How An NFT Experiment Became a $100 Million Success

NFTs are everywhere.

8-bit pixels and apes are now worth as much as masterpieces in museums.

Yet, how did this form of digital art rise to prominence?

In this article, we’ll be looking at one of the most iconic NFT collections: CryptoPunks.

Currently, the entire CryptoPunk collection of 10,000 NFTs has a total value of about US$100 million.

How did these 24×24 characters become one of the most iconic NFTs today?

It all started as an experiment

It is 2017 and the crypto scene was buzzing with new initial coin offerings (ICOs). New coins were popping up every other day. NFTs were practically unheard of.

One software company, Larva Labs studio, would change that with its innovative use of blockchain. In June 2017, John Watkinson and Matt Hall from Larva Labs had an idea.

It began when Watkinson experimented with a pixel character generator, which produced multiple interesting characters. How could they sell these digital images of characters?

Ethereum was the perfect solution. Putting them onto the blockchain made these pieces of art ownable and unique. The two developers came together to launch the CryptoPunks.

What was the experiment?

Co-founder Matt Hall expressed that it was an experiment from two perspectives: technical and psychological.

From a technical point of view, they had to think about the “best way to represent art on the blockchain”.

They were so early that there was no protocol for NFTs. They had to modify the common ERC-20 code, which is what most Ethereum-based tokens are running on.

Today, we recognise ERC-721 as the standardised protocol for NFTs. The duo’s project is recognised as the inspiration for the NFT Ethereum standard.

Since most NFT marketplaces today can only transact ERC-721 tokens, there are 3 ways to transact CryptoPunks:

• On a marketplace built by LarvaLabs
• On a NFT marketplace that supports ERC-20
• “Wrap” the CryptoPunks into a ERC-721 token

From a psychological perspective, it was not known if people could feel like they owned a piece of a digital art piece. Could people recognise the ownership of digital art on a blockchain?

Physical art that hangs on the wall feels different from digital art that is on a screen.

To kickstart the project, they gave 9,000 NFTs for free and kept the other 1,000 for themselves “in case it became something”.

It sure did.

Traction began with this Mashable article

The project started to gain attention, mainly due to a Mashable article, titled “This ethereum-based project could change how we think about digital art”.

From there, the project took off.

As long as you have an Ethereum account, you can redeem one of the punks. The NFT is free but people who would like to claim it has to pay transaction fees on the Ethereum network (or gas fees). At that time, the gas fees were about US$0.11.

What’s special about CryptoPunks?

Firstly, each character was created algorithmically to be unique. 10,000 characters were created by a software program to have a mix of attributes.

Each attribute, such as the type of hats or sunglasses, have a specific rarity. The algorithm generated the degree of rarity.

No two CryptoPunks are exactly alike. Each of them can only be officially owned by a single person on the Ethereum blockchain.

Secondly, they were limited in supply. Only 10,000 punks can ever be created. If anyone were to create an NFT with the same punk image, it will not be recognised as the original punk. The creators and origin of an NFT can be easily searched and verified on the blockchain. Even if the NFT looks the same, it does not have the same origin and data information.

Due to their exclusivity and uniqueness, these punks are essentially limited edition collectables.

Version 1 CryptoPunks

The code did not run smoothly the first time.

A bug allowed the buyer to have the Punk and his coins back, essentially paying nothing.

A key feature of blockchain is that past transactions can never be changed, not even as an admin. The records are immutable. This posed a problem when there is an error in the code, like in this case.

There was a solution. The founders decided to switch to a new version. Luckily, it was early in the project and the developers could convince everyone to switch to another chain. Since nothing could be changed on the original blockchain, version 1 CryptoPunks are still available.

That’s the beauty and the bane of using a blockchain.

Since then, there were no further coding issues. However, there are ongoing copyright issues that surround this v1 versus v2 situation. Even though Larva Labs denounced the validity of v1 CryptoPunks, they recently sold the “wrapped” punks for 210 ETH. This angered the community.

The representatives have since apologised.

If you decide to buy CryptoPunks, do check if the punks are v1 or v2. In case you buy v1 when you intend to buy v2.

Who owns CryptoPunks?

At its launch, 9,000 of the CryptoPunks were given out for free. Just 6 years after its release, the lowest price for a CryptoPunk is now more than US$200,000.

Famous people who own CryptoPunk

The owners of CryptoPunks range from big-name celebrities like Jay-Z to influencers like Logan Paul.

Famous artists, like Jay-Z and Jason Derulo, have CryptoPunk as his Twitter profile photo. Increasingly, Twitter users have been using these characters on NFTs. Twitter even pushed out a feature to verify that you own the NFT that is your character.

In addition, Youtuber Logan Paul revealed his US$170,000 purchase of CryptoPunks on a video in March 2021.

It turns out that Gary Vee, called his famous friends such as MrBeast and Logan Paul who have a huge following. He allegedly told them CryptoPunk is “the next Facebook” and they should get on board. By doing this, he artificially generated hype and demand for CryptoPunks.

With their money and influence, this likely further drive up prices of CryptoPunks.

Companies that own and trade CryptoPunks

Other than famous individuals, these characters have garnered the attention of institutions such as Visa and Sothebys.

Sotheby’s displays and auctions fine art. By including NFTs into their collections, it shows that they consider NFTs as the next frontier of art.

Their status in the crypto ecosystem and — more recently — the fine art world has evolved CryptoPunks into a signifier of legitimacy and identity for their holders.

– Sothesby’s on CryptoPunks

Visa recently bought an NFT as well.

Terry Angelos, Visa’s head of fintech considers it “a piece of commerce memorabilia that we wanted as part of our collection.”. Angelos also thinks that NFTs have the potential to be the new payment software that allows consumers to earn rewards. Since NFTs can represent ownership, they can also be a means of membership.

For Visa, it was less of an investment, but more of a collectable.  

With more companies buying and trading CryptoPunks, it is giving the project more legitimacy.

Most Expensive CryptoPunks

In total, the NFTs in circulation are worth close to 100 million.

The most expensive CryptoPunks are:

On the Larva Lab official website, the most expensive CryptoPunk is an alien punk, #5822.

However, there is a catch. It was being sold and bought by the same person through leverage.Deepak Thapliyal, CEO of Chain, was the seller and buyer. The punk was sold from one crypto wallet to another wallet, which both belong to him.

Through CompoundFinance, he could use leverage to purchase this piece of digital art.

The second most expensive punk is Punk #3100 (according to Larva Lab).

To put it into perspective, the punk above is in exact 24×24 pixels. This tiny piece of digital image was sold for more than US$7.5 million in March 2021. You can now buy this punk for an outlandish 35,000 ETH, which is equivalent to US$100 million.

Outside of the official marketplace, another expensive CryptoPunk was on sale for US$11.5 million. It was auctioned through Sotheby’s. Unsurprisingly, it is another rare alien punk.

Moving forward

Larva Labs studio launched their new project Meebits in 2021, focusing on the metaverse ecosystem.

Is it a scam? Is it just hype? Only time will tell. For now, the momentum in the NFT market is unstoppable.

The NFT market is worth close to US$50 billion in 2021 and is forecasted to grow to a market of US$130 billion. Currently, the fastest-growing applications are in gaming and collectables.

Conclusion

A project that started off as an experiment, is now worth close to US$100 million.

We’re coming up on two years of the CryptoPunks launch. We thought CryptoPunks might be just a blog post, a couple weeks of interest and the end of it – and it’s still going strong.

Matt Hall (April, 2019)

Personally, it was interesting to watch it develop from a fun coding project to being on the walls of famous art galleries around the world.

I leave you with this quote from the iconic Mashable article:

Someday, owning a CryptoPunk might signify just how early of an adopter you were into the world of Ethereum and its thriving digital art scene. Or, they could just be a bunch of images.

Mashable, 2017

You can also view my thoughts while researching for this article on Medium.