The Current State of the NFT Market
2021 was a year where NFTs became one of the fastest-growing asset classes. Volume on marketplaces such as OpenSea and Magic Eden was tremendous, and this volume was based on trading images that provided access to exclusive communities. Some of these images offered practical utility, while others were just a profile picture that symbolised digital royalty on various social channels.
The below image show’s the number of NFT sales taking place on the Ethereum blockchain since 2017.
Fast forward to the middle of 2022, and things are vastly different. The value of most NFT collections has plummeted, and as you can see in the image above – sales volume has tumbled.
But why has this happened?
Well, the recent impact of a recession has not helped the price movement of all asset classes. Stocks and cryptocurrencies in particular are both experiencing severe lows as many look to get their wealth into cash rather than more volatile assets and investments.
This has had a large impact on NFTs and their prices. With so much economic uncertainty, investors are less likely to hold expensive jpegs that are pegged to a depreciating cryptocurrency. There was a realisation that there wasn’t nearly as much money to be made on these assets, and the majority began to lose interest.
There’s also the chance that many have begun to realise the true value of the majority of NFTs. Although there are some projects that provide genuine value to their investors and holders, most projects fail to provide genuine utility to their investors. This is something that has contributed to the sharp drop in interest in NFTs.
It may seem like a scary time to invest in NFTs, but one has to remember the benefits that they bring. The technology they’re built on shouldn’t solely be associated with speculative assets, but rather considering how they can improve different industries.
The Base of NFTs: The Blockchain
In order to get a better understanding of what kind of future NFTs will have, it’s essential to get a basic understanding of what technology they’re built on – the blockchain.
The blockchain is a technical database for storing digital information in a secure and transparent manner. It acts as a ledger that records transactions and tracks the movement of assets of all kinds – virtually anything can be tracked on a blockchain.
Blockchain technology has made its way into various industries and removed the need for middlemen in traditional processes. One of the best examples of this is the way cross-border payments are executed. Currently, the process of receiving payments from overseas is a timely and expensive process. To be honest, it’s just a frustrating process.
The blockchain offers a solution to this problem by making it simple to send currencies on a peer-to-peer basis, with no intermediary needed. With remote work growing significantly, cross-border payments need to be improved, and the blockchain is a proven method for doing so.
Beyond digital currencies, blockchain technology has many potential use-cases, and we’re already seeing it in action in areas such as supply chain management, intellectual property management, and healthcare management.
The Future Market of NFTs
There’s a very good chance that the future of NFTs and their use cases will be a lot more complex than a profile picture that grants you access to a community of like-minded investors. The current state of NFTs is the first step of their journey, and the real benefits are slowly being recognised.
The key purpose of an NFT is to prove ownership of any asset in a way we’ve never seen before. A way that cannot be tampered with or questioned, and that is all thanks to the blockchain. Every NFT is stored on a blockchain, thus making ownership of any asset with an NFT attached to it, publicly visible.
Let’s consider the NFT market in different stages:
Stage 1: Proof of Concept
The first initial hype for NFTs arrived. A market was created around assets that previously wasn’t possible – a thriving market around digital collectibles.
This stage was marked by the concept that you could officially own a unique asset and no one could take it from you – it was truly YOURS. This ownership was represented by an image that many used as profile pictures. Many found satisfaction in owning these images officially, and they became expensive.
Some of the main projects that made headlines here were CryptoPunks, Bored Ape Yacht Club, and Crypto Kitties – some of Ethereum’s oldest NFT collections.
Stage 2: A Need for Utility
The second stage of the NFT market was marked by investors wanting more from their NFT investments. Investors were spending millions of dollars on NFTs but were gaining very little value from them.
Utility ideas for NFT collections came in quick, as there was a rush to impress prospective investors and become the next ‘meta’ of NFTs. Projects offering solely profile pictures quickly began to lose value (apart from the originals), and there was a large question mark on NFTs and their practical use-cases.
This stage was marked by the realisation of the potential NFTs had in industries such as gaming and music. Gamers could actually own their in-game assets, while musicians could have full control over their productions. This stage showed promise to revolutionise industries in the long term.
Stage 3: The Future of NFTs
The final stage is where we see NFTs become mainstream, and have them linked to physical assets as well as digital assets.
Some of the biggest industries realise the potential of NFTs to improve processes and remove unnecessary costs. NFTs will be associated with traditional assets, such as property, luxury assets, and potentially all kinds of consumer items.
Because of an NFT's ability to authenticate any product or asset, there’s a good chance we see NFTs applied to everyday items, giving them a digital twin and taking out any threat of counterfeit.
The future of an NFT’s value may be less linked to speculation, but rather to the benefits derived from owning the NFT.