NFTs: CryptoPunks to the 2021 mania

Wonder

1. How does a line of code make two identical images different?
2. Why did a game about virtual cats bring a major blockchain to its knees in late 2017?
3. What happens when trading volume peaks and then collapses within months?

Explore

1. Before standardization, every token project wrote custom code. ERC-20 solved this for fungible assets by defining a universal interface: transfer, approve, balanceOf. But 1 BTC equals any other 1 BTC; a specific painting does not equal another. Non-fungible tokens (NFTs) assign a unique identifier to each unit. EIP-721, finalized in 2018, standardized this distinction. It tracks ownership per ID, allowing metadata to differentiate assets while remaining interoperable with wallets and exchanges.
2. In June 2017, Larva Labs released CryptoPunks: 10,000 algorithmically generated pixel characters on Ethereum. Anyone with an Ethereum wallet could originally claim one for free, paying only the transaction fee. This project predated the formal ERC-721 standard but established the cultural template for collectible digital assets. In November 2017 the studio Axiom Zen (later spun out as Dapper Labs) launched CryptoKitties. Its breeding mechanics drove such high transaction volume that it congested the Ethereum network, occupying a significant portion of block space and inspiring developers to finalize the ERC-721 specification to manage this complexity.
3. The technical architecture separates ownership from content. The smart contract resides on-chain, recording which wallet address owns token ID #5000. However, storing large image files directly in the blockchain is prohibitively expensive due to gas costs. Therefore, most NFTs point to a Uniform Resource Locator (URL) or InterPlanetary File System (IPFS) hash where the actual media resides. If that external storage fails or changes, the token remains but its visual representation may break or shift.
4. In March 2021, Christie’s auction house sold Beeple’s ‘Everydays: The First 5000 Days,’ a digital collage, for approximately $69.3 million. This high-profile sale brought NFTs into mainstream financial discourse. Simultaneously, Bored Ape Yacht Club (BAYC), launched by Yuga Labs in April 2021, emerged as a status symbol. Holding an ‘ape’ granted access to private communities and events, decoupling the asset’s value from its intrinsic utility and linking it instead to social capital and speculative demand.
5. By early 2022, trading volumes on marketplaces like OpenSea peaked before collapsing sharply. The mania was fueled by speculation, celebrity adoption, and easy access via low-friction wallets. Recurring issues surfaced: wash trading, where entities bought from themselves to inflate volume metrics; disputes over creator royalties, which marketplaces collected voluntarily and buyers could avoid by trading elsewhere; and the fragility of off-chain storage. Many projects launched on promises in ‘roadmaps’, echoing the white papers of the 2017 ICO boom.
6. The Rare Pepe cards on Counterparty (from 2016) were a forerunner, demonstrating that non-fungible assets could trade on existing blockchains. However, Ethereum’s Turing-complete environment allowed for more complex interactions. The 2021 cycle illustrated the tension between digital scarcity and physical utility. While the blockchain guarantees provenance and ownership transfer, it cannot guarantee the cultural or financial persistence of the asset itself. The market corrected rapidly as speculative excess faded.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• W. Entriken, D. Shirley, J. Evans & N. Sachs, EIP-721: Non-Fungible Token Standard (2018)
• Larva Labs, 'CryptoPunks' documentation and history
• Christie’s auction record for Beeple's 'Everydays: The First 5000 Days' (March 2021)