NFTs are unique digital assets that are based on a new type of blockchain technology, that cannot be replicated. NFTs are taking the digital world by storm paving way for creatives since they link ownership to unique items such as artwork, music, videos, and real estate. NFTs use similar technology that powers cryptocurrencies, but their main difference is that they are non-fungible which means they are indivisible, while cryptocurrencies are fungible, and hence can be exchanged with one another for the same value.
From the year 2020 to 2021, the NFT trading market grew rapidly and was at its peak in the year 2021, whereby it increased to more than $17 billion over 2020’s which was $82 million. However, in the month of May 2022, there was a significant drop that led to the collapse of the 2022 NFTs trading market.
The drop in NFTs trading on popular platforms such as Opensea
Opensea is the largest non-fungible token market, that enables users to create, buy and sell NFTs. The NFT trading market dropped abruptly after its initial intensive growth which led to its rise in popularity. Several factors contributed to this plunge, but the main one was that over the last few months there was the sale the crypto assets. Due to this massive drop, Opensea had to lay off 20% of its employees, leading to unemployment. Some of the other factors that contributed to the huge drop included:
- The NFT fad attracted scammers, who set up fake websites and sell fake assets, this prompted people to not engage in the marketplace platforms.
- Plunge of even long-term investors-there has been a massive drop in trading of the crypto assets.
- Uncertainty among investors- Due to the increase in scams and theft, many items being sold are of low value, causing investors to be indecisive and quickly lose interest.
- Increase of interest Rates-Federal reserves have raised prices of risky assets, resulting in money being withdrawn from cryptocurrencies and NFTs.
How NFTs are still ‘alien’ to the ‘average joe’
As we earlier stated, NFTs are unique digital assets, and NFTs have unique features compared to cryptocurrencies. The main difference is that they are non-fungible; which means that they are indivisible. Each NFT has its digital signature and hence can’t be duplicated or be of the same value, unlike cryptocurrencies which are fungible and can be exchanged with one another. The following are aspects that make NFTs different from other cryptocurrencies:
- Uniqueness- Each NFT is unique from the others, other each has its digital signature, this aids in making it authentic.
- Scarcity-The main reason they have high value, is because they are limited hence they are rare. NFTs developers have the free will to generate assets as they intend and also limit.
- Indivisibility- NFTs are unalterable, which helps boost their profits since each NFT has a different value.
- Ownership-NFTs are within a distributed database and saved on a new blockchain that can’t be tampered with. This aids in associating ownership with a single private account. Only the owner can transfer the NFTs to any other account.
- Transparency-Buying and selling of NFTs are facilitated in a decentralized manner, and this means that with the digital systems records, buyers can verify the validity of a specific NFT.
How will the next bull market coincide with a transition period of people becoming more familiar with the use of NFTs?
NFTs are volatile and this means, that they are unpredictable and it is not easy to tell when the next market will go up. Wes from NFT agency Cude Design told us ‘A bull market occurs when the prices of assets increase, since May 2022, NFTs prices have gone down and hence it isn’t easily predicted when the prices will go up again. This will only happen when it is made easier to integrate NFT functionality with websites. One of the main problems facing many users is the fact that integrating functionality with websites is challenging due to the high cost.’
The cost is usually determined by the NFTs’ functionalities, and this at times draws away more users from the platform. High-quality assets are expensive and this also triggers away users. Due to the high level of scams happening in NFTs, cheap assets are of low quality and this also drives away investors. To curb this, prices should be lowered and NFTs should provide us with utility and value to enhance authenticity, so users know what they will get back after buying the NFTs. Although NFTs are indivisible, the value of NFTs is still questionable since someone can copy a photo and put it as their profile and claim it is theirs.
When NFTs create favorable conditions and open more cost-effective platforms, more users will be attracted and this will lead to the growth of stock prices promoting profitability. Leveraging also the interest ways is one way of attracting users and providing room for more new users. When users are many, competition will also increase and this will boost the stock prices which is important for corporate profitability. With this put in place, more long-term investors will be drawn and hence NFTs trading market will be the next great investment, we expect to see a boom of advancement of capabilities and use cases over the next 18 months.
Frequently asked question
- How can the cost of NFTs making be reduced?
The cost of NFTs can be reduced by using a less expensive blockchain or using lazy minting. One can also use the two-layer scaling solutions to reduce the gas fee, but still, maintain the security provided by the Ethereum blockchain.
NFTs are the next hot investments, in the coming future. With the implementation of new, favorable, prices will scale up high, and by this even exceed the previous $17-billion-dollar mark. From real estate to videos to music, and art, NFTs are indeed taking over the digital space creating opportunities for artists to grow and advance to a new level. NFTs have grown and for sure full potential is yet to be realized.
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