By Amy Castor and David Gerard
NFT.NYC is next week, so here’s part four of the first draft of an early history chapter for our planned NFT book.
We welcome corrections and nitpicking — particularly as we didn’t manage as yet to get in touch with Matt Hall or John Watkinson, the creators of CryptoPunks. If either of you see this, please ping us!
- Part 1: Early NFT platforms
- Part 2: Monegraph, Spells of Genesis, Rare Pepes
- Part 3: Curio Cards
- We also wrote up NBA Top Shot, the only sports NFT that went anywhere.
The full interview with Adam McBride, mentioned in this post, is up on our Patreons for subscribers. It’s a great 5,000-word historical rundown.
Six weeks after Curio Cards launched, a new crypto collectible was created — one that would serve as a template for future projects to come.
Matt Hall and John Watkinson, two Canadian coders living in Brooklyn, New York, were inspired by the Rare Pepes to create CryptoPunks, from their company Larva Labs. They were also fans of combat card game Magic: The Gathering.
The CryptoPunks are 10,000 algorithmically created pixel avatars, each represented by a crypto-token on the Ethereum blockchain. The project was initially launched on June 9, 2017.
As CurioCards did before them, Hall and Watkinson had to write their own smart contract code to implement the Punks’ tokens, tweaking the existing ERC-20 standard used by ICO tokens. (NFT standards ERC-721 and ERC-1155 wouldn’t come along until later.)
The art for CryptoPunks wasn’t much to speak of. The Punks resembled two-dimensional sprite images from a 1980s video game.
But for Hall and Watkinson, this was an experiment in scarcity and demand. The idea was that some Punks would trade for more based on certain traits and characteristics. Most Punks are boys and girls (more boys than girls, in fact), but they mixed in a few aliens, apes, and zombies.
They had been fiddling with an avatar generator to create digital representations of characters. They came up with an algorithm to compose 24×24 pixel portraits with a selection of attributes, such as hairstyle, glasses, beards, and hats, to make each Punk unique.
It would have been too costly to put the art itself onto the blockchain — the Ethereum transaction fees would have been too high — so every Punk contract contained a hash of a composite image of all 10,000 Punks, basically a grid of all the tiny pixelated faces. The full image was stored on a Larva Labs server.
If you wanted to see your individual Punk, you would type the number of your Punk into the Larva Labs’ website. Other than that, you just owned a token. Later, CryptoPunks claimed to have changed this and put the actual images of the Punks on the blockchain. But since they claimed the copyrights of the images, you still only owned the token.
The Larva Labs website also featured a marketplace for trading Punks. Third-party NFT platforms like OpenSea didn’t exist yet, so early NFT projects (they were referred to as “crypto art” and “digital collectibles” back then) like Rare Pepes, Curio Cards, and CryptoPunks had to build the buy-and-sell mechanisms into the smart contracts themselves, and create their own marketplaces — websites that would interact with the code on the blockchain.
The first CryptoPunks were given away for free. Larva Labs kept a thousand Punks for themselves (Punk 0 to Punk 999) and put nine thousand up for grabs on their website. All you needed to get a Punk of your own was an Ethereum wallet, such as Mist or Metamask, and enough ether to cover the transaction, or “gas” fee, which was somewhere between 11 cents and a dollar — dirt cheap at the time.
“It was different from buying NFTs today,” NFT archeologist Adam McBride told us. “You were early if you were into Ethereum in 2017. You had to get a wallet. A lot of people were using different wallets, and there were all these weird interfaces. Nothing was easy.”
Hall and Watkinson announced their project on Reddit. In the days that followed, only twenty or thirty Punks were grabbed, with people taking the rarest Punks — the aliens and apes — first. “Somebody showed up and took all of the aliens,” Matt Hall said.
At the time, most of the crypto world was focused on initial coin offerings — unregistered penny stock offerings on the blockchain — and nobody was much interested in digital collectibles. But after a story on CryptoPunks ran in Mashable on June 16, 2017, with the headline, “This Ethereum-Based Project Could Change How We Think About Digital Art,” the entire available CryptoPunks collection was snatched up within twenty-four hours.
“That was super cool, because when we started this, we didn’t even know if anybody would care at all,” said Hall. Some people helped themselves to hundreds of Punks.
Once all of the free Punks were all taken, a secondary market developed. But those trying to sell their Punks quickly ran into a problem. Due to a bug in the smart contract, after purchasing a Punk, the money would go back to the buyer — leaving the seller with nothing, not even their Punk. [Twitter]
“We thought we had blown it,” Hall said.
At least 82 Punks were “stolen” this way, according to Twitter user hemba — who claims he took 69 V1 Punks himself by taking advantage of the exploit. (He also said he gave some back.) However, Hall and Watkinson told Wired that only a dozen people were burned by the exploit.
The CryptoPunks smart contract was the first Solidity code that Hall and Watkinson had ever written. They learned the painful lesson of errors in coding on the blockchain: once the code is uploaded, it’s there to stay. You can’t edit or undo it. This mistake would return and haunt them again five years later.
On June 17, a day after the Mashable article ran, Larva Labs tweeted out an urgent warning to Punk holders: “DO NOT SELL YOUR PUNKS.” Five days later, Larva Labs “re-minted” all of the CryptoPunks (V2) and airdropped them back to the original owners. The new code included bidding, so that potential buyers could indicate serious interest in a Punk. It worked like an escrow, where the ether was actually sitting in the contract for the seller to claim if they accepted the offer.
After that, everyone seemed to forget about the mess with the V1 Punks, and went on to focus on the V2 Punks instead. Media articles detailing the history of Punks frequently state June 23, 2017, as the official launch date of the project — as if the initial botched launch never happened.
Once the marketplace was up and running, Larva Labs launched a Discord channel, where Punk enthusiast could talk about various Punks and share ideas for new collectible projects. Initially, there was a small flurry of trading. Prices of Punks went from a few dollars to a few hundred dollars. On July 1, an alien sold for $2,680 in ether.
But in the years that followed, CryptoPunks faded into the background. After reaching a high of $20,000 in late 2017, bitcoin was on its way down in 2018. Several early NFT projects were abandoned during the “crypto winter” of 2019 and 2020. But CryptoPunks sauntered along, kept alive by a small band of enthusiasts in the Discord channel.
In April 2019, Watkinson and Hall released Autoglyphs, a generative art project — but this time, the generator was in the smart contract. But the generator shut itself off after creating a mere 512 glyphs. [NFT Evening]
In September 2020, the crypto world started to take notice of NFTs — now officially referred to as “NFTs,” after the ERC-721 standard came about in late 2017 — and interest in CryptoPunks began to perk up.
Just before Christie’s closed the bidding on the Beeple NFT in March 2021, two alien Punks (Punk #7804 and Punk #3100) sold for $7.5 million in ether each. In June 2021, a blue-skinned Punk with a mask (Punk #7523) known as “covid alien” sold for $11.5 million in crypto at Christie’s. The buyer was billionaire Shalom Meckenzie, the largest shareholder of fantasy sports betting company DraftKings.
At the height of the NFT boom, Larva Labs’ founders reaped the rewards of getting into the NFT business early. Of their original 1,000 holdings, they sold nine Punks on Christie’s for $16.9 million in ether.
The opportunity for hauling in tens of millions of dollars during this period seemed endless. Only a week before, on May 3, 2021, Hall and Watkinson had launched another collectibles project: Meebits with a supply of 20,000. Free Meebits went to existing Punk and Autoglyph holders, while 9,000 were sold in a Dutch auction (where you start at a high price and reduce it until you get a sale), netting Larva Labs $80 million in ether. [Tweet; The Defiant]
CryptoPunks were hot enough that in August 2021, Visa Corporation tweeted about buying Punk #7610. [Twitter]
Everything seemed to be going well for Larva Labs until mid-2021, when a small group of developers revived the old V1 Punks. They wrapped the V1 Punks in a new smart contract — one that fixed the original bug — to make them tradeable as an ERC-721 contract on popular NFT marketplace OpenSea. By this time, V2 Punks were also tradeable on OpenSea.
Twitter user Foobar claims to have created the first wrapper for the V1 Punks on March 25, 2021. Hemba, who had admitted to stealing dozens of the original V1 Punks, cloned Foobar’s wrapper in 2022 and created another wrapper — which also had an exploit in it, letting the buyers steal everything, according to Foobar.
“Imagine getting your v1 punk stolen by hemba in 2017, buying it back in 2022, and then hemba steals it again,” Foobar said on Twitter. Hemba denied this on Twitter, saying he just wasn’t a fan of some of Foobar’s design decisions.
In early 2022, Larva Labs tried to blacklist the budding V1 project — but not before the founders had a chance to dump a few of their own V1 Punks. (Larva still owned 1,000 V1 Punks, just as they originally owned 1,000 V2 Punks.) Watkinson wrapped and sold 40 V1 Punks for 210 ETH, worth $622,000 at the time, via a pseudonymous wallet.
The CryptoPunk community was furious. They felt V1 was dilutive to the value of their “authentic” V2 Punks. Hall and Watkinson tried to backpedal: “We feel like we’ve had a well-principaled approach to the CryptoPunks project from the very beginning up until the moment we did this stupid thing,” they said on Discord. [Cointelegraph, Feb 2, 2022]
Hall and Watkinson proceeded to denounce the V1 project on Twitter: “V1 Punks” are not official Cryptopunks. We don’t like them, and we’ve got 1,000 of them… so draw your own conclusions.”
Larva Labs said the money from selling their V1 Punks would be put into buying V2 Punks and Meebit, thereby boosting the value of those projects. They also said they would match the money they made dumping their V1 Punks, and send it to the Rainforest Foundation — the ghastly CO2 output of the Ethereum blockchain having become a subject of discussion every time NFTs were mentioned around this time.
Larva then tried to enforce their copyright against the V1 Punks, issuing DMCA takedown notices for wrapped V1 Punks on OpenSea. The V1 Punks community fought back. “Velinova.eth” said that the V1 Punks community had spoken to a “top-tier IP attorney from the U.S.” The V1 holders got the V1 Punks put back up on OpenSea for a short while before they were removed from the site again. [Tweet; Tweet; Cointelegraph]
Eventually, the V1 project solved the problem by launching its own marketplace powered by Rarible.
Some people felt that Larva Labs’s handing of the V1s, only served promote the project further. “Larva Labs fumbled the ball completely, and actually did the V1 community huge favor,” McBride told us. “They tweeted about it in a really incredibly poor way. And this generated so much buzz around it that it actually launched V1 Punks. It was critical to their success that Larva Labs actually FUDed it [“Fear, Uncertainty and Doubt”] and that brought a whole bunch of attention to the V1 Punks.”
By February 2022, the CryptoPunks market was cooling down — along with the rest of the NFT market. Sotheby’s announced the auction of a batch of 104 CryptoPunks, which Sotheby’s titled “Punk It!,” aiming to fetch $20 to $30 million. The lot had been acquired by collector “0x650d” in July 2021 through a single $7 million transaction.
“Today, I’m excited to announce my partnership with @Sotheby’s to create the highest-profile NFT sale of all time,” 0x65d tweeted on February 8. Twenty-three minutes after the action began, he canceled it due to a lack of bids: “nvm, decided to hodl.” [Tweet, archive]
In August 2021, Larva Labs signed with United Talent Agency so that its NFT projects could “enter a broader entertainment space” — though nothing ever came of this. [Hollywood Reporter]
On March 11, 2022, Yuga Labs, the creators of the Bored Apes project, acquired all of the CryptoPunks IP and announced they were giving full commercial rights to CryptoPunks owners. On May 7 2022, the transfer was completed, and the whole CryptoPunks marketplace moved to the new Yuga Labs-owned website.
Yuga Labs now had a monopoly on the top NFT collectible projects: CryptoPunks, Meebits, and all of the Bored Ape Yacht Club’s affiliated NFTs.
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