NFTs Don’t Need To Last Forever: The Future Of Web3 And Transactional Digital Ownership
Ben Gehmlich
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August 9, 2022
The art and collectible communities have helped drive the initial growth of NFTs, but they aren’t the future. While there will always be a market for NFT collectibles, the idea that NFTs need to be a piece of art that lives and holds its value forever is limited. Companies are already unlocking the utility value of NFTs – which can support much larger markets than the relatively small market for collectibles.
There is no doubt that NFTs are a massive disruption to the art and collectible industry. NBA Top Shot was one of the first collections to see mass adoption and helped attract over a million users – many first time NFT holders. Dapper Labs worked with the NBA to create collectible NFT videos of the greatest plays and players.
The company did $224 million in sales volume in February 2021 alone. The NFT art market that became a red-hot affair in 2021, beginning when digital artist Beeple’s JPEG file sold for an eye-popping $69 million is beginning to fizzle out. Soon after that mega-sale, celebrities started minting their own NFTs even as major tech companies partnered with prominent collectors and paid them thousands or even millions of dollars to scoop a share of their digital art.
Whereas hyped NFT collections have been known to sell out within hours or even minutes, singer Chris Brown’s collection of 10,000 NFTs dubbed BREEZYVERSE collection seems to have hit a brick wall. Even with more than 150 million followers across all social networks, some people can’t understand how the NFT project the celebrity launched in OpenSea on July 1st could have sold only over 700 NFTs three weeks later, a paltry 7% of the entire collection. According to data from crypto intelligence firm Chainalysis, the hype surrounding the NFT art market that blossomed from $106 million in 2020 to $40 billion in 2021 has declined gradually in 2022.
The report noted that only a few notable companies were driving the current ongoing sales volumes, with transactions coming in “fits and starts.” The data further showed that sales had dropped from $3.9 billion per week in February 2022 to an average of $964 million weekly in March.
The above examples of music and sports collectibles are interesting because they represent such a small percent of their industry’s overall market. The sports collectibles market was valued at $26.1 billion in 2021, a paltry 5% of the $388.3 billion strong sports market as of 2020. The remaining 95% is made up of tickets to live games, television rights, and other monetization opportunties. Similarly, most of Chris Brown’s market value does not come from collectibles. The global music industry is worth over $50 billion and more than 50% of that is derived from tickets to live performances.
As we move into Web3 and the metaverse, NFTs can provide tremendous value and utility to events, communities, and other forms of transactional digital ownership. NFTs don’t need to always hold their value forever. The value of NFT utility tokens surpasses the boundaries of investments and delves into new possibilities on how users can work, play or interact.
We can define utility NFTs as non-fungible tokens whose applications transcend simply representing unique digital assets but instead proffering digital ownership that gives rights, privileges, and rewards that the owners wouldn’t generally have had. As an example of how the concept works, let’s imagine that someone plans an event and they plan to invite some 5,000 participants using regular paper tickets. All the participants will each receive unique entry tickets as they differ from each other in terms of their serial numbers.
Nonetheless, all those tickets serve a similar utility, granting the holder entry to the planned event. Instead of offering paper tickets, the idea of using NFT utility would mean that instead of giving participants paper tickets, the event organizer could create 5,000 unique NFTs that could offer the same utility of facilitating entry to the event.
A recent article by The Wall Street Journal titled “NFT Sales Are Flatlining: Is this the beginning of the end of NFTs?” startled the NFT space and made many players ask if anyone could still make money with NFTs. While those concerns may have been understandable, nothing could have been further from the truth. Instead of spelling doom, the dwindling of the NFT art era has pushed creators to design more engaging utilities, with sports, gaming, entertainment, and travel companies taking the lead in selling NFT tickets.
The entry of the blockchain-focused Web3 that enables creators to reimagine and reinvent the unattractive aspects of Web2 is gradually smoothing out wrinkles of user experience. Since users now demand greater functionality, NFT makers are beginning to recognize the importance of value-added NFT drops, demonstrating more creative uses of NFT utility. The security trade-offs that give Web3 users complete control of their digital assets have established transactional digital ownership.
Also known as access NFTs, utility NFTs represent their owners’ opportunities, access, and other benefits. Instead of value based on scarcity, the value of these tokens are defined by their practical applications, including invites, exclusive opportunities, and access to events, among others. The world of sports is increasingly using utility NFTs to create a new system of trading and rights ownership. Organizations and individuals can securely own and transfer their unique digital assets through merchandise, game-day experiences, or tickets. Additionally, creators can use NFTs to monetize their fan communities by enabling them to use their collectibles to create their games.
While most of the news surrounding NFTs has been on the crazy amounts of money some digital artists have made selling their creations on the blockchain, it’s finally emerging that there’s a lot more potential for NFTs beyond artworks that remain idle on the blockchain. Just like blockchain is the bedrock of crypto by recording transactions in a secure and decentralized location, NFTs, while a little different from crypto, can leverage the blockchain to establish and authenticate digital ownership and tap into the larger market as utility NFTs.
As the art and collectible phase of non-fungible tokens transitions to the next phase, we strongly recommend that developers locate NFT projects that offer utility since users now look for collectibles that offer real-world and quantifiable value. With the world’s largest NFT marketplace, OpenSea, holding over 80 million digital assets that carry no utility, there’s every chance that not all of them will find buyers. However, utility NFTs will continue to offer their owners increased value, which can only be appreciated as the NFT universe continues with its immense expansion.