There is no denying that non-fungible tokens (NFTs) have taken a hit in recent months. Market conditions have plunged, scams and hacks are common, and there is a growing number of shoddy projects, causing many to question the value of NFTs and their place in Web3. Even popular projects like the Bored Ape Yacht Club have taken a hit, with floor prices falling below $100,000 this year.
Over the past crypto cycle, NFT market conditions have been largely correlated and dependent on the general crypto market. As technology and digital assets skyrocketed, it became easier for individuals and investors to justify speculating in the nascent NFT asset class – often paying exorbitant premiums with the belief that some utility and value tangibles could be derived at some point in the future. Combined with the fact that NFTs, by nature, are relatively rare and illiquid, this created the perfect storm for dramatic price appreciation that fell even more dramatically to earth.
Market conditions are also tied to the changing ecosystem, which includes widespread fraud and oversaturation of content, further worrying parties already involved in the space and hesitant for consumers and businesses looking to enter space.
What is important for us to realize is that this is a natural part of the evolution of the NFT space. Excessive speculation followed by a fight against reality is not only predictable, but necessary for us to act and address current issues to ensure that these digital assets can continue to grow and thrive.
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Scams and hacks are, of course, detrimental to projects and users participating in the NFT space. No creator should have their work duplicated and sold under someone else’s name, just as no buyer should be scammed or stolen without their knowledge. Projects shouldn’t have to worry about a hacker taking advantage of infrastructure vulnerabilities and stealing massive sums of money. Plus, early adopters don’t have to worry about project managers running out of working capital or simply abandoning the product in the early stages of the roadmap.
My take on the NFT market action today… pic.twitter.com/iDjrJeQdMt
— Peter Smith (@OneMorePeter) August 22, 2022
But what these security flaws reveal is where the points of failure are in the system, allowing us to work harder to fix them and prevent them from happening again in the future. They also prove an important point for blockchain projects: that they must prioritize infrastructure and security partners in order to achieve long-term success and avoid future financial losses. Additionally, companies and projects need to consider internally how best to protect users. They should take advantage of open source technology and develop their own features that help increase security – OpenSea and MetaMask are taking steps to achieve this.
Where scams and hacks cause distrust and unease, the growing number of shoddy projects has led to a general oversaturation of the NFT market. People are tired of hearing about NFTs that have no artistic value or tangible utility. In a crowded market, it becomes difficult to assess which projects or collections are worth the money.
The silver lining here is that the market downturn is eliminating some of the lower quality NFT projects. Projects will be forced to deliver on their promises, pivoting their strategies to stay competitive and better respond to their audiences.
For starters, markets will need to start curating artwork to ensure that the highest quality coins aren’t drowned out by the massive number of NFTs and duplicates listed. They will also need to better align with evolving copyright and intellectual property standards. Projects that aren’t solely focused on digital art will need to offer real utility to consumers or other businesses to be successful in the long term. Utility can take the form of property privileges, exclusive memberships, redeemable rewards, or entry into communities of like-minded individuals.
And perhaps most importantly, we’ve only begun to touch the tip of the iceberg when it comes to the full potential and number of use cases for NFTs. This highly disruptive token standard can and will support effective and secure digital property rights over valuable assets. Ticketing for events and travel, immutable forms of identification, and digital domain standards are among other exciting possibilities that also include financial products, medical records, real estate, and intellectual property.
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The challenges we face will be overcome and result in a healthier ecosystem of solid projects that reshape our lives in new and unimaginable ways. Additionally, McKinsey & Company has predicted that the metaverse will likely reach a valuation of $5 trillion by 2030. Guess what the building blocks of the Web3 metaverse are? NFT. So it’s no surprise that another study predicted that the NFT market would reach $230 billion by 2030.
Since NFTs represent digital property that is both immutable and easily transferable, they will serve as digital IDs or tickets to events in the metaverse, provide proof of participation or payment, and serve as proof of ownership for games. , portable devices or digital real estate. NFTs will underpin all new digital economy activity within the metaverse.
NFTs lay the groundwork for the next generation of innovative products and services. As we continue to navigate these growing pains of this fledgling industry, one thing is very clear and that is that NFTs are here to stay.
Anthony Georgiades is co-founder and president of Pastel Network, a layer 1 blockchain for NFTs and Web3 technology. He is also a general partner of Innovating Capital, a technology fund focused on disruptive companies and digital assets. Previously, he was part of the investment team at First Round Capital and the operations teams of various startups. He studied finance, management and computer science at Wharton University and the University of Pennsylvania Schools of Engineering.
The opinions expressed are those of the author alone and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice.