The Cult of CryptoPunks: A Deep Dive

The Emergence of CryptoPunks

Just prior to the widespread attention garnered by Beeple’s $69 million NFT sale, a pair of 24x24 pixel portraits depicting aliens adorned with hats were individually sold for approximately $7.5 million each.

These transactions, occurring within a 20-hour timeframe, received less prominent coverage than the Beeple auction. However, they were noted within the technology press, particularly due to one alien being sold by Dylan Field, the CEO of Figma, a design software company.

Field expressed his hope, during a Clubhouse discussion, that the blocky image he had sold would be regarded as the “Mona Lisa of digital art” a century into the future.

Introducing the CryptoPunks Platform

The pixelated alien portraits originated from an NFT platform known as CryptoPunks. Within the NFT landscape, this platform represents a relatively early project, being nearly four years old.

A total of 10,000 punks were created, all procedurally generated, and initially claimed without cost upon the project’s launch in 2017.

For a considerable period, a dedicated, albeit small, community sustained the economy surrounding the trading of these images. This continued until a recent surge in activity.

Recent Growth and Transaction Volume

The platform experienced a sudden explosion in popularity a few months ago, attracting the attention of Silicon Valley CEOs, venture capitalists, YouTubers, poker players, and prominent business figures.

According to NFT tracking site CryptoSlam, CryptoPunks has facilitated nearly $200 million in official transaction volume since its inception, with 98% of this volume occurring in the last few months.

Factors Driving the Price Increase

The significant increase in punk prices can be attributed to a growing interest in NFTs. This interest has been fueled by rising cryptocurrency values, the popularity of Dapper Labs’ NBA Top Shot, and a renewed interest in physical collectibles.

These factors have increased investor confidence in the concept of investing in digital assets.

Currently, the least expensive punk available for purchase costs around $30,000 in Ethereum. The most rare examples are valued at nearly $10 million.

Defining CryptoPunks

Despite the considerable attention CryptoPunks have received, there remains uncertainty regarding their precise nature.

Charles Stewart, CEO of Sotheby’s, commented to TechCrunch that discussions within the NFT world often equate the sale of Jack Dorsey tweets, Top Shots, and Beeple artworks.

He noted that the boundaries can become indistinct, questioning whether CryptoPunks are art, collectibles, or something else entirely.

“What are they exactly?” he asked.

A More Transparent Stock Market?

In the beginning of 2017, John Watkinson and Matt Hall were experimenting with a character generator they had developed. They found themselves captivated by the unique, pixelated portraits it produced. By June, they had generated 10,000 distinct characters, each featuring varying hairstyles, hats, and eyewear, for a project named CryptoPunks. This project was to be hosted on the emerging Ethereum blockchain.

The characters possessed a diverse range of attributes, with some having many and others having none. Some were designed as apes, while others resembled aliens. While the creators guided certain aspects, they largely allowed the generator to dictate the creative process.

The launch initially garnered limited attention, attracting a small group of blockchain enthusiasts. These early adopters could acquire their own punk for a minimal fee, paying only a few cents in Ethereum “gas” transaction costs. This concept was innovative, preceding the CryptoKitties NFT platform by months and NBA Top Shot by years. However, it emerged during the 2017 crypto surge, a period marked by numerous scams and intense competition for attention.

Hall noted that only around 20 to 30 punks were claimed in the immediate aftermath of the launch.

However, a week later, Mashable published an article about the budding crypto art project, and within hours, all punks were claimed.

Certain users quickly embraced the project wholeheartedly. One user, known as hemba, has become a cautionary tale within the CryptoPunks community. They acquired over 1,000 punks at launch but subsequently sold them all before the market experienced its recent surge, foregoing potential profits amounting to tens of millions of dollars at current valuations. Conversely, another user, mr703, claimed approximately 703 punks at launch and continues to hold hundreds of them, representing a collection also valued in the tens of millions.

During a Discord conversation with the pseudonymous mr703, we inquired whether they felt they had acquired enough punks or if they had any intention of purchasing more. They responded, “I possess all the punks I truly desire.” Their publicly visible wallet reveals a recent expenditure of over $37,000 on a punk, made just minutes after our question. Several hours later, they invested another $35,000 in a separate punk.

Some investors, already involved in high-risk cryptocurrencies, view NFTs as a means of diversifying their digital asset portfolios. Others perceive CryptoPunks as a form of entertainment.

“I believe that as time progresses, the distinction between gambling and investing becomes increasingly blurred,” explains Mike McDonald, a 31-year-old professional poker player who recently purchased his first punk.

The varying valuations of punks – some worth tens of thousands, others millions – are a subject of ongoing debate within the active CryptoPunks Discord community. Users combine objective analysis of attribute rarity with subjective assessments of punk “aesthetics” to determine value.

Predictability is not always guaranteed. While earrings are a common attribute, resulting in lower price floors, beanie hats, being the rarest, command higher values. Despite the existence of fewer punks with green clown hair, those featuring 3D glasses often fetch a substantial premium. Market momentum can also shift unexpectedly; for example, punks adorned with hoodies have seen increased demand in recent weeks.

“This is undeniably a speculative market… but it’s arguably more transparent than the traditional stock market,” states Max Orgeldinger in a conversation with TechCrunch. “With all due respect to Elon Musk – and I am a Tesla enthusiast – there are no fundamental factors justifying that stock’s price. The same applies to GameStop. Within the NFT community, there’s a greater degree of honesty because no one is misled into believing there’s some complex, incomprehensible calculation at play. Prices are simply determined by what individuals are willing to pay.”

As prices have escalated, ownership of a CryptoPunk has become a “digital status symbol,” particularly when used as a profile picture on social media platforms, according to several owners we interviewed. This has attracted affluent buyers from outside the blockchain space, including prominent figures like YouTuber Logan Paul, who shared a video last month detailing his $170,000 purchase of multiple punks.

“Without owning a punk, the ecosystem feels like an exclusive club reserved for the 10,000 individuals who can afford these avatars,” McDonald observes.

The community expresses some concern that this increased external attention could signal an impending price correction. However, many investors remain confident in the historical value of CryptoPunks within the NFT landscape. Despite this, some investors struggle to convince those around them that their activities are anything other than imprudent.

Following a recent six-figure punk acquisition, Chris Mintern recounts that his girlfriend was dismayed he had spent more on a punk than her house was worth. “She believes it’s all just a pastime for internet enthusiasts who don’t understand the value of money. To them, it’s simply a game and a series of numbers on a screen,” he shared with TechCrunch.

The CryptoPunks community has flourished on the Discord chat application, forming a dedicated group where verified punk owners can engage in discussions and promote emerging NFT projects they support.

“It’s akin to a cult,” admits user thebeautyandthepunk in an interview.

Like many early participants, thebeautyandthepunk has maintained her anonymity since acquiring a couple of dozen punks at launch, revealing that no one in her personal life is aware of her NFT collection, which is likely worth millions – except for her accountant. She recently decided to disclose that she is one of the few female traders who have been active in the predominantly male CryptoPunks community since its inception.

“I make a conscious effort to keep my personal life and my crypto activities entirely separate,” she explains. “However, it’s important for people to recognize that women have been involved in this space for quite some time and are not going anywhere.”

Currently, all 10,000 punks are distributed across 1,889 wallets, as tracked by crypto data provider Etherscan. Some of these accounts are inactive and presumed abandoned, with the punks contained within them potentially lost forever on the blockchain. The largest single collection of punks is held by the project’s creators, comprising 488 punks. This represents their sole ownership stake in a blockchain-based marketplace where most mechanisms are already established.

“We are now users ourselves. Our website does not offer any special privileges based on our role as creators,” Watkinson clarifies to TechCrunch. “Our only investment is through the punks we own. We do not receive any percentage of market transactions.”

The Landscape of High-Value NFTs

Currently, the original creators of CryptoPunks are dedicating their full-time efforts to the development of NFTs. While modifications to the core CryptoPunks contract are not feasible, their focus has shifted to enhancing the project’s marketplace and actively engaging with the expanding user community on Discord.

Watkinson notes that a full-time career centered around this project was not initially anticipated.

Expanding the Blockchain Art Horizon

In 2019, the pair launched Autoglyphs, a subsequent project that introduced generative art to the blockchain. Although differing in aesthetic from CryptoPunks, it represented a further step in their investigation of art on the blockchain. Hall and Watkinson have formalized their endeavors through a company named Larva Labs, and are presently developing a new NFT project designed to be more accessible than CryptoPunks or Autoglyphs.

Hall explains that the increasing cost of CryptoPunks presents a barrier to entry for many potential collectors.

Sales Volume Comparison: CryptoPunks vs. NBA Top Shot

With approximately $200 million in official marketplace sales, CryptoPunks’ cumulative sales volume represents around 40% of the total achieved by Dapper Labs’ NBA Top Shot over recent months. Despite this, CryptoPunks has accomplished this with only 0.35% of Top Shot’s total transaction volume – fewer than 12,000 trades compared to over 3.3 million, as reported by CryptoSlam.

The large number of transactions across millions of NFTs in Top Shot translates to a lower value per transaction, but a significantly larger active user base.

Dapper Labs’ Growth and Larva Labs’ Approach

Last month, Dapper Labs announced a $305 million funding round, resulting in a $2.6 billion valuation, as they aim to broaden their private Flow blockchain to encompass additional blockchain “games” through strategic partnerships. Hall and Watkinson have observed Dapper Labs’ success, but believe Larva Labs can continue its exploration of NFTs without external venture capital.

Watkinson articulated their preference for continued technological exploration over rapid company expansion or large-scale partnerships.

“The appeal of CryptoPunks lies in the dynamic activity surrounding it,” Watkinson stated. “We aim to recapture that level of engagement with our next project, focusing on maintaining a consistent flow of activity.”

Specific details regarding the new project remain limited, though its release is anticipated “relatively soon” this year.

The Origins of Digital Collectibles

The prevailing belief within the NFT community centers on CryptoPunks being the earliest NFT project launched on the Ethereum blockchain. This assertion frequently surfaced during conversations with punk owners, often cited as the primary justification for their substantial investments in the platform. A recent YouTube discussion highlighted this point, with one participant stating that being “first” inherently confers special value.

However, recent investigations by “crypto archaeologists” are challenging this established narrative. These researchers have uncovered previously overlooked NFT projects created during Ethereum’s initial phase, with at least one predating CryptoPunks’ launch. We interviewed Cyrus Adkisson, the creator of Etheria, a project he introduced in 2015, merely three months after the Ethereum mainnet became operational.

Etheria enabled users to purchase, trade, and develop hexagonal plots of digital land within a vast, interactive map. Despite a slow start, the project remained dormant on the Ethereum blockchain for years. Adkisson rediscovered the project when the NFT market experienced a surge in popularity and successfully retrieved the access credentials to his old account.

“I distinctly remember speaking with my parents in late February, suggesting I might be in possession of a valuable asset,” Adkisson shared with TechCrunch.

Upon regaining access, Adkisson posted updates on Etheria’s previously inactive Twitter account, announcing that the majority of the 914 tiles across two tradeable versions were still available for acquisition at a cost of 1 Ether each. He reported that his wallet subsequently received $1.4 million in Ethereum by the end of the weekend.

Simply being the oldest project doesn’t guarantee Etheria’s success. The key challenge now lies in cultivating a thriving community around the project, attracting new users, and driving up the value of the land tiles. While a tile recently sold for almost $25,000 worth of Ether, early investors are navigating the balance between capitalizing on market growth and ensuring sufficient liquidity for new participants to join and contribute to the project’s momentum.

“These projects require a strong community foundation. The true measure of success isn’t the current state, but rather the size and engagement of your community a year from now,” explains Allen Hena, an NFT enthusiast who helped raise awareness of the Etheria community through a series of blog posts.

Following the project’s revival, the nascent community has already experienced internal disagreements, particularly regarding Adkisson’s attempts to maintain control over the platform. Many owners are concerned that making an older version of Etheria tradeable could devalue the existing land tiles. Since our conversation, Adkisson has departed from Etheria’s Discord server, and the remaining administrators have pledged to continue development independently as he determines the future direction of Etheria 1.0.

Owners of CryptoPunks are observing these developments with interest, but remain doubtful that Etheria’s earlier creation date will significantly impact the historical importance of CryptoPunks within the NFT landscape.

“While it appears interesting on the surface, it didn’t contribute meaningfully to the community,” states Daniel Maegaard, a user. “CryptoPunks undertook all the necessary groundwork.”

Maegaard, a 30-year-old crypto investor from Brisbane, Australia, has a particularly strong stake in the value of CryptoPunks. He recently sold a rare female “zero-trait” punk for over $1 million. He also owns what many consider to be the rarest punk of all – the only one possessing seven unique attributes, earning it the nickname “7-atty” and a revered position in punk lore. He acquired the punk for approximately $18,000 in Ethereum last year, representing the highest price paid at the time. He is currently unwilling to sell, having recently declined a private offer of $4.2 million from investors seeking to tokenize the NFT and offer fractional ownership to other users. His decision is driven not only by potential future gains, but also by a growing emotional attachment to his digital collection.

“These pixelated faces seem easily disposable, yet I’ve experienced regret with every punk I’ve sold, as I did when I parted with my zero-trait punk,” Maegaard admits. “While a million dollars is substantial, I genuinely liked her.”