no CD-ROM can take the place of a competent tea......

no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works

This was Clifford Stroll’s famously bad take about the future of the internet in 1995. The mistake he is making here is the same mistake many of you are making when you make judgements about the idea of NFTs. Do not make judgements about the future of the technology based on what you see in front of you today.

Most people come to associate NFTs (called Non-Fungible tokens in its full form) with random jpegs that sell for hundreds, thousands and sometimes even hundreds of thousands of dollars. For the next few minutes, I want you to forget the idea of digital art entirely. The key breakthrough of the blockchain was the ability to prove digital ownership. NFTs are unique tokens (that’s what non-fungible means), and you can prove you own them digitally. NFTs contain identifying information recorded in smart contracts.

NFTs allow me to own a unique digital asset, and know it can’t be copied, for the first time ever. Yes, you can copy it and paste it, the same way that you can buy a fake Rolex for $30. But just like in the case of the fake Rolex, anyone can check and verify that you don’t have the actual NFT.

To give one possible use case - there could be a future where we see tickets for most events sold as NFTs. Why would this be better than a paper ticket? Firstly, NFT tickets would help prevent forgeries and frauds. Any movement of an NFT from one wallet to another is recorded publicly on the blockchain. Instead of printing thousands of paper tickets, thousand of NFTs could be minted within a minute. Also, when tickets are resold, the original organisers of the event do not make any money from this resale. NFTs can be programmed with built-in rules, which would mean that x% of the revenues from any resale

In the following sub-chapters, we’ll go over the case study of the Bored Ape Yacht Club, which is maybe the most well-known NFT project of all time. We will also discuss the industry of NFT trading and how to get involved if you want to and discuss some NFT projects exploring unique new use cases of NFT technology.

The company behind a collection of monkey pictures became worth around $5 billion. This is the story of how and why that happened...

Introduction

It started with a team of anonymous developers who had some jokey pseudonyms: Gargamel, Gordon Goner, Emperor Tomato Ketchup and No Sass. At the time, they were normal people working day jobs, living normal lifestyles and experimenting with a few creative projects on the side. Now, these people with their slightly ridiculous pseudonyms are self-made multi-millionaires.

Kevin Hart, Dave Chapelle, Jimmy Fallon, Eminem, Paris Hilton, Steph Curry and many others have bought bored apes. One single ape (#8817) sold at auction for $3.4 million. And the startup behind the creation, Yuga Labs, was looking to raise money from one of the world’s most famous Venture Capital firms at a $5 billion valuation.

Even though this has all happened in under one year, the project did not start off with a bang.

The Origin Story

Gargamel (yes we're going to use the ridiculous pseudonyms because we don't know their real names) got into crypto because of his college roommate, who was mining bitcoin back in 2010. He then got his friend Goner interested (and invested) in crypto in 2017. Together, they had an idea for a members-only community, with a collectable art component. They came up with early ideas like CryptoCuties, which were NFT girlfriends (thank god they didn't go with this one). After spitballing for a while, they came up with the bare bones of what would later become the Bored Ape Yacht Club. The only problem? Neither of them knew how to code.

This is when they recruited their friends from university, No Sass and Emperor Tomato Ketchup, who were studying Computer Science. While these two knew what they were doing tech-wise, they did not know much about crypto. In February, they started learning solidity - which is a programming language used to write smart contracts on the Ethereum blockchain - and they got started.

Some Growing Interest in the Bored Apes

In the week-long pre-sale period, things moved slowly. The team managed to sell about $30-40,000 worth of Bored Apes during this period. After the initial launch in April 2021, it took 12 hours for all of the 10,000 apes in the collection to sell out, for a price of 0.08 ETH (around $300). In the first month of the launch, there were only 35 total transactions on the secondary market, for an average sale price of $313.07. So while the price hadn't risen hugely (yet), the collection had sold out relatively quickly. Some of these early buyers must have seen the value proposition behind these magical monkeys.

What gives Bored Apes their Value?

You might have heard of Soho House. Soho House is a members club with fancy clubhouses in different locations around the world. It's basically a place for cool people to hang out. Bored Apes is building an online version of Soho House. Owning a Bored Ape gives you access to this club of like-minded tech and crypto nerds. And when you look at the names mentioned earlier, it's clearly quite a powerful club to be a part of.

As the project has grown, the team has been doing more and more to build a community. There have been Bored Ape get-togethers in New York, California, Hong Kong and the UK. There was also an Ape Fest in October 2021. which included an actual yacht party and a concert that featured Chris Rock and Aziz Ansari, among others.

Bored Ape's can also serve as a digital identity for their owners. Owning a Bored Ape is a status signal, the same way owning a Rolex or a Ferrari is. If you own a Bored Ape, it either means you were rich enough to buy one recently or that you were early to the NFT space and savvy enough to buy one when they were still cheap. And yes, even if you don't own an ape, you can copy an image and make it your profile picture, the same way you can buy a fake Rolex. But just like a fake Rolex, people can tell. Twitter has NFT profile pictures now, so you need to connect your crypto wallet to prove it's the real thing.

One more unique aspect of the Bored Ape Yacht club is that owning a Bored Ape gives you the commercial rights to it. Some Bored Ape owners have been finding some creative ways to make use of this. One owner created a whole backstory and set up a Twitter account for his ape, called Jenkins. Jenkins was then signed to a real-world agency and is getting his own biography written.

Against the Grain

One of the most common (and sensible) pieces of advice when investing in NFT projects is to look at the founding team and the level of experience they have. The team behind Bored Apes were and still are, anonymous. Now, this isn't an alien concept in the crypto world. Nobody knows who Satoshi is, even to this day. But you have to remember that in the crypto world, there have been many scams, rug pulls and scandals around projects with an anonymous founding team.

One of the reasons the team behind an NFT project is so important is because you want to see that they are experienced. The four founders behind Bored Apes were not experienced at all. They were new to the NFT space and just experimenting. But despite these factors working against them, the Bored Ape team managed to make history.

So why did Bored Apes take off?

They were Early to the NFT Game

April 2021 might not seem that long ago. But in NFT-land things move fast. Bored Ape Yacht Club launched just after CryptoPunks had done really well and after Beeple sold an NFT for $69 million. So people were becoming aware of NFTs. But importantly, Bored Apes launched before what's called the"NFT summer"where hundreds of NFT projects launched. So Bored Apes came on to the market at the perfect time when investors had just started searching for the"next big thing"but there weren't many other NFT projects on the market to compete with. Bored Apes had a four-month head start before the NFT market got hot, and this benefitted them enormously.

Social Capital

In July, the New Yorker observed that Bored Apes were taking over Twitter. by this time, people had started using them as a status symbol on Twitter. Often, NFT owners have invested in many projects, but for a lot of these people, their Bored Ape seemed to be the NFT of choice for their profile picture. This probably had something to do with the rising value of the Ape's, but could also have been influenced by the strong artwork and the unique characteristics of the apes.

Commercial Rights

Remember that some of the utility provided by buying a Bored Ape was that you have full commercial rights to the Bored Ape that you own. Bored Ape owners started to use these rights in creative ways, and others started to take notice.

Celebrity Backing

And then, after some initial traction, the A-listers started rolling in. In November 2021, Jimmy Fallon bought an ape for more than $200,000 and made it his profile picture on Twitter, which exposed the project to his 50 million followers.‌

And then...Pandemonium

Since then, Bored Apes have been making headlines everywhere. Bored Apes have been sold at auction for millions of dollars, and they've done $2 billion in sales volume. That means 2 BILLION dollars has changed hands as people buy and sell Bored Apes. To see a full list of celebrities that own an ape, look here https://boardroom.tv/bored-ape-nft-celebrity-owners/. There are 39 names on this list! And this list is not playing fast and loose with the term "celebrity" either. You will most likely know most of the names - they're all top-level athletes, musicians, entertainers and businesspeople.

Yuga Labs bought CryptoPunks

Bored Ape's and CryptoPunks were and still are, by far, the most high-profile and successful NFT projects. CryptoPunks were earlier to the game. That project was one of the earliest NFT projects on the Ethereum blockchain. In March 2022, shock news emerged that Yuga Labs (the creators of the Bored Ape Yacht Club) had acquired CryptoPunks (and Meebits, which were launched as next generation CryptoPunks).

This was huge for two reasons. Firstly, the number one and number two projects in the space were merging. This was the equivalent of McDonald's and KFC merging into one and taking over the world with KFMcDonalds. The other reason this was huge was because Bored Apes haven't even been around that long! the project had launched a year before this happened, and the Bored Ape Yacht Club had got big enough that they were buying up big, older players in the space. It's like you starting a new job and suddenly becoming your boss's boss.

Apecoin

Then, there was the launch of ApeCoin. Yuga Labs did not actually launch this token themselves because there were issues with regulations. So instead, they spun up a DAO (more on DAOs in later chapters) to launch ApeCoin.

The main uses of ApeCoin are as follows:

It's a governance token. All ApeCoin holders can vote on strategic decisions and decide on the future strategy of the DAO and the project.
Holding ApeCoin gives one access to exclusive games, events and merch.

As for the tokenomics, 14% of the pool went to those who helped with the launch, the founders and company took a big chunk (the founders took 8% and the company took 16$), and the rest was distributed among NFT holders and to the treasury.

A few days after launch, the price of ApeCoin pumped hugely when Elon Musk changed his profile picture to a Bored Ape. But this was short-lived because he changed his picture again and removed the Bored Ape, which bought the price straight back down. Despite moves like that, there has been a steady flow of institutional capital into ApeCoin.

The Biggest Metaverse Land Sale Ever

As if all of this wasn't enough, the next chapter of the story was Yuga Labs' announcement that they would be selling metaverse land. I'll cut to the punchline... they made over $300 million. 55,000 NFTs were minted and the mint price was 305 $APE, which was around $6,000. Will these be a good investment? It's hard to say. But, it is worth mentioning that every previous launch in the BAYC/Yuga Labs story has been a very successful one.

This sale caused such a stir, that there was a tonne of traffic on the Ethereum network. This led to gas fees skyrocketing. For every transaction that happens on the Ethereum network, some ETH is burned and taken out of the supply. On this day $150 million of ETH was burned because of this land sale. Then, Yuga labs had this to say...

Where do we go from here?

Yuga Labs have made it clear what they want to do next. They've sold NFTs, launched their own token and dabbled in the metaverse. Now they want to create their own blockchain. It seems clear that Yuga Labs wants to keep pushing the envelope and going bigger and bigger. Maybe Yuga Labs becomes a world-changing company, or maybe it all comes crashing down. One thing is clear, they're going to cause a splash either way.

Important disclaimer: This is risky. Risky, even by crypto standards. There are gains to be made, but do not invest money you aren’t prepared to lose. Also, since we are in a bear market, although it might be a good time to sweep up NFTs for cheap prices, it might be a while before you see some returns

Most of the wisdom in this chapter comes from this 30-minute video by Alex Becker, who is the founder of Neo Tokyo and has made a lot of money flipping NFTs. I’d recommend watching the whole thing, but I have outlined the key takeaways below if you want to absorb the main points of the video quickly.

Rule 1: Always try to mint your way into projects. Prices are rarely going to go lower than the mint price.

When an NFT project first launches, instead of buying an NFT from someone else, you can mint one. Minting is where you publish a token (your NFT) on the blockchain so it is now resellable and purchasable to other people. This sounds complicated, but once you have a crypto wallet set up, it’s usually just a case of going to the website of the NFT project you are interested in, and exchanging some tokens to mint the NFT.

This strategy allows you to make gains if the project takes off. But even if the project just goes sideways, you can usually still exit at the mint price. That protects you from downside risk. DO NOT buy the NFTs when they are pumping. If the project stops pumping people stop buying, so the floor goes down really quickly

Rule 2: Always buy the FLOOR in existing projects if you are going for quick flips

The floor is the lowest priced NFT in the collection, usually the ones with the most common traits. These are good to buy because they are the easiest to sell if the project starts doing well. If you are looking to flip NFTs, the hardest ones to sell are going to be the ones in the middle

Rule 3: Don't buy into projects that mint for more than $300

When you are looking to flip NFTs, you have to look for projects that are started in a healthy way. Influencers and celebrities often launch NFT projects and charge incredibly high prices right out of the gate. The problem is, when the price is so high to begin with, there are fewer people to resell to. Once buyers and traders see that the price of the NFT project is not increasing, they lose interest and the price starts falling.

If it seems like the creator is trying to make as much money as possible at the expense of the community, this is not a good sign for the future of the project. Do not trust projects based on influencers that are pushed by hype

Rule 4: Look for projects with a good roadmap, responsive developers, or a project that is the first of its kind (this is hard to find)

You want to look for something in the roadmap that will increase the price of the original NFTs. For example, some NFTs generate passive income by generating tokens in your wallet. Other NFT projects allow you access to exclusive events. If the NFT project you are investing in is just digital art with no other utility, that probably isn’t enough in today’s environment for it to stand out.

Rule 5: To find projects, follow known NFT people on Twitter

Examples:

Rule 6: if you understand rarity, buying middle to top can be lucrative in new projects (but also risky)

Especially if the project is fairly new. If the project has been around for a few weeks or more, the prices for the rarer NFTs in the collection are often inflated. There are many tools to establish the rarity of different NFTs in a collection such as rarity.tools.

Rule 7: If you are looking to invest long-term, only invest in projects that are very established

There are so many NFT projects launching every day that it’s very hard to spot what will do well long-term right out of the gate. So if you are looking to hold something long-term, make sure you have seen some track record of success.

Rule 8: Only be in a few NFT projects at a time

If you focus on a few niches, you will have a better understanding of rarity and be more up to date about what’s going on in that space. If you spread yourself too thin, you may find yourself trying to ape into projects you don’t know much about.

Vitalik, the creator of Ethereum, introduced the idea of soulbound NFTs in this blog post. He took the idea from the famous online game, World of Warcraft. In World of Warcraft, soulbound items are items that cannot be exchanged or sold to another player. They are unique to you. If you think about it, soulbound items exist in real life too.

Here are some examples of IRL soulbound items:

Your university degree. You can’t buy or sell this. You have to earn this by putting in three or four years of (maybe hard) work.
Your marriage certificate. You can’t buy or sell this. You have to earn this by putting up with your significant other for a (maybe long) period of time.

Vitalik is a big fan of the idea of creating soulbound NFTs. These are NFTs that cannot be flipped or exchanged, and NFTs that you have to earn.

If the technology behind soulbound NFTs is created, there is the potential to put a huge number of things, like driver’s licenses on the blockchain. Vitalik talked about a few use cases he’s excited to see, which include a new system for credit scores. Your current credit score is almost like a random number generated through a black box. Non-transferable NFTs could be used to create a new credit score system, which could be based on your work history, certifications and things like that.

Right now, owning a blue-chip NFT like a bored ape is a symbol of status or wealth. As we said, if you own a bored ape, it means you were either rich enough to spend hundreds of thousands of dollars on one, or you were early enough to the NFT game to get one before all the hype. Vitalik’s hope is that soulbound NFTs can be used to signal that you achieved a certain goal or did a certain thing.

"Making more items in the crypto space"soulbound"can be one path toward an alternative, where NFTs can represent much more of who you are and not just what you can afford".

Nearly all blockchains and protocols designed so far have centered around the idea of maximum transferability. Building a blockchain where transfers can be limited or even prevented poses its own technical challenges, but Vitalik and many others believe that if this can be figured out, "this opens a much wider door to blockchains being at the center of ecosystems that are collaborative and fun, and not just about money".

Monetisation has long been a problem for artists and the music industry in general. Ever since the creation of software like Napster and Limewire, making people pay for music has been an uphill battle. Currently, artists earn $0.004 per stream. NFTs and the concept of digital scarcity have the potential to shake up the music industry, and give artists new options they can use to monetise their creations.

If I buy a Music NFT, it means I now own that piece of that music. The concept of music NFTs is as confusing as digital art to some. Why would I pay to buy a piece of music that I can listen to for free? One possible reason is that it is a way for music lovers to get closer to artists they love. Another reason is monetary. Buying music NFTs could be a good way of betting on new, up-and-coming artists, while no one else has heard of them yet. If they hit the mainstream, the value of the NFTs you have bought will rise. Music NFTs would provide a way of betting on your favourite indie artists.

Patronage models are also being explored, and this would take things one step further. This would mean that you buy a music NFT and you are entitled to a share of future revenues made from that song. There are also millions of permutations and different use cases for Music NFTs. For example, buyers of music NFTs could get access to discounted concert tickets, backstage access or exclusive meetups with the artist.

While news of Music NFTs may not mean much to big, popular artists, they could change the lives of indie artists. For example, it's estimated that Bajan rapper Haleek Maul made more than $250,000 (81 ETH) selling Music NFTs. His Spotify earnings for the year? $178.

When a new market like this is opening up, there are also quite a few online marketplaces that spring up, hoping to be THE place where everyone goes to buy and sell Music NFTs. OpenSea is the biggest NFT marketplace in the world and it has a dedicated catalogue for Music NFTs. However, it seems that artists prefer to use marketplaces that are specifically for Music NFTs. The largest of these is Catalog. Artists have already sold millions of dollars worth of Music NFTs using Catalog. Catalog is used to sell single-edition (or one of a kind) music NFTs. Other platforms that also do this are Arpeggi, Foundation and FormFunction. There are other platforms like Sound.xyz, where artists can sell many different NFTs tied to one track.

This whole industry is in its infancy. In the case of digital art NFTs, the culture of buying unique, one of a kind editions was largely replaced (in terms of popularity and volume) by having collections of digital art. It will be interesting to see how things will develop, and what becomes the standard practice in the Music NFT space. . Some artists have managed to make themselves rich using NFTs. Maybe indie musicians are next.

My Dad doesn’t really “get” the concept of working from home. To him, work means commuting into an office and going to your desk. He thinks I’m stealing a living at my current (remote) job. It’s a common cliché that “work” evolves, and new forms of work do not look like “real work” to those who were used to something different. At the extreme end of this is play to earn games. There are now gamers who are making a living playing games like Axie Infinity, and NFT technology is allowing them to do this.

Play to earn games are games where players can receive rewards that have real-world value. As we have said, NFT technology allows one to prove ownership of digital assets. So gamers can now own virtual clothing, plots of land or custom weapons for their character, and sell these for real money.

By far the most popular play to earn game going right now is Axie Infinity. It’s a monster battling game kind of similar to Pokemon. In the game, players collect cartoon creatures called Axies, which are represented by NFTs. It has almost 3 million daily users and there has been a growing trend of users from south-east Asia using their earnings from the game to support their families.

These games are helping to onboard new users to the crypto ecosystem. Half of Axie’s users have never interacted with the crypto ecosystem before playing the game. But there is a price of entry. To start playing, you have to purchase three Axie NFTs, which can set you back a few hundred dollars.

Many prominent crypto and NFT projects are planning to enter this space, so there will be many big launches of play to earn games to come. In a link to a previous chapter, the Bored Ape Yacht Club also has a play to earn game on their roadmap. Many believe that play to earn games will be where the concept of the metaverse really takes off, and NFTs are clearly a key building block in making this happen. But more on that in later chapters.....

LinksDAO is building “the world’s greatest golf community”. What the heck does that have to do with Crypto?

To become a member of this golf community, you have to buy an NFT. On January 2nd, 2022, LinksDAO sold 9,090 memberships with a sold-out NFT drop and raised over $10 million in 24 hours. They plan to use the funds raised to purchase one of the world’s most exclusive golf courses in the world.

While LinksDAO trying to achieve this grand goal, they have been providing real-life benefits to their members already. They’ve partnered with famous golf brands, who have offered exclusive deals with LinksDAO members and also organised a massive golf outing for its members in early 2022.

While still early days for this project, it’s already a great example of an organisation using NFT technology in a new and unique way, and it’ll be interesting to monitor how the project progresses.