Nft, the sector tries to change to survive

Nft, the sector tries to change to survive


The artist who invented NFTs (non-fungible tokens) says he has spent the last two years going "from excitement to terror". While he says he's "gratified" to see how many people have gotten involved in what began as his "private thought experiment," Kevin McCoy says he's terrified of the gold rush that ensued. In March 2021, during the early stages of the collective NFT craze, a single token, tied to the artwork Everydays: The First 5000 Days, by digital artist Beeple, sold for nearly $70 million. br>
When McCoy and his partner – entrepreneur Anil Dash – proposed the idea of ​​a cryptocurrency-like token that could certify ownership of digital assets in 2014, they felt that the them was an "important idea": the intention was to create a mechanism to trace the provenance of digital works and give small artists a new way to make money. Now, however, McCoy says he never imagined that NFTs would become a vehicle for financial speculation.

During 2021, the frenetic rush to buy and sell has sent NFT prices through the roof, especially after the historic sale of Beeple. By the end of the year, the average price of an NFT had exceeded $3,000, despite the surge in new tokens on the market, while the cheapest NFTs from the most renowned collections were selling for $200,000 apiece.

The collapse of the sector

The economic bubbles, however, are destined to burst sooner or later, and that of the NFTs has done so in spectacular fashion. If in January 2022 NFT trades had reached a value of 17 billion dollars, in November the figure had dropped to 400 million dollars, 97 percent less. It's unclear what triggered the downturn, but the drop in demand, which began with the cryptocurrency market crash, has wiped out nearly $9 billion.

Industry players, who have been left in charge to pick up the pieces, they look at the collapse as a moment to "clean up": "I firmly believe that the hype is useless," explains Shiva Rajarman, vice president of product at OpenSea, the largest NFT market in the world. While the publicity has been good for the industry, Rajarman says it has also pushed people into NFTs for the wrong reasons – to make a quick buck – causing them to lose sight of the technology's usefulness.

With the authorities of regulation now moving and skeptics wallowing in schadenfreude , NFTs find themselves at a crossroads . According to all insiders, if the technology is to ensure widespread adoption and lasting cultural relevance, it will have to be presented in a different light.

Change or disappear

According to Rajarman, the facing a series of new use cases that exploit the particular properties of NFTs: the ease with which they can be exchanged and the possibility of moving them freely between different applications. While some of these features predate the NFT craze, they have so far remained hidden beneath the trading frenzy.

Of the various applications, NFTs designed for gaming are the most proven, with some games attracting hundreds of thousands of players a day. Although the specifics vary from title to title, the general idea is to allow players to own their game assets (characters, cosmetic items, etc.) and exchange them for cryptocurrencies.

In a video game called Splinterlands , launched in May 2018, NFTs are linked to digital cards that grant a special ability that can be used in battle against another player, similar to titles such as Hearthstone or Magic the Gathering . The tokens associated with the cards can be traded on the secondary market, meaning people can get back the money they invested in Splinterlands if they decide they no longer want to play, as creator Jesse Reich points out, according to whom this dynamic encourages " entrepreneurship" of the players without favoring an unhealthy fixation on profit.

The price of a single card varies from 1 cent for the most common to hundreds of thousands of dollars for the rarest; the average is around 5-6 dollars. To ensure that no one is left out of the game, in battle players are usually matched up with other users of similar cards and skill levels. While player numbers have dropped somewhat since the market crash, Splinterlands still attracts between 150,000 and 250,000 people a day, with 90,000 card trades per day.

An Australian video game studio called ImmutableX uses NFTs in a similar way for titles such as Gods Unchained, released in 2019. Co-founder Alex Connolly argues that non-fungible tokens prevent the creation of "grey markets" where scams circulate and where players resort to unofficial ways to trade assets for real money. Gods Unchained NFTs sold directly by ImmutableX range from $2 to $150, but, as with Splinterlands, they trade on the market for prices ranging from a few cents to many thousands of dollars, depending on their rarity and perceived value in the game.

NFTs are also increasingly used as a form of membership. Some New York restaurants are selling tokens that entitle you to a table whenever a customer wants, while Starbucks has launched an extension to its loyalty program, whereby customers can earn NFTs by trying drinks and completing other tasks. Celebrities like DJ Steve Aoki are doing something similar, using NFTs to grant fans special access to events and merchandise.

It's fair to wonder how this kind of offering is different than any other membership or rewards program. According to Ryan Wyatt, managing director of the commercial arm of Polygon, the Ethereum extension on which many NFTs are located, is all about ease of exchange.

In all the examples cited above, the tokens that guarantee a membership can be traded on the marketplace because you are part of a public blockchain infrastructure that is not owned by a single company. So, in a scenario where brand loyalty carries a particular benefit (a lifetime discount, for example), a person may choose to convert their efforts into cash by exchanging their NFT with someone else, a possibility that a membership traditional offers.

The same premise could also extend to virtual worlds, argues Nft Rarible marketplace founder Alexei Falin, who predicts that non-fungible tokens will be a “foundation for commerce” in the metaverse. In addition to granting exclusive access to a particular digital experience, an NFT could also serve as a title deed for a virtual good or an avatar's clothing. This might sound crazy to some, but the billions in annual revenue generated by Fortnite proves that people are willing to pay to improve their social standing in virtual spaces.

The common thread that unites most of these applications is the use of NFTs and economic incentives as a basis for community education. Content creators, initially drawn to NFTs for monetization opportunities, have also begun exploring the new opportunities. “They're more important than money,” says King Saladeen, a Philadelphia-born artist who turned to NFTs when isolation prevented him from working on physical projects. Around his NFT projects, King Saladeen has created a community on the Discord messaging platform, where fans can chat directly with him.

Little regulation

However, there is a looming over all these initiatives aura of uncertainty due to lack of regulatory clarity. There are no specific regulations for NFTs anywhere in the world, which creates risks for any company that might consider investing in the technology. Likewise, this also means that those who have lost considerable sums in failed projects, abandoned and no longer supported by their creators have no one to turn to.

Some countries are starting to pay more attention to the problem: a November the UK government launched an investigation into whether or not NFTs pose a threat to “vulnerable speculators”.

Meanwhile, the European Union is preparing to vote on a new legislative package , Markets in crypto assets (Mica), to establish how organizations based on cryptocurrency technologies. Caroline Malcolm, head of public policy at blockchain analyst firm Chainalysis, describes mica as a "benchmark" on which other countries will base their regulations. While NFTs will initially not fall under Mica, an investigation over the next 18 months will determine whether additional industry-specific provisions are needed to mitigate financial risk for users.

Fears and uncertainties

Then there are those who wonder if the NFTs will really work as expected. According to economist Peter Schiff, the rules of supply and demand mean that NFTs won't hold their value over time.

According to Schiff, the “code of honor” is the only thing preventing NFT issuers from diluting their value by flooding the market with new tokens. This means that the scarcity of NFTs cannot be relied upon to anchor the value of these assets: "Anyone can own a beach in the metaverse – says Schiff – because an infinite number of beaches can be created".

While he recognizes the potential use cases for NFTs, such as transferable memberships, for Schiff these opportunities represent only marginal improvements to existing systems, and not a completely new and innovative as they are presented.

Schiff also argues that most people who use NFTs are not interested in use cases unrelated to speculation: these users are interested only in financial gain. And there's no shortage of evidence to support this theory.

Even after the industry collapsed, major companies continued to flood the NFT market. The cryptocurrency exchange Binance, for example, recently presented a collection in collaboration with Cristiano Ronaldo (for which users have spent over 500 thousand dollars), while Warner Bros. Discovery has published an NFT version of The Lord of the Rings: The Fellowship of the Ring .

" The important thing is that the typical user who bought an NFT will lose his money – adds Schiff -. If you bought an NFT because you think it will be worth more in the future, you are wrong. It will probably be worth nothing".

McCoy, the person who started it all, has a more philosophical approach on the future of his creation. The artist also predicts that the renewed focus on alternative use cases will lead to some price stability, freeing NFTs from the grueling cycle of booms and busts that has characterized the cryptocurrency market to date and which has brought many people to lose their funds.

" Unique digital ownership is too important a concept to disappear now – argues McCoy -. Quite simply, the final form and function of these tokens are yet to be seen " .

This article originally appeared on UK.

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