CryptoPunks Explained

Posted on 8/6/2021 by Andras

CryptoPunks is a project by Larva Labs and one of the earliest examples of Ethereum culture. At launch, anyone could claim a punk for free with only an Ethereum wallet. Then, they were hovering around 50-100 USD for years, and when NFTs exploded in early 2021, CryptoPunks also blew up, some selling for millions of dollars worth of ETH.

CryptoPunks is a cornerstone NFT series, not only because of how early it was but also because it inspired ERC-721, a now widely used token standard on Ethereum for digital collectibles. But what makes these jpegs so unique and valuable? Let’s dive in.

What is a CryptoPunk?

CryptoPunks is a collection of 10,000 non-fungible tokens (NFT) of pixel art punks, all with their unique traits and characteristics. As you’d expect, some traits are more desirable than others and thus carry higher value for their owner.

At the time of launch, an Ethereum standard for digital collectibles didn’t even exist, so Larva Labs had to modify the ERC-20 standard to fit their needs — this is what later inspired the creation of ERC-721 .

If you’d like to get one, Larva Labs created a marketplace on their website specifically to trade punks, or you can also go to an NFT marketplace like OpenSea and trade them there. More specifically, you can trade their wrapped ERC-721 version since punks are technically ERC-20 tokens. So when you buy a punk on OpenSea, you’re buying a wrapped version that can easily be converted into its ERC-20 form.

But with these practicalities out of the way, what’s the deal with these simple pictures selling for millions?

What makes CryptoPunks valuable?

A bit of a cop-out answer is, well, what makes anything valuable? The stories we collectively tell ourselves. There is no such thing as inherent value. Sure, gold is used in industrial applications, oil is valuable because it can be consumed (ramen for the same reason), but ultimately, value is a shared belief. Why not pixelated punks then?

Especially when it comes to generations that already grew up with the Internet where digital goods can carry more value than physical objects, it makes a lot of sense that digital collectibles would become a significant part of the metaverse and our collective imagination. But why specifically CryptoPunks?

These days, anyone can create a new NFT series (and it sure feels like they do), and most will probably go to zero and will only serve a a bit of fun, on-chain culture, art, or some kind of social coordination game. But the biggest reason CryptoPunks are valuable is that they’ve been around for a long time when it comes to NFTs.

If someone launches a new NFT series and that somehow takes off and becomes valuable, what stops someone else from launching another series that takes away the spotlight from the first thing? Ethereum is a permissionless environment, so essentially nothing. New NFT series are heavily diluting all other new NFT series. Some of them may retain value, but they can’t necessarily compete with punks that have existed since 2017 and are much more resilient to this effect.

CryptoPunks are the Bitcoin of NFTs

To entertain all the Bitcoin maximalists out there, let’s take this argument a bit further.

If a technologically superior Bitcoin launched today, it probably wouldn’t take off as a serious competitor to BTC, as the King Corn has been operational for 11 years and has already proven itself to be secure, reliable, and resistant to all sorts of attack vectors. The longer this happens, the stronger this effect becomes, and the same may be true for early NFT projects.

The medium itself will evolve, just like the concepts introduced by Bitcoin did, but this longevity may just make a punk more desirable than a newer NFT with flashier looks and more features. Even so, the NFT space likely has a lot more room for experimentation, and while punks are just “jpegs on the blockchain”, they’ll likely retain their status thanks to this phenomenon.

Another reason for their value is just convenience. People can use their avatar as a profile picture on their social media accounts and immediately connect with others who also have their punk as their avatar. Now, of course, the images themselves can be copied, but there is still a different kind of attachment when you own your punk instead of just using someone else’s.

Let’s take this concept a bit further, what else could punks be used for? For example, one could think of reputation systems, where only holders who cryptographically prove that they own a CryptoPunk get admitted to a private group, DeFi app, game, or even one of those disgusting IRL meetups in meatspace. It’s quite likely that this way to validate identity or reputation will be very common in the future, where only an elite group of punk holders will be able to access a service. Think of Bitcoin in 2010 — that’s where the NFT space likely stands right now.

The impact of CryptoPunks on even mainstream culture is quite unprecedented in the world of the blockchain economy. Not a whole lot makes it out of our bubble to the external world, but punks were displayed in galleries, were the subject of articles in many popular news outlets, and some have even popped up on the streets of New York.

Many of us thought that DeFi will be the gateway for the masses, but it very much looks like it is going to be NFTs. While yield farming and food finance games can be awkward to explain to people outside of crypto, many people instantly get why NFTs make sense — they’ve already encountered them in games, online communities, and so on.

The difference is that those ‘centralized NFTs’ are controlled by some centralized party and its centralized database, and they can only survive as long as the entity issuing it supports it. This is not the case with NFTs like punks, as they have a credibly neutral base layer such as Ethereum that just keeps chugging along without needing a centralized entity to run it.

As for the artistic beauty? Well, that’s up for each of us to decide. Though, as we’ve discussed before, the historical significance will probably make punks at the very least a memorable point of early blockchain culture (which, in the future, will likely just be called culture).