Anyone who participated in the NFT hype last year would have noticed by now that their portfolio is in the gutter, but this isn’t a sign that NFTs are forever dead or were a useless fad. On the contrary, this is the best thing that can happen to a disruptive technology. Like many other innovations before, NFTs first had to get hyped up, blow into a speculative bubble, and then pop before their real use cases could be explored. This is a good thing for the technology, just as the dot-com crash of the ’90s was ultimately a good thing for the internet. Speculation restricts innovation by rewarding terrible ideas and garbage products, especially for NFTs.
Most people don’t understand how NFTs work or what their use cases are, which only fuels their controversy and misunderstanding. Non-fungible tokens, or NFTs, are blockchain-based assets that serve as a deed of ownership over some “thing“, which is linked to a URL embedded in the token’s code, and can be transferred/sold to other people or used in blockchain smart contracts. An NFT’s entire ownership history and origin can be verified by anyone, making them useful for a very large variety of potential use cases. NFTs have been around for years, but only achieved recognition in 2021.
While some of the most famous collections still command 6- and 7-figure valuations, most have degraded to 2-3-digit sums. After Bitcoin and crypto prices began crashing hard this year, NFTs collapsed along with everything else. Now, the creators of NFTs are forced to sell their collections at realistic prices, allowing more buyers and participants to acquire and collect them. A Decrypt article elaborates on this phenomenon, but there are many more powerful uses for NFTs that can revolutionize the way content creators connect with their audiences, generate income, crowdfund new projects, or even provide community ownership and membership.
NFTs have a vast array of use cases, some of which are definitely worth large sums of money while others are worth less than the network fee charged to create them. However, there is a reason why useless NFT collections have been worth millions until this year, and it wasn’t entirely speculation. For many years Ethereum was the only game in town that could create NFTs, and Ethereum’s transaction fees are legendarily awful. Creating a 10,000 token NFT collection could easily cost a project $1,000,000 in network fees, which necessitated selling each token for triple-digit prices to recoup the cost and generate enough income to fund the project. Combine that with the novelty factor, and a bubble was inevitable.
Fortunately, thanks to alt-chains (such as Polygon and Solana), transaction fees are no longer a problem for a small project or individual content creator. Now, a 10,000 NFT generative art collection can be deployed and minted for less than $100, and can reasonably be worth a $10 value in stablecoins or cryptocurrency per token, earning a cool $100,000 for their creator(s) if all tokens sell, which can be life-changing for many people. NFTs do not need to be sold for high prices anymore, and that will usher in a new wave of functional NFTs that will see their imagined use cases come to life without hype and speculation holding them back.
An NFT’s true value depends entirely on what it represents and how it can be used, and buyers/sellers need to be realistic about that. Just because it has 0.001 percent rarity doesn’t mean someone else will be willing to pay 1,000x the price. Now that speculators’ NFT portfolios have become a dumpster fire, and thanks to a strong interest in Web 3.0, Metaverse, and blockchain internet applications, the functional value of NFTs can be focused on. A huge variety of NFT-powered niches can now be developed without speculators trying to “go to the moon,” and people can buy NFTs for their actual use cases. In time, this will usher in a new frontier of Web3 crowdfunding and Metaverse merchandise, which can only be possible if NFTs remain cheap.