For anyone looking at NFTs from afar, such as from the media, you’d be forgiven in thinking that NFTs were just a craze and are on their way out.
They had a good run between 2017 and 2022, and many NFT millionaires were made.
A bear market usually means high risk investments fall, and fall sharply, and as a result thousands have decided to pull away from buying speculative cartoon JPEGs in favor of saving their money or investing in less risky assets.
NFTs certainly fall into that category of high-risk investment.
Having extensively explored the concept of NFTs it seems the blockchain provides three key advantages the world needs:
NFTs right now are not being used for, anywhere close, to their full potential. This is yet to be seen.
The NFT industry hasn’t got off to the best of starts but it doesn’t mean its future has already been written.
How the NFT Industry Started
Blockchains were created, cryptocurrencies were born and other tokens – also known as NFTs – emerged through the first NFT of its kind, Crypto Punks.
Starting out on OpenSea as a free mint way back in 2017 it took time to grow but help from a large media fashion giant as well as the media sparked a huge amount of interest.
The interest sparked demand and like all things where demand is high and supply is less than demand, the price of Crypto Punks grew to eye watering levels in a few months.
Some Crypto Punks have exchanged wallets for over $7million.
So, what happens when you hold a Crypto Punk in your wallet?
You can simply say, ‘I own a Crypto Punk’.
People paid millions of dollars for a pixelated JPEG file, with no real-world intrinsic value, other than the status symbol of saying I own one.
Although there were a few more NFT collections launched in between Crypto Punks, and the next collection we are going to talk about, there have been none that have captured the media spotlight than Bored Ape Yacht Club.
Again, another free mint, that in only a few short months saw cartoon ape JPEGs being traded for hundreds of thousands of dollars.
Just like Crypto Punk these NFTs hold no real-world value other than being a status symbol.
The problem though in today’s world is having such a status symbol is very much in demand, especially in the influencer culture that has been born in recent years.
Bored Ape Yacht Club does have one useful utility, and that is IP over your cartoon ape.
What this means is that by owning a Bored Ape Yacht Club ape you can commercially use your ape for branding, licensing etc.
An example of this is the Bored and Hungry restaurant in California
Restaurants appear in their millions every year around the world, but this restaurant gained a lot of media attention simply because the branding behind the restaurant is a Bored Ape Yacht Club NFT image, and they can do so as they own the IP behind the BAYC image of the NFT they own.
More and more artists and entrepreneurs entered the space and began generating their own digital art to be sold as art collections or NFT projects looking to cash in on the growing trend.
Why NFTs Exploded in Popularity
The NFTs that were being collected and traded in small volumes by early adopters saw a huge increase in traders looking to invest into the next Bored Ape Yacht Club and make their fortunes, just like the Klondike gold rush!
As Crypto Punks and Bored Ape Yacht Club became status symbols, and as celebrities such as Paris Hilton, Eminem, Justin Timberlake, and Jimmy Fallon all started buying in, it led to an influx of investors, entrepreneurs, those will cash saved up through Covid and the curious to investigate this latest craze.
This was fueled by more people having more disposable cash during Covid as premises traded differently, and in some European countries they shut their doors for a couple of months through Government enforced lockdown measures.
Travel was restricted and suspended in most places, workplaces encouraged and adopted to a work from home regime and therefore people had more time available.
The last major reason for the explosion in NFT popularity was the fall in interest rates around the world as Governments looked to encourage spending to help businesses get through the pandemic.
Interest rates in the US in early 2021 stood as low as just 0.08% in September 2021. Compare this to nearly 20% in the 1980s!
Cash in 2021 was cheap, interest rates were low, and money was free flowing.
This perfect storm ultimately ended up causing a vast sums of money in the cryptocurrency and NFT space.
Over a trillion dollars in fact!
This created much needed awareness in the NFT space, but the NFT industry was very early and instead of big companies innovating with the technology, everyone who jumped on the so called ‘band wagon’ did nothing more than produce copy-cat versions of Crypto Punks and Bored Ape Yacht Club NFTs – as these were the NFTs in demand.
It became like the Wild West and unfortunately this unregulated decentralized space became victim to scams, crypto theft and NFT rug pulls.
Why NFTs Sales are on the Decline
There are three main reasons that NFT sales are on the decline.
In such a new technology industry there were a lot of scams happening.
People pretending to be other people and leading unsuspecting NFT traders to fake projects to buy what looked to be a genuine NFT but were set up by the scammer to look like the original project.
Some scammers made millions of dollars this way, and the likelihood of them being caught is close to zero.
Another negative trend emerged from within the NFT industry, the infamous rug pull.
A rug pull occurs when an NFT project is set up promises of wealth, assets, utility, and great rewards.
People joined the hype, and grinded on Discord for whitelist spots by spreading the word of the NFT project.
They were tipped to be the next big NFT collection and on mint day they often sold out.
Selling out an NFT collection at just 0.08 ETH with 10,000 NFTs at the time saw the NFT creators amass a $4million fortune literally overnight.
Then came the rug pull. The NFT creators simply walk away from the project, close down Twitter, close down Discord and disappear – meaning the rewards, roadmap or utility promised was non-existent and the NFT that was worth 0.08 ETH the day before was now worthless.
Although the scammers and rug pulls in the industry did nothing to help its credibility, and on their own saw several people step away in search of other more financially protected industries, there was another factor that was unrelated to those acting within the space.
The bear market of 2022.
With supply chains heavily impacted throughout the pandemic, and the conflict in Ukraine, it saw a rapid increase in the costs of food, gas, and utilities.
These items have a direct impact on inflation, which began spiraling.
The Government uses one direct method to stop the rise of inflation, and that is done by raising interest rates.
When cash is not so cheap anymore, and people save money rather than spend, it helps bring down inflation and provide harmony in the economy.
Markets around the world fell on the announcement of inflation and a possible recession.
This impacted stocks and shares, cryptocurrency and NFT trading.
With scams and rug pulls on the rise, and still no big corporations utilizing the real capabilities of NFTs, many who entered the NFT industry with high hopes exited the industry with their tail between their legs.
Why NFTs aren’t just a Craze
NFTs, or Non-Fungible Tokens to give them their full name, have much more potential than cartoon characters.
As Crypto Punks started the craze with cartoon characters, the industry seemed to pivot in to this one small niche early one and has continued ever since.
Ask someone on the street what an NFT is, and you will either receive a blank look, or an answer something resembling how people are spending a crazy amount of money on cartoon apes.
Very few people can explain what the blockchain is or what benefits NFTs can bring over the next 5 to 10 years.
The media casually left this part out when explaining to the world how crazy people are spending millions on a small image that doesn’t do anything.
Using NFT technology for cartoon characters is like building a huge NASA computer and using it to play Tic Tac Toe on. Not even a fraction of its capabilities would be being used.
In the art world, particularly the digital art world, an NFT could act as a provenance. A guarantee the art is real and not a copy.
Every year the art world is subject to millions and millions of dollars of fake art pieces entering the market. Imagine this risk could be eliminated with the introduction of an immutable NFT as unquestionable provenance.
This is because all NFT transactions are stored with complete visibility and traceability in the blockchain.
Not many people yet would know how to look up transactions on the blockchain, but tools are in development to make this as easy as shopping online.
This is one small way that NFTs can help just one industry.
There are hundreds of industries where NFTs can be used for validation, verification, access, security, and a reduction in fraud.
The technology is there it’s just the industry is so new and has been so dominated by cartoon characters and get rich quick schemes that many have overlooked the staring-you-in-the-face obvious benefits.