Non-Fungible Tokens (NFTs) have been a hot topic for a few years now. As a large percentage of people in the blockchain space have attempted to understand, purchase, and launch projects around NFTs, the demand has skyrocketed. Institutions are being established to support this emerging sector, along with the new terminology that accompanies it.
While NFTs offer many benefits and uses, they are often difficult to navigate, and a significant majority of NFTs are considered digital snake oil (methods/products deemed fraudulent). However, these current challenges create opportunities to provide solutions and more secure processes. The accessibility and legitimacy of NFTs need to evolve to meet the growing demand.
With increased funding and investments flooding into the blockchain space, markets are beginning to mature, either accelerating or decelerating momentum, making it an unpredictable environment. In the era of NFT 2.0, technology is becoming more mainstream and accessible, making the value proposition of NFTs more consistent and transparent.
The Growing Market of NFTs
The NFT market has seen an astonishing $17 billion in trading volume since 2021. By 2026, the market value is projected to reach $147 billion. What’s even more staggering is that this value is driven by fewer than 400,000 NFT holders, which equates to an average transaction volume of $47,000 per holder.
NFTs have undergone significant changes since their inception. For example, CryptoPunks, which were minted for free in 2017, rose to blue-chip status, peaking with $11.8 million in sales last year. Larva Labs, the company behind CryptoPunks, was acquired by Yuga Labs, the parent company of Bored Ape Yacht Club, for an undisclosed amount. This acquisition could contribute to a surplus of funds being invested into the project.
NFTs have demonstrated their longevity and power within the blockchain space, attracting attention from celebrities, brands, and even commercials. Notable brands such as Budweiser, McDonald’s, Nike, and Adidas have entered the space with their own NFT collections entered the space with their own NFT collections, further solidifying NFTs as a significant force in the digital world.
Rapid Evolution and Future Predictions
As organisations plan and implement new strategies around NFTs, the overall space has mirrored previous successful technological patterns, showing an accelerated product timeline. For instance, it took roughly a decade for the iPhone to reach its current version. In contrast, NFTs have evolved from simple 8-bit pixelated images and basic blockchain games to high-fidelity 3D animations and complex play-to-earn game structures with advanced multiplayer experiences within just a few years. The future predictions for NFTs are equally optimistic, as the technology continues to evolve rapidly.
As NFTs advance, so does the ecosystem of pick-and-shovel solutions (an investment strategy that seeks profit from industries supporting a hot sector). The introduction of NFT minting platforms and tooling has lowered the barrier to entry, creating a deeply saturated market. As of March 2022, there were more NFTs than public websites, which has created significant noise and made it more challenging to identify valuable NFT projects worth investing in.
Challenges and Opportunities in the NFT Space
The retention power of NFTs, alongside their transaction volumes, has shifted how creators enter the space. Typically, many users have rushed their Web3 strategy or treated fans as a liquidity source, leading to an increase in missteps, rug pulls, and abandoned projects. Most companies and creators are not fully prepared to enter Web3, requiring more hand-holding services rather than independent platforms.
Some argue that NFTs are following a similar pattern to that of email technology in the 1990s when companies needed to hire specialists to code emails for them. Early adopters founded agencies to service Fortune 500 companies and execute early digital strategies. This information gap provided these agencies with a competitive advantage in the technological and educational sectors, making it easier for brands to eventually manage email marketing in-house.
Similarly, we are now in an era where brands are looking for experts to educate and prepare them for a Web3 future. It is expected that brands will eventually manage their Web3 strategies in-house, fully disintermediating external agencies. Onboarding for NFTs is common in the space but often involves complex processes. Some companies are finding solutions to this by simplifying the more difficult aspects of crypto, creating opportunities for deeper engagement with users and investors.
The Reality of NFTs: A Market in Transition
The current form of NFTs was not designed for mainstream consumption. Onboarding for consumers is not straightforward, and the volatility of NFTs can be damaging to long-term investors while distorting the artist-buyer relationship. There has been a significant increase in conflict around the sticker price of NFTs and the value they hold for consumers. Many NFT collections are not seeing the expected demand, which may result from poor execution around their roadmaps.
Core NFT buyers are becoming more savvy about rug pulls and scams, leading to a decrease in the minting of new collections. The reality is that the NFT market requires a substantial washout to eliminate those seeking quick returns and properly incentivise buyers in the space. As the vapourware is eradicated during bear cycles, anti-fragile companies are more likely to survive and thrive as they shift from Web2 to Web3. Agencies and platforms that are not prepared for volatile market changes may be wiped out, but those that are well-prepared will maximise high-margin projects while reaping significant revenue returns.
