Jul 8, 20223 min read

Crypto collectibles: A guide for beginners

Updated: Jul 12, 2022

Brothers Ezra and David Nahmad own one of the most valuable private art collections in the world. Their catalog contains around 5,000 works of art, from Monet to Rothko, collectively valued at $4 billion. The reason for collecting? To earn a profit.

Since the dawn of humankind, people have assigned value to objects like paintings and sculptures. This value is not the intrinsic value of the item; rather, it is the value that people believe the item has.

For the generation that grew up with the internet, works of art are not the only things that can hold massive value. Assets that exist digitally could also be worth a fortune. Enter crypto-collectibles.

Crypto-Collectibles, Explained

If the Nahmad brothers collect paintings to store value, crypto users collect crypto-collectibles. These are non-fungible and digitally unique assets that users can collect and sell to earn a profit. These exist in the blockchain as non-fungible tokens (NFTs) and are locked in a smart contract. Most of these collectibles exist on the Ethereum blockchain, which is the most smart contract-enabled blockchain to date.

Let’s break down the characteristics of crypto-collectibles.

Non-Fungible

Non-fungible means the token is unique, and you can’t exchange it for another similar item. Just like how there can only be one Mona Lisa, a crypto-collectible is the only one of its kind in the digital space. To put things in perspective, one dollar (or any other currency) is fungible. You can exchange one dollar for any other dollar. An ounce of gold can be exchanged for another ounce of gold.

There’s a strong protection against fraud, as well. Paintings can be forged so well that they leave experts baffled. Crypto-collectibles, on the other hand, have unique digital identifiers, so they can be quickly identified from similar tokens.

Digitally Scarce and Indivisible

Crypto-collectibles often have traits that affect their value. Cryptokitties, for example, have different traits (breed, fur, eye color, etc.). The rarer the trait, the more valuable is the cryptokitty.

In addition, a crypto-collectible is indivisible. You can divide a Bitcoin into ten or a hundred, and you can divide a pound of gold into 12 one-ounces. However, you can’t divide a crypto-collectible, much like you can’t slash a Rembrandt in two.

Locked in Smart Contracts

Smart contracts allow the crypto-collectible to be sold and bought. Additionally, when you buy a crypto-collectible, you hold it in a digital wallet.

Buyers

There are two groups of people who drive the demand for crypto-collectibles.

Crypto Users. Crypto users buy crypto-collectibles and sell them for a profit. Most crypto-collectibles are sold for Ethereum.
Art Collectors. While many collectors buy and sell for profit, there are a number of buyers who simply want to support artists. Just as sports fans collect autographed memorabilia, fans buy crypto-collectibles made by their favorite musicians and creators.

Most popular Crypto-collectibles

Though they’re all unique, not all crypto-collectibles are created equally. Just like paintings, some are more valuable than others. Here are two of the most popular ones:

Cryptokitties. It’s a game built on the Ethereum blockchain, where players breed and collect cryptokitties. Each cryptokitty is a crypto-collectible that can be sold and bought. Some command hundreds of thousands of dollars. The most expensive cryptokitty, Dragon, was sold for 600ETH or about $1.4 million.
CryptoPunks. CryptoPunks is a collection of about 10,000 NFTs, with users vying for the units with the rarest traits. The most expensive was CryptoPunk 7523, which was sold at Sotheby’s for $11.75 million. The reason for the princely price tag is its attributes: it’s the only alien punk wearing a medical mask.

Since its conception, crypto-collectibles have hit billions of dollars in sales. But bear in mind that like all investments, they carry risk. Crypto-collectibles are still in their infancy, unlike art investments with hundreds of years of data and history. A work by Da Vinci will always hold its value, but you can’t say the same about a cryptokitty. It pays to do your research before taking the dive.

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