How did you imagine the digital economy of the future 10 years ago? It was probably very bold and flashy: trendy blockchain, decentralised finance, artificial intelligence and other futurism. In fact, the new technologies took a bit of a wrong turn: in 2021, people were selling memes and earning their bread with gamer graphics cards.
One of the big concepts of the past year, along with the already familiar 'covid' and 'lockdown' was NFT – everyone is talking about it. Blockchain digitised "ownership rights" to pictures or items from online games are being sold and bought for tens of millions of dollars.
Now is a good time to talk about the future of this mysterious market. Where will it go in the new year? I tried to find out whether we are talking about a new digital economy or another financial bubble. To do so, I talked to both developers and our partners, crypto-business players.
So, NFT, or Non-Fungible Token, is a blockchain-based cryptographic token.
We won't go into the intricacies of how crypto works, but just a couple of important points: by default, all tokens in a blockchain network are equal, and their price is tied to the cryptocurrency exchange rate. Each token can be exchanged for exactly the same token or split into parts if necessary.
NFTs are also part of a blockchain network, but are structured differently. These tokens have their own codes and metadata that ensure they are unique. Each NFT is as unique as a snowflake – it is virtually impossible to separate or tamper with. While equivalent tokens play the role of "coins" in cryptocurrency, an NFT is more like a document of ownership – with a unique notary's signature and a hundred wet seals. This concept has long been experimented with in the crypto world, but NFTs took their current form in 2017, based on Etherium smart contracts.
Does NFT give any real rights to dispose of virtual assets? The question is more of a legal one. According to critics, no, and that's about it. In some cases, token creators and the NFT exchange are trying to regulate ownership. But now it's also coming down to actual lawsuits over the tokens. Quentin Tarantino is now suing Miramax over the release of NFT for Pulp Fiction, and the outcome of this trial could be a landmark for the entire industry.
In the already mentioned 2017, a couple of IT friends from Canada conceived the idea of selling tokens in the form of unique avatars. The project was called CryptoPunks: it was a collection of 10,000 images protected by Etherium tokens. The little "prank" was a success, NFTs from the collection quickly rose in value and today sell for millions of dollars. Cryptopunks quickly developed a following: both new sets of avatars (the same monkeys from the Bored Ape Yacht Club set) and entire blockchain-based card games (CryptoKitties, Axie Infinity).
With the new wave of interest in 'crypto' in 2020, NFTs have had their share of popularity. Obviously, man's passion for collecting rarities played a part here. It turned out that blockchain can be used to digitally "originality" almost any content, from Renaissance paintings, to memes and funny cat videos.
One of the key triggers of the hype was the $69 million sale of the artist's Beeple work last March. The market was spotted by big investors – and here we go! At one point it seemed that every content maker, every brand wanted to release their own NFT – to be on trend, or to make money. Even the "father" of the modern Internet, Tim Berners-Lee, sold a token containing the network's source code for $5.4 million.
Meanwhile, in the world of gaming, trading NFT items has become a new form of monetisation. Giants such as Ubisoft and Square Enix are getting involved in experiments with blockchain. Cult game designer Peter Molyneux announced Legacy, "the first blockchain-based business simulator" with real estate and land. And he made $50 million right off the bat, although the game's release is still a long way off.
Just look at the scale: NFT had a market size of $100 million in 2020, but by the end of 2021 it will have crossed the $40 billion mark.
As it often happens, the haip around NFT generated a "reverse haip" – a barrage of criticism of varying quality from all sides. There are allegations from experts and laymen alike that the value of tokens is inflated artificially and this "digital bubble" will burst, leaving 99% of investors with nothing. Opponents of NFT compare this market to selling plots on the moon and names for stars: in that analogy, the buyer also gets no real ownership, only a conditional record of it in someone else's registry.
There are more substantive comments relating to proven episodes of money laundering and NFT fraud. Last November, an attempted CryptoPunks collection token scam was uncovered: an investor wanted to inflate the price of his token and tried to buy it from himself for 124,457 ETH (over half a billion dollars at the transaction date!) using borrowed funds. How many such episodes remain in the shadows is a rhetorical question.
As expected, criminals have seized upon the NFT market, since it has proved to be an ideal medium for laundering ill-gotten wealth. Let's say, you create a token with a picture of a seal on it, and then sell it to yourself through a front man for fabulous money. Even in developed countries, there is no one to monitor such processes today.
Does all this mean that we are dealing with a "scam of the century" and a "digital branch of the MMM"? More likely no than yes (although individual projects should be monitored very closely). In spite of questionable episodes, NFT itself has already proved to be a useful technology, and now big money and IT giants have their hands on it. From an investment point of view, NFT is more liquid than the traditional art market, because participants don't have to pay 5-10% commission to brokers.
So far, public opinion is also in favour of NFT. The collapse of cryptocurrencies, which has been predicted for years by respected experts, has not happened in the past 10 years. The blockchain theme includes brands, stars and opinion leaders. Coca-Cola launched its own token collection, Nike bought NFT studio RTFKT, and Eminem put a monkey from the Bored Ape collection on his Twitter avatar. And there are hundreds of such examples.
All indications are that NFT is destined to become more than a hype toy. When the "foam" around the technology settles, it should take an important place in the new digital economy by becoming a full-fledged intellectual property protection tool. Cryptographic tokens will gradually enter new areas – these are the same smart contracts that will help in logistics, real estate and the land market.
What's in store for NFT in the near term? To answer this question, I spoke to market players and blockchain experts. Everyone agrees that this market has a future, but wants to see more predictability in it. One way or another, everyone is talking about these trends:
The arrival of regulators. The free-for-all of selling pixel-picture tokens for millions can't go on forever. In the US, for example, several mechanisms for regulating this market are being considered today.
NFT marketplaces may obtain the legal status of art dealers there – the US fiscal authorities scrutinize art deals very closely, because it is a classic method of money laundering. NFT-tokens can also be equated to common cryptocurrency or even securities, with all the ensuing consequences. You can use this NFT profit app to test it.
By the end of 2021, the global NFT market had crossed the $40 billion mark. And that is a lot, because we are talking about digital objects, most of which have minimal artistic value and are often created "by hand". By comparison, the global art market will reach $50 billion in 2021.
The peak of the NFT fever is over. In fact, the cooling of the market began last autumn – there were fewer and fewer deals, although the average price of lots remained high. It can be assumed that there will be no explosive demand for digital art in the new year; the focus is shifting from selling NFT art to the gaming sector (GameFi).
The search for new solutions. Historically, Ethereum blockchain has been the basis for NFT, but today its colossal network is increasingly inadequate: transactions are slow, require a decent amount of energy and cost. The situation should be corrected by the transition to Ethereum 2.0, but the timing of this massive upgrade is constantly postponed, and no one today is willing to predict all the consequences of Ethereum's transition to the Proof-of-Stake algorithm.
Large NFT-projects are already looking for alternatives to ether, which can conduct transactions faster and more efficiently. For example, the successful NFT game Axie Infinity uses Ronin blockchain. Solana is popular. There are also projects that are developing their own blockchain for their own needs.
NFT could break into the world of digital leisure this year, essentially turning it into a digital job. The ability to earn real money in-game provides an entirely different level of player engagement. Blockchain has spawned a new form of gaming monetization – Play-to-Earn (P2E). This is an extremely profitable model for developers, which "ties" players to the project at minimal cost, and thus generates a stable profit one way or another.
Probably the most successful example of such a game today is Axie Infinity – its user base passed the one million mark in the summer. In 2022, developers of mobile F2P games will try to enter the Play-to-Earn niche en masse. But the traditional gaming industry will not be left behind. Ubisoft announced the launch of its own NFT-marketplace on the blockchain Tezos, Japanese gaming giant Square Enix also announced plans to develop a blockchain and meta universe on January 1.
The move towards the Metaverse. Another hot topic in the past year has been the "metaverse," Mark Zuckerberg's super mission to build the Internet of the future based on virtual reality and a gamified digital economy. A full-fledged virtual economy needs real digital value, and NFT fits perfectly into that role.
Today, it's hard to imagine what a "metaverse" with the crypto-economy would look like, and whether it could be built in principle. But high-profile announcements by IT giants about building their own virtual worlds will steadily fuel interest in NFT, and metaverse platforms like Decentraland and Next Earth are successfully selling digital real estate and "land" on blockchain. Who knows, maybe in 10 years' time tokens "from the late WEB 2.0 era" will become real jewels in the metaverse.
Is investing in NFT a good investment in the realities of 2022? By no means am I encouraging anyone to do anything, after all investing has always been and will always be a risky venture for the brave. Especially when it comes to blockchain.
Apart from issuing tokens for PR purposes and buying and selling NFT art, businesses today have several ways to get involved in this booming market. The most obvious: creating a trading platform for NFT.
Although non-interchangeable tokens are part of the blockchain, they cannot be freely traded on conventional cryptocurrency exchanges today. To do so, one has to create separate platforms that can store, issue and trade NFTs. On the user side, NFT marketplaces are like regular online shops and buy-and-sell platforms: users register, create personal wallets, browse the catalogue, and put up or create their own tokens. Technologically, however, such a platform is very different from the usual e-commerce and requires a different architecture and blockchain developers. The most important thing is to get the goals of the platform right, the blockchain and the token standard right.
The largest NFT marketplaces – OpenSea, SuperRare, Rarible, NiftyGateway and others – are currently trending in this market. However, the market is rapidly expanding into new niches, so savvy marketplaces have every chance to "take off". NFT commerce may well go beyond the sale of memes and art – wait for the takeoff of large smart contract platforms for real estate, investment, retail, logistics, and cybersecurity.
Another promising area is the development of blockchain games. Admittedly, enthusiastic gamers today look at the Play-to-Earn model without confidence – at best, they see it as an opportunity to make money, but certainly not as a way to have a good time. The most impressive results can be achieved by those who smoothly weave crypto-economy into an interesting gameplay: creating a massive meta-village (like in a cult space MMO EVE Online), or a super-flexible sandbox, where players can build ecosystems and entertain themselves (like in Minecraft, Roblox, or Garry`s Mod).
IT today is experiencing the greatest technological upheaval in the last 20 years: AI, blockchain and meta universes are definitely a game changer, although few understand in what direction. The situation has been called both the digital wild west and the digital nineties. Blockchain and NFT enthusiasts talk about the advent of the "WEB 3.0 era", whatever that means.
Blockchain technologies are now at a crossroads and could evolve in either direction. Their further evolution will depend both on investors who invest in specific projects and on the fate of startups – any bold idea can "shoot out" and change the rules of the game. Businesses in this situation have only to keep a close eye on trends and look for reliable partners in IT – to keep their hand on the pulse and "on the trigger" in order to avoid mistakes and not miss out on valuable opportunities in new markets.