For the last few years, NFTs have dominated the conversation around digital property rights and veracity. These assets provide a novel approach to authenticating digital goods as unique, irreversible, and limited, thanks to the proliferation of blockchain technology, making them highly sought after in the fields of art, music, and gaming.
NFTs had an early uptick in interest and participation, but that trend has since waned. The decline of NFTs’ popularity begs the question: why? Or if the contributors to the NFT sales drop be pinpointed, can the declining trend be reversed in 2023?
The NFT Market and Factors that Have Contributed to the Decline
Before we can begin to comprehend why non-fungible tokens are becoming less commonplace in investment portfolios, we need to examine the present condition of the NFT market. Recent research indicates that the value of the NFT market saw meteoric growth in 2021, with sales volume accomplishing an all-time high of $10.7 billion in the third quarter alone to achieve an all-time high. However, this expansion has slowed down in recent months, with sales volume falling by 10% in July 2022.
The oversaturation of the non-fungible tokens market is one element that is contributing to this drop. Because there are so many new NFTs being issued and traded on a daily basis, it is becoming more difficult to distinguish good assets from the rest of the noise. This has resulted in a decrease in involvement and interest on the part of artists as well as collectors.
The proliferation of NFTs on the market that are of poor quality and have been tainted by fraud is another concern. Swindlers will find it simpler to take advantage of unwary purchasers as the market grows more saturated by selling counterfeit or low-quality non-fungible tokens (NFTs). This has resulted in a decrease in confidence and credibility within the market, which has led to its overall downfall.
NFTs have become less accessible to the typical customer as a result of the hefty transaction costs that are involved with using them. Gas costs on the Ethereum network, for example, may often cost more than the value of the NFT itself. This makes it difficult for creators and sellers to reach a broader audience.
When we take a look at the most popular subcategories of NFTs, we see that art, music, and gaming are among the most popular of these subcategories. Nevertheless, the performance of these categories has changed significantly throughout the course of time. For instance, the number of sales recorded in the art category fell during the past year, whilst the volume of sales recorded in the music category rose during the same time period.
Concerns about the environment are another factor that has contributed to the decrease in the prevalence of NFTs. Because minting new NFTs and trading them needs a large amount of energy, several people have questioned whether or not the technology can be maintained for the long term. If more customers are made aware of the negative effects that NFTs have on the environment, it is possible that they may have less interest in participating in the market.
There have been a number of possible solutions suggested in order to overcome these difficulties.
1. Regulations and Transparency. For instance, improving the level of openness and regulation that exists within the market may serve to contribute to the development of trust and credibility. In addition to lowering transaction fees and expanding the market to a larger audience, making platforms for buying and selling non-fungible tokens more accessible and user-friendly may assist to reduce the amount of money spent on these activities.
2. Green Alternatives in Production. Additionally, in order to ensure the long-term viability of the technology, it is essential to investigate and develop methods that will lessen the negative effects that NFTs have on the surrounding environment. This may be accomplished by the use of renewable energy sources like solar or wind power, or through the investigation of alternative blockchain technologies that are more energy-efficient.
3. New Use Cases and Applications. Beyond the conventional realms of art, music, and gaming, one possible approach is to investigate new use cases and applications for NFTs. For instance, a non-fungible token (NFT) might be used to attest to the ownership of a virtual piece of real estate or to stand in for the ownership of actual assets. New doors of opportunity may be opened for producers as well as collectors if we broaden the applications that NFTs could have if they were used.
4. Broadening Adherents Base. One possible answer would be to concentrate on broadening access while simultaneously lowering entrance hurdles. This may be accomplished by developing blockchain technologies that are both more economical and more efficient in terms of energy consumption, as well as by creating platforms for buying and selling non-traditional assets (NFTs) that are easier to use. We can expand the potential audience for NFTs and offer new possibilities for both the people who generate NFTs and the people who sell them if we make NFTs easier to access
5. Cross-Platform Interoperability and Cooperation. There are a number of developing trends that have the potential to influence the growth of the NFT industry. For instance, the growing implementation of blockchain technology across a variety of business sectors may provide novel possibilities for non-fungible tokens (NFTs) to be included and employed in novel and engaging ways. Additionally, the development of decentralized finance (DeFi) and non-fungible tokens (NFTs) may provide new prospects for cross-platform interoperability and cooperation.
Even if NFTs’ dwindling popularity is reason for worry, it need not spell the end of the technology altogether. The market has a number of problems, but there are also plenty of ways out of the situation and room for expansion. The industry needs to increase market transparency and regulation, lower transaction costs, and address environmental issues related to NFTs if we are to succeed in overcoming the obstacles in our way. If we can increase the market’s confidence in NFTs, we can open up their use to more people.
Some practical ways to potentially reverse the NFT sales drop in 2023 for startups:
• Focus on utility: As the NFT space matures, projects will need to provide real utility and value to buyers beyond just collectibility. Focusing on useful applications of NFTs could attract more serious buyers and investors.
• Better platforms: Improving the user experience of NFT marketplaces and platforms could make NFTs more accessible to mainstream audiences. Easier onboarding, simpler interfaces, and more educational resources could help.
• More collaboration: Partnerships between NFT projects, artists, musicians, influencers, and other creators could introduce NFTs to new audiences and provide additional value and utility. Cross-pollination between NFT projects could also make the space more dynamic and interesting for buyers.
• Regulation: Clear regulation around NFTs could provide more security and legitimacy to the space, attracting bigger investors and more interest from mainstream institutions. However, regulation would need to be balanced to not stifle innovation.
Is buying and selling NFTs a legal risk?
NFTs may or may not be legitimate in your state or country. Some nations have enacted clear regulations concerning NFTs, whereas others have not. Buyers and sellers should research the relevant laws in their area and get legal advice if they have any questions.
Is it possible to raise money using NFTs?
NFTs may be used to fundraise for a wide range of causes, from humanitarian aid to natural disaster assistance to local community projects. Some of the money made by selling NFTs might be given to charity.
What potential applications do NFTs have in the gaming sector?
The ability to own and sell one-of-a-kind in-game assets via NFTs has the potential to revolutionize the gaming industry. This has the potential to provide novel avenues for generating revenue and elevating player interest.
Is there any moral trepidation with NFTs?
The exploitation of artists and the environmental effect of the technology are two examples of the ethical issues that arise while discussing NFTs. It's crucial that both parties take these issues into account and conduct themselves in a responsible and ethical way.
Is identity verification a possible use case for NFTs?
You can use a non-fungible token (NFT) to validate your identity while making an online purchase or logging into a restricted area of a website. NFTs may aid in securing transactions and preventing fraud since they verify a user's identification as permanent and one-of-a-kind.
To what end may NFTs be employed in the fashion business?
Because NFTs enable designers to make and sell one-of-a-kind digital fashion products, they have the potential to radically alter the fashion business. As a result, it may open up new possibilities for originality and progress in the field.
Can NFTs be used in decentralized autonomous organizations (DAOs)?
In a decentralized autonomous organization, NFTs may be employed as a form of ownership representation. NFTs may also be used to represent ownership holdings in DAOs, making for a more open and democratic form of management.