I began my jouney into NFTs with absolute skepticism, as most did. I won't get into my personal story too much, except that seeing it emerge through cryptopunks (the first generative NFT proof of concept on Ethereum), and deciding that it was "too stupid to bother claiming", and then seeing Cryptokitties (the first breeding NFT collection to blow up) "break Ethereum" back in 2017--my opinion wasn't too high to begin with.

Whatever the case, after seeing NFT volume consistently "breaking" of Ethereum, causing insanely high gas fees, I decided I had to research what I was missing out on. So in the last 6 months I've dived (and lost) heavily in NFTs, but I've learned a lot and it's been on my mind to post about it for some time.

My crypto background is in tokenomics and DeFi. Much of my skepticism came from seeing no inherent value in the current NFT space aside from the basics (art on blockchain, and high future utility).

I've learned that there are many categories of NFTs, and your expectations should vary depending on the collection's goals. Some are meant to be entertainment in the form of art and games, and the others are meant to be investments that appreciate in value or create value outside itself.

I'd like to cover the current state of NFTs because I think setting expectations is important, and the more people that understand it, the less risk their investments will be. The future potential use-case for NFT technology is unquestionably massive, but what matters is where we are now--and that's what I'm covering in this article.

Perhaps these categories aren't all encompassing, but here the NFT categories as I see them (keeping in mind that it's common to combine several of these categories):

Art for Art's Sake

I'll abbreviate this as A4A, which is when an artist sees NFTs as a just another way to showcase their work to a new audience. Often, they don't come from a crypto background, but they have varying levels of skill in their own industry--often elite or professional-level skills.

NFTs provide artist protection in the form of code. Through NFTs, they can be guaranteed royalties at their preferred rate, and most middlemen are cut out. For musicians and artists, and eventually writers and photographers and other categories of art, this is life changing. Through NFTs, it's much more plausible to make your living as an artist as EVERY TRADE can result in guaranteed passive income for your art.

Blockchain is a new medium, though, and artists often need to partner with others to be succesful. Because an artist's sole desire is frequently to just present their art, and to explore the tools to what that new medium can offer them, these collections may fail despite having fabulous art if they don't have the right team. Additionally, sometimes it's simply a matter of luck: right time, right place, right trend.

These collections often have very limited supplies or may release slowly as the artist is customizing each piece, which can be a timestaking process. There are A4A generative collections, of course, but that is in itself an art form where the artist is considering all the possible combinations in such a way that randomized results all come out aesthetically pleasing (to varying success).

In A4A, you will frequently see a weak community, or no visible community, as the artist is focused on just creating art, and their desire isn't to build a community. Thus, investing because you like the art and you want to support the artist is the best approach to these collections.

Example of A4A: Medusa Project https://opensea.io/collection/medusa-project

Generative Art/AI

This is niche even within the NFT ecosystem. While some amount of generative art has been part of NFT collections since cryptopunks, adding a higher level of intelligence to the generative art--to the scale that everything is computer derived--is even more experimental, and often disastrous (read: ugly).

Every once in a while, these collections also can become something of a status symbol, and it's really hard to know what will become the next big thing because the aesthetic of the generative art doesn't often seem to be the determinant of the demand for these pieces.

I have rarely seen a strong community built around these generative collections.

Example of Generative Art: https://stashh.io/collection/secret1u0vfm9uqf5f7wz7q029eg6p4kscxl4qq73wf62?sort=price+desc

pfp, or Profile Pics

These are, in the current environment, status symbols and community oriented projects.

These were the first generation of NFTs on ETH, and they often represent an exclusive network of individuals with influence, knowledge, and connections. Getting in to the "blue chip" NFT projects is often a steep ask, and there is heavy competition in this industry to become the next blue chip.

In pfp collections, the phrase "community is everything" matters even more. Incredible time and energy is committed to building the community in creative ways. Exclusive access to connections and information, and the status symbol it represents, is the primary value of these collections.

The standard number of items in these collections is around 10k, with many being as low as sub-100, but rarely passing 50k as supply and demand scarcity is a big aspect of determining community effectiveness, exclusivity, and perceived value.

Example of pfp: Bored Apes Yatch Club https://opensea.io/collection/boredapeyachtclub

Closed System NFTs, aka Gameified NFTs

These are the projects in which the inherent use of the NTFs is to collect more, generate more, or modify NFTs. These would be breeding, staking, pets, and NFT customization mechanics.

You could call this "meta", perhaps, but I would argue that it this category never meant to be anything outside of its own closed system, and while it can't necessarily be called a game itself, it uses game theory to make its assets desireable rather than being anything truly about gameplay experience.

All that said, some have made plans to create enough gameplay entertainment that you could argue that the "gaming" is interacting with the blockchain in creative and fun ways. These gameified NFTs that approach actual games could be paralleled to early text-based games, board games, and turn-based rpg/strategy games where computing power and speed was limited, and imagination and creative game mechanics made the experience enjoyable.

Often, these collections comes with the pfp culture, but everything is ultimately meant to attract more interest into its ecosystem and to hold attention in this ecosystem.

It could be argued that there's no real or direct or inherant value being generated outside of the collection's own created world. These collections usually have similar genesis collection mint numbers as pfps, however, because they often have derivative collections, you could argue that their supply is potentially limitless.

Example of Closed System NFTs: Neon Crisis https://moonbeanstoken.com/#/collections/neoncrisis

Gaming NFTs

These NFTs are built completely around a game. They are directly useful in the game, and the gameplay is the largest focus of the team's time. You could argue that the blockchain itself becomes secondary to the gameplay.

Frequently these collections have an essentially limitless supply, as easily onboarding a large playerbase is important and the barrier of entry must be small. Graphics and excitement and sleek interfaces are important in these collections.

Very rarely will your NFTs ever have significant value, unless they are earned through intense grinding within the game itself, as the supplies are very large, and the player bases are frequently in the hundreds of thousands, if not millions.

In some cases you can receive a highly valuable item by being an early adopter, but in those cases, you probably found a game that is an unexpected breakout success.

AAA gaming companies are diving headfirst into NFT world, and the competition for independent developers is quickly becoming that similar to the regular gaming world--which is to say that most independent games will remain niche with, at best, cult followings.

Example of gaming NFTs: Guild of Guardians https://tokentrove.com/collection/GuildOfGuardians?sort=price-asc

DeFi, GameFi, P2E

These NFTs are directly related to investment propositions, and connecting decentralized finance models with NFTs.

In some cases, these NFTs have no gaming aspect to them at all, such as being vaults for investments and investment strategies. Other DeFi NFTs represent your positions in liquidity, or more creatively, in a fund manager's portfolio capable of being bought/sold on the open market. These NFTs are directly practical--a representation of ownership.

In P2E, however--a huge trend only recently, the idea was that you can play a game and earn from it. However, it quickly became apparent that gamefi and p2e suffered from the "closed system" nft problem, where the only value actually being generated was from one user to another, and there was little actual value being created without a constant influx of new money. These P2E models often integrate a new token, and then a newer token, that's sole purpose is to harvest funds from one place to another. Some P2E models have actual games built around them, and so these statements aren't all-inclusive as the difference between P2E and actual gaming is merging fast.

The issue with most P2E was that people entered, hoping to earn through "playing a game" but the gaming was more of a smoke and mirrors for the transfer of wealth from the late adopters to the early adopters. Gameplay was essentially staking and investing, with some fun pictures and mechanics along the way.

It can be argued that most gamefi, P2E, were essentially ponzi schemes because the development of the game was so frequently rudementary, and the modeling insubstancial to anything but a transfer of wealth from one group to another.

Beware this category as the player community is usually only interested in seeing financial returns, and will leave as quickly as they came with the ones left carrying the bags.

Example of P2E: Wolf https://wolf.game/

Real World Utility

This area of NFTs is still being developed, but is mired in the sluggish obstacles of the real world. NFTs, by definition, are simply unique tokens that represent things.

So, in this case, connecting an NFT to a real world asset is the goal such as a house (fractionalized real estate), tickets, or other such assets of value.

The debate over the value of using blockchain vs other existing tools, and the resistance against change from established systems is heavy enough that it's unlikely that NFTs will have true real world utility and adoption in a functional and practical way for some time.

There are some NFT collections, however, that fall in the kinda-real-world category, such as connecting the NFTs to mining rigs and other such creative methods of bridging the NFT world to the real world.

Example of kinda-real-world utility: Blockchain Miner's Club https://opensea.io/collection/blockchainminersclubofficial

Identity

NFTs in general might be considered part of your online identity, but in this category, the NFT represents your actual identity.

It's a storage of all things considered valuable and related to your identity. Social security numbers, personal health data, credit, etc.

The barriers to mass adoption are high in this category as well, but the utility is obvious and it is more a matter of time than value. It can be argued that this will be one of the most important and most widely used NFT as it allows for functions such as trustworthy voting, audits, and digital signing.

Example of Identity NFTs: Immunify.Life with Zambia for NFTs representing Vaccination Status https://www.immunify.life/

FOMO, POAP, other

This category of NFTs simply represents the category of inbetweens. Some people participate in NFTs for no logical reason other than they want to participate, which is their perogative.

Some NFTs are given as gifts that represent participation in an ecosystem (POAP--proof of active participation).

Some represent exclusive access to certain places and events, like a backstage pass.

Some, like the current "waifu" trend represents the degenerate community in such a way that might be too shameful to admit (collecting digital pictures of anime characters and owning them as "waifus").

However, everything, even the waifus, might someday becomes culturally significant, so it's not a category to ignore.

Example of FOMO: Lives of Asuna https://opensea.io/collection/livesofasuna

Metaverse

Metaverse gets its own category, even though it can be argued that at present, no NFT, project, or blockchain, has yet achieved metaverse.

Most "metaverse" plays are simply some combination of all the above, and the connection to the real world, the meta, is thin. It tends to be that metaverse is closer to a big game than to an actual metaverse.

In theory, meta will be a place where society spends most of their time, with relationships, community, finances, meetings, business, identity, entertainment all tied together in such a way that it becomes arguable that the virtual world matters as much, or is even "more real" than the actual physical world. This includes VR and AR implementation as well, so that the blend of real vs virtual is "virtually" indestinguishable.

Of course, this is a sliding scale, and some live in the virtual world to such an extent that they might say they already live in the metaverse. However, at present, it's a buzzword, and it's maturity and potential is under constant debate.

Example of Metaverse: Bit.Country https://bit.country/

Now, what is changing in the future of NFT space?

Well, everything. Right now, we're in the infancy stages of NFTs. Society has grabbed onto NFT culture far faster than most ever expected, probably because of how relatable images are, and the idea of true ownership of your belongings (digital or not), but there are significant limitations of the technology at present.

Most NFTs exist on Ethereum, which has shown so much congestion that the price to do anything with an NFT could be 50-200 dollars. This includes transfers, buying/selling, or otherwise. In theory, this will be dealt with, but there are many other obstacles as well to NFTs that live on Ethereum which includes transaction speed, customizability, storage capacity, complexity, compatibility, and interactability.

RMRK is a new NFT standard built on Kusama which will allow far more complexity to what NFTs can do.

For instance, having nesting--which is the ownership of an NFT by another NFT, is a big need in the gaming industry such that gaming items can be equipped to characters. Having interoperability to many chains makes it far easier to access, and being able to evolve your NFTs over time creates a relationship with the owner and the NFT in a way that the time spent developing your NFT's complexity can showcase your investment of time and effort into the NFT.

Beyond RMRK as a standard, NFTs continue to challenge the structures of society that we've all come to accept, whether it be socially, in entertainment and art, or in finance. This technology, as soon as it becomes familiar to most, will disrupt every industry, and it's only a matter of time for the expansion of the NFT's utility comes to fruition.

KSM Donations can be sent to: D8WrK1jsFy9zpFwFZStaDTmX32pMZVdwXTm5rt9LsRKBQrz