{"id":22837,"date":"2022-05-25T21:17:21","date_gmt":"2022-05-25T21:17:21","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=22837"},"modified":"2022-09-08T09:52:01","modified_gmt":"2022-09-08T09:52:01","slug":"the-prehistory-of-nfts","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2022\/05\/25\/the-prehistory-of-nfts\/","title":{"rendered":"The prehistory of NFTs"},"content":{"rendered":"

by Amy Castor and David Gerard<\/em><\/p>\n

This is a draft of part one of the history chapter for our planned NFT book. Corrections and nitpicking are most welcomed!<\/p>\n

This stuff is a bit tangential to NFTs and we may cut a lot of it later.<\/p>\n

Part two will be over on Amy’s blog. Don’t forget to sign up for Amy’s Patreon! [Amy Castor<\/a>; Patreon<\/a><\/em>]<\/p>\n

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How did the NFT grift begin? Like so many things in crypto, it didn\u2019t happen overnight \u2014 it evolved.<\/p>\n

In January 2009, bitcoin debuted with little fanfare. There were no cryptocurrency exchanges, and bitcoins weren’t really worth anything. You could barely give them away.<\/p>\n

In May 2010, someone bought two pizzas<\/a> for 10,000 bitcoins \u2014 and even then, he just sent the bitcoins to another bitcoin user who bought the pizzas for him. But the \u201cbitcoin pizza\u201d was huge news at the time, and is still celebrated by bitcoiners today as a landmark event in cryptocurrency history.<\/p>\n

Two months after bitcoin pizza day, a programmer named Jed McCaleb decided bitcoin needed a single place to connect buyers and sellers. He created Mt Gox, the first bitcoin exchange. A year later, McCaleb sold the exchange to Mark Karpeles, who lived in Tokyo. Since you could wire cash directly to Mt Gox and set up an account, it became much easier to buy and sell bitcoin, and bitcoin started to go up in value.<\/p>\n

By early 2014, Mt. Gox went bankrupt, with 850,000 bitcoins missing\u00a0 \u2014 200,000 were later found \u2014\u00a0 but before that, bitcoiners were very excited about the price of bitcoin going up! It climbed to an early high of $1,242 in November 2013.<\/a><\/p>\n

A growing flock of crypto enthusiasts saw an opportunity to use the bitcoin blockchain to keep tabs on items other than digital money. They started coming up with ideas on how to use bitcoin to track things like domain names, property deeds \u2014 and even art.<\/p>\n

Bitcoin\u2019s software is open source, so most of these platforms were either based on bitcoin\u2019s code or built atop the bitcoin blockchain. Every new idea came with its own magical new private money. At the end of the day, crypto is all about creating your own money and getting rich for free.<\/p>\n

Hal Finney<\/h3>\n

The earliest ideas for NFT-like concepts came along even before bitcoin.<\/p>\n

The first mention of something that worked like an NFT dates back to the 1990s, when a group of privacy activists known as the \u201ccypherpunks\u201d were thinking of electronic money \u2014 specifically, e-money that could circumvent the government, so they wouldn\u2019t have to pay taxes.<\/p>\n

In January 1993, cryptographer Hal Finney suggested \u201ccryptographic art,\u201d<\/a> in the form of trading cards as a way to sell cryptographers the idea of an anonymous form of digital cash:<\/p>\n

Notice the fine way the bit patterns fit together \u2014 a mix of one-way functions and digital signatures, along with random blinding. What a perfect conversation piece to be treasured and shown to your friends and family.<\/p><\/blockquote>\n

Finney later helped bitcoin\u2019s pseudonymous creator Satoshi Nakamoto beta-test his new digital money software, and was an enthusiastic bitcoin advocate before his death in 2014.<\/p>\n

(Finney\u2019s unimplemented proposal is probably too trivial for the book. But we thought the completists might like it for the blog version.)<\/p>\n

Namecoin<\/h3>\n

The first project to try to use blockchain tokens to represent something other than money was Namecoin, launched\u00a0 in 2011.<\/p>\n

Namecoin was based on the bitcoin codebase. It was a decentralized domain name system, or DNS, where you could register and manage website names with the top-level domain .bit served by the Namecoin infrastructure. \u201cNames\u201d were represented by unique tokens on the blockchain. The idea was to create domain names that were uncensorable, so no government could shut them down.<\/p>\n

It cost nothing to register a domain on Namecoin. So users grabbed domain names left and right in the hope they might be valuable in the future. At one point, someone registered every noun in the dictionary.<\/a><\/p>\n

In 2015, a study of Namecoin<\/a> showed that only 28 of the 120,000 domain names registered in Namecoin were in use.<\/p>\n

Colored coins<\/h3>\n

“Colored coins” proposed to take a few satoshis (the smallest fragment of a bitcoin \u2014 one one-hundred-millionth of a bitcoin) and \u201ccolor\u201d or tag them with a unique symbol. These \u201ccolored coins,\u201d unique coins in their own right, could then be used to represent real-world assets.<\/p>\n

Note that you could never actually put the real-world asset on the blockchain. The only \u201cdecentralized\u201d thing was always the token.<\/p>\n

By this time, a 19-year-old Russian-Canadian named Vitalik Buterin had abandoned his university studies to travel the world and study bitcoin. He was disillusioned by World of Warcraft, as his favorite character’s powers had been cut down<\/a>.<\/a> He wanted to pursue something new.<\/p>\n

Buterin teamed up with fellow bitcoiners Meni Rosenfield, Assia Yoni, \u00adLior Hakim, and Rotem Lev. Together, they wrote the Colored Coins whitepaper<\/a> in late 2013. The paper mentions \u201cdigital collectibles,\u201d including art:<\/p>\n

Decentrally managing ownership of digital collectibles such as original artworks \u00adjust like art collectors buy and sell original copies of famous paintings for millions of dollars today, colored coins allow us to do the same with purely digital objects, such as songs, movies, e\u00adbooks, and software, as well, by storing the current owner of the work as a colored coin on the blockchain.<\/p><\/blockquote>\n

Mastercoin<\/h3>\n

Namecoin made a new cryptocurrency by copying the bitcoin code and tweaking some parameters. Others realised they could do the same, and many created their own magical internet money. These “altcoins” became increasingly popular.<\/p>\n

The altcoins all promised to do something bigger and more spectacular than bitcoin. They were, of course, almost all just made-up magic beans for speculation. Developers would launch a coin and keep a pile of \u201cpremined\u201d tokens as a way to pay themselves and cover the costs of marketing. If the coin went up in value like bitcoin, they too could get rich!<\/p>\n

But every time you wanted to launch a new coin, you had to bootstrap an entirely new blockchain. This was a lot of work. Wasn\u2019t there an easier way to make up some free money?<\/p>\n

In July 2013, Mastercoin introduced a solution. You could create new cryptocurrencies with new rules on how they operated \u2014 on the bitcoin blockchain.<\/a> You no longer had to launch a new blockchain.<\/p>\n

Similar to colored coins, Mastercoin was sold as a way to track assets on the blockchain \u2014 commodities, stocks, bonds, and currencies. You could create a new token on the Mastercoin platform and it would become a stand-in for that asset. Of course, anyone who owned the token had to trust that you were backing it with the underlying asset you said you had.<\/p>\n

Mastercoin raised $500,000 in bitcoin with what is commonly regarded as the first initial coin offering (ICO).<\/p>\n

A major limitation with Mastercoin was that you could create new currencies, but you couldn\u2019t create more complex rules around those coins. By the end of 2014, the platform\u2019s native token, mastercoin (MSC), was nearly worthless.<\/p>\n

Mastercoin rebranded to Omni in early 2015. Omni became best known as the platform for the \u201cstablecoin\u201d token Tether \u2014 a popular dollar-pegged stablecoin with dubious backing. Today, there are more than 70 billion tethers in circulation, and nobody is too sure if there\u2019s $70 billion in actual dollars or assets there to support the tethers.<\/p>\n

Counterparty<\/h3>\n

Smart contracts are bits of computer code that run on a blockchain. You can think of smart contracts in terms of \u201cif-then\u201d statements \u2014 I\u2019ll pay you X, if Y happens first.<\/p>\n

Counterparty<\/a> was founded in January 2014 by Robert Dermody, Adam Krellenstein, and Evan Wagner. Like Mastercoin, it allowed users to create new coins running atop the bitcoin blockchain \u2014 and it had some smart contract capabilities.<\/p>\n

Counterparty had its own native currency, XCP, which was used to pay for the performance of smart contracts. It also had its own crypto wallet and a decentralized exchange, where users could trade the coins they created.<\/p>\n

Counterparty became the platform for many early ICOs. In 2014, Counterparty was part of a plan by Overstock to issue and trade securities on a blockchain. The initiative, originally named “Medici,” eventually became Overstock’s tZERO.<\/p>\n

Ethereum<\/h3>\n

Vitalik Buterin, who had also contributed to Mastercoin, was growing increasingly frustrated with the limitations of the projects hoping to extend bitcoin. They were all trying to get bitcoin to do something it wasn\u2019t really designed for. Bitcoin\u2019s scripting language was limited, so you could only write simple smart contracts.<\/p>\n

Buterin had ideas for using a blockchain to do all kinds of things, including savings wallets, crop insurance, prediction markets, peer-to-peer gambling, and decentralized exchanges.<\/p>\n

So he came up with the idea for a new blockchain \u2014 one with its own programming language,<\/a> called Solidity. If bitcoin is like a spreadsheet, Ethereum is like a spreadsheet with macros.<\/p>\n

With the help of four other founders, Buterin launched Ethereum on July 30, 2015.<\/a><\/p>\n

Ethereum\u2019s pitch has always been ridiculously aspirational \u2014 it\u2019s a \u201csmart contracts platform.\u201d It\u2019s a \u201cworldwide distributed computer.\u201d Ethereum co-founder Gavin Wood called it \u201cWeb 3.0.\u201d Venture capitalists would later take the term \u201cWeb3\u201d and use it to promote NFTs.<\/p>\n

The first popular use case for Ethereum was as a launchpad for unregistered penny stock scams. “Buy our pre-mined altcoin\u201d was replaced with \u201cbuy our ICO token\u201d \u2014 an even simpler way to create your own magical internet money.<\/p>\n

ICOs would raise funds for a claimed enterprise, which might or might not make sense; the real pitch was “buy this and we all get rich for free.” By 2017, projects based on loose ideas and hastily scribbled whitepapers were raising tens of millions of dollars in bitcoin or ether in the blink of an eye. The SEC came down hard on ICOs, and they had largely disappeared in the US within a few years.<\/p>\n

Because Ethereum made it so easy to launch tokens, the platform became the launchpad for thousands of ICO tokens from 2017 to 2018, helping push bitcoin into its second big bubble. Over the course of 2017, the value of one bitcoin climbed from $806 in January to nearly $20,000 by the end of the year.<\/p>\n

Ethereum developed token standards: ERC20 for fungible tokens, and later ERC721 for nonfungible tokens. Because these tokens were developed with a standard, they could be instantly incorporated into the entire crypto ecosystem \u2014 digital wallets, crypto exchanges, and NFT platforms.<\/p>\n

This meant that new tokens were easily tradable, sometimes from the moment they launched. Free money became that much easier, and more people started getting into the game \u2014 including venture capitalists, who saw an easy path to cashing out on their investments.<\/p>\n

Ethereum would eventually become the main platform for NFTs and NFT marketplaces.<\/p>\n

NFTs finally hit the big time in late 2017, near the peak of the bitcoin bubble, with the launch of CryptoKitties. But there were a few other attempts at NFT-like crypto assets before the cat pictures that took down Ethereum.<\/p>\n

 <\/p>\n

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This is a draft of part one of the history chapter for our planned NFT book. Corrections and nitpicking are most welcomed!<\/p>\n","protected":false},"author":1,"featured_media":22869,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[2970,2976,460,2969,21,2967,2974,82,2977,231,266,9,91,90,2972,2968,88,2966,2020,2973,106,2975,2971,83,39,1435,264,2602],"class_list":["post-22837","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorised","tag-lior-hakim","tag-adam-krellenstein","tag-amy-castor","tag-assia-yoni","tag-bitcoin","tag-colored-coins","tag-counterparty","tag-ethereum","tag-evan-wagner","tag-gavin-wood","tag-hal-finney","tag-ico","tag-jed-mccaleb","tag-mark-karpeles","tag-mastercoin","tag-meni-rosenfield","tag-mt-gox","tag-namecoin","tag-nft","tag-omni","tag-overstock","tag-robert-dermody","tag-rotem-lev","tag-smart-contract","tag-tether","tag-tzero","tag-vitalik-buterin","tag-web3"],"jetpack_featured_media_url":"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2022\/05\/ethereum-promo.jpg","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/22837","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/comments?post=22837"}],"version-history":[{"count":47,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/22837\/revisions"}],"predecessor-version":[{"id":23816,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/22837\/revisions\/23816"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media\/22869"}],"wp:attachment":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media?parent=22837"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/categories?post=22837"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/tags?post=22837"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}