NFTs became one of the most popular buzzwords in recent years and won headlines around the world. Between 2020 and 2021, the volume of transactions in the NFT market went from 82 million dollars to 17 billion dollars, a growth of more than 21,000%. In almost one year, NFTs have gone from being a tool used by just a few tech experts to an increasingly popular technology among both companies and individual users.
But how much of it is sustainable in the long term? How much of this market really makes sense? Are we experiencing a bubble in the NFT market?
In 2022, the NFT market remains heated, with the number of transactions, users, and volume growing rapidly. This is not to say that the market does not have its ups and downs. In fact, 2022 has been marked by the drop in the prices of various collections and, at certain weeks, the drop in the number of transactions.
How does the market now differ from the market in 2021, and what can we expect in the next few years? We can analyze these questions in three major spheres: collections and utility, technology, and mass adoption.
Collections and Utility
Starting with collections and utility, we are still living the hype of collections focused on profile pictures, and this is a trend that is expected to continue for some time. These collections create NFTs that represent an image that can be used as a profile picture in a social network profile.
This type of collection has grown so much because it bridges Web 2.0 (social media, cloud, and platforms) and Web 3.0 (blockchain, smart contracts, and tokens). When someone decides to use an NFT as a profile picture on social media, they are sending a message to their audience that they are a person who is aware of new technologies and a person who is part of this new world. An NFT as a profile picture can also help to send a general message about oneself, just like how clothing, followed pages, and liked posts can act as a means of self-expression. Although people believe that the profile picture hype is wearing off, I believe it is still far from over.
Despite large volumes, NFTs have yet to reach mass adoption. Social media is a showcase for users to show who they are and NFTs, in the end, are a powerful form of storytelling. NFT profile pictures are a way for users to tell stories within the online environment, and a lot of people still don’t understand its importance.
There is another important point: an NFT simply as a profile picture is probably not enough going forward. In 2021 we saw collections making millions in volume with no real use for their owners. Without utility or great storytelling, 99% of collections will go to zero. From now on, collections should convey the utility they will bring to their owners. For this, it is necessary for the makers of the collection to understand the audience they are attracting, so that the uses make sense to those who purchase the NFTs. This utility of NFTs can be exclusive access to content, new collections, online and offline events, and more.
The second point, technology, is one of the hottest trends at the moment. Last year brought a very powerful inflection point for the NFT market and it is seldom seen or discussed. The growth in transaction volumes has attracted not only creators and buyers, but also companies developing adjacent technologies, rarity analysis tools, data aggregators, management tools for NFT communities, and others.
This movement is just beginning. This year already shows that there are thousands of talented entrepreneurs building tools for this market. Every new innovation brings the potential for other innovations to emerge and that is exactly what we are witnessing right now. In the coming years, we should expect to see more and more tools emerging to solve the problems and challenges of the NFT market.
Finally, despite high volumes, the NFT market is still far from mass adoption. This is due to both technical and market education issues. There are many barriers to entry in this market right now and these points need to be addressed: better UX and UI, growth of sidechains, cheaper layer 1 transaction fees, layer 2 with more users, etc. In addition, it is necessary to work on raising awareness so that the general public views this market differently. A majority of people still link the NFT market to environmental issues, speculation, money laundering, get-rich-quick schemes and so on. The entry of new players can also help with mass adoption. Some of the biggest business platforms in the world, such as Instagram, YouTube, TikTok, Twitter, and Amazon, have already started to incorporate or have already announced that they are studying the incorporation of NFTs in their products. Despite the discussions about centralization and decentralization, there is no denying that this will contribute greatly to the mass adoption of NFTs.
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