Ariel shain
After a dizzying pandemic price pump, this year has seen crypto asset prices tumble, with most major cryptocurrencies currently trading at a small fraction of their all-time highs. Price mania and excessive leverage have once again led to a spectacular crash. However, proponents claiming that “crypto is dead” or “crypto is a scam” should be wary of dismissing the innovations made during this last cycle.
To draw a comparison, we can look back to the initial coin offering (ICO) craze of 2017 and 2018. At that time, ICOs raised billions of dollars with lightning speed to fund blockchain projects. What was originally touted as a democratized venture-funding model was quickly exploited by swindlers preying on unsophisticated investors, who were afraid to miss the next big investment opportunity. Although the vast majority of tokens sold through ICOs failed, numerous projects that emerged from the ICO craze became fundamental to crypto. Projects like Aave, 0x, and Chainlink revolutionized decentralized finance (DeFi) and contributed to the 2020 crypto boom known as “DeFi Summer”.
Similar to the ICO boom, the popularization of non-fungible tokens (NFTs) in 2021 ushered in a new speculative wave and growth phase. While many NFTs will likely entirely lose their value, some projects will create significant value for their investors and the entire crypto ecosystem. The popularization of NFTs has created supplementary building blocks for continued innovation in web3 - the next evolution of the internet based on decentralization and digital asset ownership. Additionally, the creation and sale of NFTs have created yet another fundraising path for startups.
But this is just the beginning. Most people associate the term “NFT” with expensive pictures of monkeys or other cute cartoon animals. This is simply a reflection of the most popular use of the technology. While the creation of digital art and collectables will continue to be a primary use case, expansions in other NFT applications will reshape our definition of the term. The technology has incredibly wide-reaching applications.
Whereas cryptocurrencies can be used to represent fungible assets like money, points, or company stocks, NFTs can be used to represent just about anything. As there are significantly more non-fungible things in the world than fungible ones, the possibilities are endless. NFTs are merely a blockchain wrapper for non-fungible assets, whether they be art, collectables, digital assets, intellectual property, or even real-world assets like real estate.
“Alongside the growth of the metaverse, the need for digital sovereignty and identity will drive continued innovation in the NFT space”
While tokenizing real estate and other physical assets presents some technical and regulatory challenges, the popularization of the metaverse has created a massive opportunity in the virtual real estate and virtual goods space. Some estimates indicate that in the next several years the Metaverse market opportunity will grow to over $1 trillion in yearly revenues. As enterprises scramble to figure out their strategy for this burgeoning virtual world, an understanding of NFTs will be crucial for developing a comprehensive metaverse strategy.
Alongside the growth of the metaverse, the need for digital sovereignty and identity will drive continued innovation in the NFT space. While profile pictures, 3D digital avatars, and digital wearables are one aspect of identity, the use of NFTs in social media applications presents an even more compelling use case. Most large social media platforms, like Facebook or LinkedIn, own their users’ data and monetize it for corporate benefit. New decentralized social media platforms, like the ones built on Lens Protocol, implement NFTs as a way to allow users to own their profiles and data. By creating a social profile NFT, users can decide what information they want to share, who they want to share it with, and how they may choose to monetize their data if the opportunity presents itself. As privacy concerns with centralized platforms intensify and blockchain interfaces simplify, many users and creators will begin to migrate to the multitude of decentralized platforms that are currently being developed.
Creator-led economies continue to blossom and the NFT technology will only accelerate this trend. Creators and brands with large communities are adopting NFTs for various uses. Whether it be to reward loyalty, create gated access, issue proof of attendance or proof of membership, or simply monetize one’s audience, NFTs are becoming a valuable aspect of building and managing communities. This has always been the case in web3-native businesses, social media, and gaming, but the importance of creating rich and active communities is spreading to almost every industry vertical.
As both small startups and large enterprises come to terms with the impending recession, a knee-jerk reaction can be to cut R&D initiatives to reduce costs. However, incredible amounts of evidence point to R&D spending during economic downturns as a leading indicator of success for businesses in the subsequent business cycle. Companies that continue to explore and invest in blockchain technologies, like NFTs, will find themselves well ahead of their competition when adoption accelerates in the next several years. Businesses who keep their finger on the pulse of ongoing innovation with NFTs, and web3 in general, will build a foundation for the bull market of the next business cycle.
