Despite seeming like a passing craze or a bubble waiting to burst, NFTs have integrated incredibly in the mainstream virtual space. With over $10 billion in trade volume in the third quarter of 2021 alone, it has become clear that this emerging technology that enables anyone to monetize digital content is a significant market opportunity that is continuing to expand.
NFTs are non-fungible tokens, but what does that really mean? In layman’s terms, NFTs are digital assets that are stored on the blockchain. One of their core properties is that of exclusivity – no two NFTs are the same and they cannot be replicated or counterfeited. Similar to country club memberships being highly desirable and like exclusive commodities, owning certain NFTs helps one to build a community in the virtual world – a world in which we are progressively spending more amount of time.
Stories of rags-to-riches NFT investments have become commonplace. By investing in the right project at the right time, some collectors and investors have made life changing money in relatively short turnarounds. However, whilst the pandemic accelerated digital transformation, the metaverse seems to be transitioning from a tech luxury into a future necessity.
Types of NFTs
There are a variety of ways in which you can invest in NFT. One of the most popular category that’s gained a lot of attention is that of popular collectibles– such as the Bored Ape Yacht Club and Cryptopunks, each of which have roughly 10,000 distinctively generated characters. Fan engagement, for example, the NBA affiliated project, made almost US$1 billion by capturing their iconic sports moments as NFTs. Each one of them can be owned by a single person on the blockchain. The possibilities for these collections are endless, as they represent more than a digital collectible. They correspond to an access pass, a representation of one’s identity, and in some cases a social “flex.”
Gaming has also been known to be a great use case for NFTs both in the Web 2.0 world and Web 3.0 (metaverse). One example is Axie Infinity, which is now the top ranking NFT collectible of all time, with great protocol revenue through its play to earn model.
Artists have also become their own digital distributors using NFTs. Digital artist, Pak, holds the record for the most expensive NFT ever sold at more than $91 million. One of the biggest takeaways from the conversations on community building is simple: Defining the value proposition. This is the chief reason why big brands like Adidas have partnered with the established projects such as Bored Ape Yacht Club and are also working on a line-up of physical apparel that will complement virtual wearables in the form of NFT. There are infinite opportunities when it comes to these tokens.
Growth and Risks
Since there is limited supply of NFTs, there is a direct creation of demand that pushes the prices to surge up. It’s simply a new way of creating value. NFTs are giving corporations a new way to engage and connect with their customers. For instance, Emirates airline announced in April 2022 that they will be launching collectible and utility based NFTs, signalling a move into the expanding metaverse.
While some see NFTs as the future of ownership in the metaverse, others are baffled as to why so much money is being spent on items that do not physically exist. Moreover, the lack of regulations around crypto assets directly impacts the legality, authenticity, intellectual property as well as consumer protection. There is always a high risk of permanent loss if the project fails or the team behind it disappears – your NFT could become completely worthless.
Overall, while there has been exponential growth and adoption of NFTs, most of these transactions still function in an early-stage grey area. NFTs have the potential to revolutionise the market for digital content, making it more commercially viable and accessible, only if followed through with and consumers are protected by the right regulations.