Why will CryptoPunks usher in a Cambrian explosion?

This article was published on ChainNews, author: Ben Roy, translated by Lu Jiangfei.

As non-fungible tokens (NFTs) continue to evolve, whether on Ethereum or various other blockchains, I believe that CryptoPunks can capture more value than any other digital art or collectibles.

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However, before delving into why I hold this belief, it is necessary to explain some industry terminology.

Non-fungible tokens are a type of cryptocurrency asset that represents unique (or "irreplaceable") digital goods (such as artwork or video game items). Like Bitcoin or Ether, these cryptocurrency assets can be held in a non-custodial and censorship-resistant manner, with proof of ownership stored on a public blockchain.

CryptoPunks is a collection of 10,000 digital characters, which vary in rarity based on their type (such as alien, ape, zombie) and attributes like headgear, facial hair, and hoodies. As one of the original collectibles in the NFT space, the emergence of CryptoPunks marked an important step forward in the development of the ERC-721 token standard—it's worth noting that the ERC-721 standard is the primary "file type" used by most NFT projects today.

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Although NFTs are just getting started, there are already people willing to pay large sums of money for these "PNG files created solely from pixel art," which sounds quite crazy—because some industry critics argue that if someone likes these CryptoPunks, can't they just right-click and save the image?

I completely understand the mindset of those who think this way, as they overlook some nuances in artistic value that are actually very important.

Now, let's compare NFTs with so-called "real" art.

It is well known that the works of great painter Vincent van Gogh are expensive, with many of his pieces selling for millions of dollars over the past decade. At the same time, because I like van Gogh, I have a famous piece of his—"Sunflowers"—displayed above my kitchen table since childhood, as I find it beautiful. But the problem is, I cannot sell this painting because it is a reproduction, and thus worth nothing.

What does this illustrate? The value of art (at least from a monetary perspective) is entirely based on the verifiable ownership of the original, rather than merely its aesthetic appeal. If someone owns an original piece by a famous artist, they gain a certain status. Wealthy individuals collect art and preserve its value based on this assumption. In fact, this situation has always existed and is one reason why so many artworks are traded in free ports around the world without anyone needing to see the art in person.

"Sunflowers," Fourth Version, Vincent van Gogh, 1888

Now, let's return to CryptoPunks. The novelty of CryptoPunks lies in the fact that they are among the first digital artworks on Ethereum with a built-in method for verifying unique ownership, a process accomplished through cryptographic hashing, allowing Ethereum wallet addresses to fully own a CryptoPunk.

As interest in this has grown, the demand for purchasing CryptoPunks has surged. In the last quarter of 2020 and the first two months of 2021, sales surrounding CryptoPunks reached tens of millions of dollars, with each purchase transaction exceeding $1 million for such rare products. See the chart below from nonfungible.com showing the trading price trends over the past three months:

Another investment argument has been raised: why will CryptoPunks retain their value over time? If you are interested in this question, you can click this link to read more.

For me, the value proposition boils down to two points:

1. CryptoPunks are something of value;
2. CryptoPunks are a reflexive asset with a rich narrative.

In terms of value storage, only 10,000 punk tokens have been issued, and there is not enough room for new tokens—this creates a supply crisis.

In terms of narrative, CryptoPunks has a great story: the project was released very fairly, allowing anyone to acquire tokens for free within a day, and the founders of the project are outstanding, akin to "rookie cards" in the NFT space. (Note: Rookie cards are a type of player card launched by the NBA, primarily aimed at discovering new players, priced lower but with great potential.)

Some people believe the current rise in CryptoPunks prices is a bubble. While there may be some bubble-like aspects, I think it is because many people (including myself) have long missed the repricing of a certain asset. Furthermore, I expect the total market value of CryptoPunks to continue to grow significantly over the next five years, potentially in proportion to the overall NFT market size.

There is no doubt that NFTs are significant for the digital art and collectibles industry, potentially reaching a scale of billions of dollars in the future. As the industry grows at an accelerating pace, certain NFTs will inevitably capture the majority of value, and CryptoPunks is one of the best choices, as many large and small investors are beginning to invest in CryptoPunks.

Let's first look at small collectors. As more newcomers enter the cryptocurrency space, they tend to collect things that already have value. In fact, nothing is more valuable than CryptoPunks because:

• They are persistent;
• They have a strong community;
• They are used as profile pictures by important figures on Twitter and Discord, among others.

For some ordinary collectors, CryptoPunks may seem a bit expensive (at the time of writing, the lowest asking price is $26,000), but protocols like NFTX and Niftex allow small investors to participate.

Both NFTX and Niftex use different mechanisms to allow people to gain partial ownership of CryptoPunks through a set of index funds backed by real punks (NFTX) or a single punk (Niftex). With the support of these protocols, ownership of CryptoPunks has been distributed in unprecedented ways across many high-end collectibles, while these tokens have also become more liquid in the secondary market.

As ordinary collectors begin to flood into this space, the value of CryptoPunks is bound to rise significantly, while wealthy NFT collectors will also drive the market capitalization of CryptoPunks to surge.

When it comes to those wealthy NFT collectors, I categorize them into two groups:

1. Those who do not hold cryptocurrency in their funds;
2. Those who hold native cryptocurrency in their funds.

For those wealthy new investors, they are not insiders in the cryptocurrency industry, and when they enter the NFT market, what they most want to explore is: where are the most valuable assets? In fact, isn't it CryptoPunks? Last week, I was on the CryptoPunks Discord, where a bot reports the latest CryptoPunks sales in real-time, and I saw a brand new Ethereum wallet spend $1 million in just one hour to purchase several CryptoPunks. If prices continue to rise, will there be more and more people making large transactions?

For those veterans in the cryptocurrency industry, they will turn CryptoPunks into part of their net worth. What is the significance of this? In fact, some Bitcoin veterans often buy some altcoins alongside Bitcoin, and if they make money from altcoins, they will reinvest those profits back into Bitcoin. The same goes for NFT veterans; they will also engage with other NFT projects, and when they make money from those projects, they typically bring the profits back to CryptoPunks to buy more or rarer CryptoPunks. As the NFT industry continues to expand, these individuals will bring more and more profits back to CryptoPunks, driving its value upward.

Ultimately, as capital flows into this space from both the bottom (ordinary investors) and the top (high-net-worth individuals), CryptoPunks will undoubtedly see a significant increase in value acquisition. In the coming years, we will witness some very powerful "fat CryptoPunks."