Non-fungible tokens (NFTs) started off with CryptoKitties — a game centered around breedable, collectible, virtual cats. According to the official project website, “Each cat is one-of-a-kind and 100 percent owned by you; it cannot be replicated, taken away, or destroyed”.

If you are very new to NFTs start with this article: What I love, hate, and fear about NFTs.

NFTs can be divided into these 5 categories:

• Category 1: Digital art such as images, videos, and GIFs
• Category 2: Collectibles such as NFTs Stamps from Austria, Switzerland, and Gibraltar
• Category 3: In-game/ Metaverse assets such as avatars, skins, weapons, and virtual real estate
• Category 4: NFT Domains such as .crypto, .nft, .dao
• Category 5: Wrapped NFTs backed by assets like IP licenses, private equity, unlisted debt, real estate

Category 1: Digital art

According to DeFiLlama, some of the top NFTs and their market caps are:

• Bored Ape Yacht Club ($2.8 billion or roughly Rs. 21,120 crore)
• CryptoPunks ($1.46 billion or roughly Rs. 12,370 crore)
• Mutant Ape Yacht Club ($0.89 billion or roughly Rs. 6,715 crore)

A number of NFTs in Category 1 are plagiarised works, fake collections, spam, and frauds. And then there are rug-pulls, along with wash trading — illegally inflated trade volumes by constant buying and selling within a group.

OpenSea, the most popular NFT marketplace has a tool for free minting of NFTs. The platform has admitted that 80 percent of these NFTs are plagiarised works, fake collections, and spam.

Another platform called DeviantArt has issued 80,000 fraud alerts in a few months. The LooksRare platform is plagued with wash trading.

Do you remember the $69-million Beeple NFT that started off the NFT hype cycle? The buyer, MetaKovan, is actually a business partner of Beeple.

A research study recently analysed 6.1 million trades of 4.7 million NFTs since 2017. They found that 10 percent of traders accounted for 90 percent of all NFT transactions. This group trades 97 percent of all NFTs at least once.

Many NFT projects turn out to be multi-million dollar rug pulls. That’s when anonymous founders vanish with the investors’ money. Examples include the Evolved Apes NFT project, the Big Daddy Ape Club, and Blockverse.

Then there are ridiculous projects that promise to give you ownership of a colour. You read that right. Ownership of a colour. They even promise you royalties every time someone uses your colour.

I think Digital Art NFTs are heading for a massive crash in 2022.

Category 2: Collectibles

Austria was the first country to offer “Crypto stamps” — physical postage stamps that have a “digital twin” or NFT on the blockchain. The stamp comes with an NFC chip that contains a cryptographic key. The chip can be read with a NFC-enabled smartphone.

Other countries working on such collectibles are Switzerland and Gibraltar.

I am very bullish on this category of NFTs.

Category 3: In-game/ Metaverse assets

This category relates to in-game assets, metaverse assets such as avatars, skins, weapons, and virtual real estate. Many top brands such as Gucci and Nike are also issuing NFTs in this category.

Some of the best Crypto projects in this category are Axie Infinity (AXS), Decentraland (MANA), Enjin Coin (ENJ), Gala (GALA), and The Sandbox (SAND). You can learn more about them in my article on the top gaming and metaverse cryptos for 2022.

I am bullish on this category of NFTs.

Category 4: NFT Domains

Blockchain or NFT domains look like regular domains but are very different. They are smart contracts written on a public blockchain. The biggest advantage is the fact that they are “owned” and not “rented”.

What I like best about NFT domains is that there is no renewal fees. Regular domains have to be renewed every year. Blockchain domains can be purchased with a one-time registration fee and you never have to pay for renewals again.

The disadvantage is that they cannot be used directly in a regular browser. This causes a huge level of friction and that is why they are not very popular as of now.

These domains can be used as universal usernames across apps and websites, website URLs, and payment address for wallets.

Some of the popular domains include .crypto, .coin, .bitcoin, .nft, and .dao

I am bullish on this category of NFTs.

Category 5: Wrapped NFTs

Wrapped NFTs are also called Wrapped Assets and are blockchain tokens pegged to or collateralised by assets such as coffee, gold, fiat currency, debt instruments, real estate, etc.

They called a “wrapped” assets or tokens because the original asset is put in a “wrapper” or “digital vault” that enables the wrapped version to be traded on a blockchain.

I am very bullish on this category of NFTs.

Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. You can follow him on LinkedIn.