To say the hype around NFTs is on a bit of a downturn is possibly an understatement… trading on OpenSea is down 80%+ from its peak and according to Google, searches for the term have dipped into a weary-looking plateau. To uninvested onlookers, it might seem that the Oxford English Dictionary’s 2021 ‘word of the year’ has fallen out of the zeitgeist.
We can take a few guesses as to why the popularity of collectable NFTs has dropped since 2021. Firstly, and you don’t need us to tell you this, the world’s economy has been in a seemingly constant state of uncertainty which has directly impacted people's wallets, both real-world and crypto. From post-covid debt to the escalating energy crisis and across-the-board cost of living increases, people are rightly reviewing their priorities and protecting their financial interests.
As the meme below puts nicely… buying digital pictures for eye-watering amounts might therefore seem a bit frivolous in the current climate.
Added to the general worldwide economic pressures, crypto enthusiasts haven’t exactly been having an easy time either, with virtual currencies in the last 12 months being volatile to say the least. The go-to barometers of crypto performance, ETH and Bitcoin, have both seen prices drop by around 60% this year. With the markets lacking confidence and the guarantee of quick gains a thing of the past, it’s perhaps understandable that NFTs, so often used as a status symbol of your crypto wealth, have lost some of their appeal.
It’s easy to be drawn to the glamour and status of high-profile communities such as BAYC and Cryptopunk; the parties… the celebrity associations… the music videos… but how many NFT holders actually get that experience?
The reality is, many people get into NFTs for the potential financial gain and perhaps the only thing they have in common with other holders in their collection is the shared will to see the prices go up.
So it’s a bit of a bump down to earth for some NFT investors who soon realise there’s no financial guarantee - less than 42% of those owners asked in the poll above said they had made money from their purchases.
A combination of all these factors has led to the market maturing and the focus shifting from speculative profit-making to seeking out genuine utility. We’ve talked a lot so far about the downturn in the collectable NFT market, so the next generation has to take a different approach…
We think this is the time for utility NFTs to shine. While you might argue the digital collectibles use case hasn’t done wonders for the reputation of NFTs, it has demonstrated their potential.
The prolific trading of NFTs over the last couple of years has proven that blockchain technology and the smart contracts enabling the transactions can fully support the concept of digital ownership. Buyers have confidence to acquire digital assets because the provenance and authenticity of those images can be verified and ownership is undisputed. Because the blockchain is decentralised there is to some extent greater trust in the digital ownership underpinning the NFT economy.
The opportunity now is to apply that capability to new use cases, where the motives are less speculative and the technology can solve real-world problems. We’ve thought of a few current challenges where NFTs as proof-of-ownership could offer a solution…
Proof-of-ownership of particular assets could get you privileged memberships to anything from trendy private members clubs to exclusive metaverse worlds. Right now, you can get memberships to clubs and communities just by proving ownership of your NFT, which usually means the condition of entry is how much money you have…. but that doesn’t have to be the case. What if your NFT instead acted as proof of your skills and attributes, you could get access based on verifying any number of desired qualities.
Just think, Soho House could quickly verify your creative credentials via your reputation NFTs to get you through the first gate of membership, and you’ll be sipping martinis on an urban roof terrace in no time...
At this point, we’ve all likely been burned by ticket resellers. With the process of getting tickets for popular events requiring a combination of attacking online queues on multiple fronts with multiple devices and complete luck, we’re often forced into the shady world of ticket touts. NFTs would solve the issue of fake tickets, all parties could follow the transactions on a blockchain ledger, so it’s simple to trace where the ticket originated and when it was purchased and sold. Even better, a smart contract can enable NFT tickets to hold a fixed price, preventing ticket touters and opportunists from inflating prices on the secondary market. It certainly presents a much fairer solution than the demand-based pricing recently introduced by Ticketmaster, which has already received wide and heavy criticism.
The idea of using NFTs to reward loyalty perhaps makes most sense in the creative and entertainment industries where fans are so crucial to the success of an artist or franchise. What better way to reward those followers that have stuck with you through thick and thin than with official, minted representation of their loyalty? With the ownership of a limited NFT, they achieve a unique status and are rewarded with exclusive content, merch, access… so they’re likely to become even more invested.
This concept remains relevant beyond the world of entertainment - projects and brands can use limited edition NFTs to reward project OGs, early adopters and early evangelisers. By creating a community of true fans and believers, organisations have access to a far richer and more engaged audience which can be harnessed for product feedback, informing roadmaps and community advocacy, which brings further success.
So all in all, while the recent trend looks to be signalling the end of NFT hype, it really presents us with an opportunity to move into the next generation of tokens, with a focus on utility. We’re excited to see many examples of reputation utility tokens emerging (see our recent blog on the work reputation landscape), and we’re making our contribution by helping creators verify and prove their skills and attributes on-chain.
We believe NFTs are here to stay, and we’re looking forward to seeing them unleash their true potential.