Non-fungible tokens had their first bull run in the beginning of 2021. This bull run was short lived and lasted only a few weeks. Many declared the bull run over after the NFT market collapsed at the end of that bull run.
Unfortunately, those people were very wrong. The NFT market went absolutely crazy during the beginning of August. This has led many to speculate that the NFT market is back and will stay this time.
However, we are not so confident about that. This article will explain our skepticism behind NFTs staying as popular (and valuable) as they are right now.
For those that don’t know, NFT stands for non-fungible token. These are cryptocurrency tokens, almost always ERC-721 tokens, that are not fungible.
That means only one of the tokens can exist on the blockchain.
These tokens are then attached to any media file, typically digital art, as a way to prove authenticity. NFTs are the digital version of having an original Dali compared to a Dali print.
At the moment, the NFT marketplace is mostly JPEGs created by artists and the occasional MP3. But NFTs can literally be attached to anything in meatspace for use as recordkeeping on the blockchain.
Now, that is a very high level look at NFTs and a brief glimpse at the future of them. The next section will cover why the current bubble likely is not here to stay.
NFTs Are Still a Bubble
NFTs will have a lot of uses. Remember, they are simply a way to tokenize ownership on a decentralized ledger (the blockchain). It’s especially important to note that NFTs can be divisible if that is how they are programmed when minted.
We will put it this way, NFTs will change entire industries. The music industry, real estate industry, video game industry, and art industry will all be changed by NFTs and the blockchain.
However, there is a problem with all of this.
NFTs are a technology that sort of exists in a vacuum. Basically, NFTs have outgrown all technical use for them.
They only exist as a cool thing that people can buy to (oftentimes anonymously) show off their wealth. Expensive NFTs like CryptoPunks have become the Lamborghini and Rolex of DeFi.
Again, this does not mean the technology behind NFTs is bad or that NFTs are useless. Just at the moment there is no use for an NFT other than the value that people put on the JPEG.
Will NFTs Be Worthless When The Current Bubble Pops?
No, NFTs will certainly not be worthless when the current bubble pops. Bitcoin never became worthless when any of the past bubbles popped.
NFTs will likely follow a similar trajectory. That means that some NFTs could lose a lot of value. Low quality NFTs might become entirely worthless.
There will still always be a market for high quality NFTs, though. These include “vintage” NFTs like CryptoPunks and sports NFTs like NBA Top Shots.
And the market for high quality NFTs will only increase as people spend more and more time online, plugged into the metaverse.
Future Uses for NFTs
NFTs at the moment do not appear to have many uses. Art NFTs are essentially “original” digital art that anyone can save with two presses of a button.
However, things in technology can change very quickly. NFTs seem primed to be one of those things that goes from “why is this so valuable?” to “why didn’t I buy it earlier?”
With that said, here are some future uses for NFTs:
- NFTs plus hyperrealistic virtual reality. Hyper realistic virtual reality will be a thing in the medium term future. Imagine a VR world where you can have a trophy room that contains NFTs like a Beeple NFT, a CryptoPunk, NBA Top Shot, or any other valuable NFT. Watch Ready Player One for an idea of how this future reality could play out.
- NFTs as collateral. NFTs are notoriously illiquid, which is expected with a young market in a difficult space (digital art). But the liquidity will increase enough that valuable NFTs can be used as collateral for cryptocurrency loans on DeFi lending protocols. In other words, NFTs will become a more useful store of value.
- NFTs used for money laundering. It’s a sort of sad fact of life that crime exists. NFTs will likely gain a huge amount of price inflation from money laundering. This is to be expected considering most experts believe the high prices in the traditional art industry is driven almost entirely by money laundering and tax evasion. NFTs make money laundering easier than using real life paintings.
- NFTs used for payday loans. This point goes beyond the digital art use for NFTs and into broader uses for NFTs. One major use for an NFT is for tokenizing contracts. This could allow professional athletes (as an example) to sell an NFT of their guaranteed contract. It is basically a payday loan, but with an NFT.
- NFTs used in real estate. NFTs can also be used in real estate. This would involve turning a property deed into an NFT. It would be immutable, divisible, and even trustless with the proper use of smart contracts.
- NFTs used in video games. The biggest potential use for NFTs, in our opinion, is in video games. There are already companies like Enjin building blockchain games. These games have NFTs like special skins, items, music, characters, and even usernames. And a lot of these NFTs can be used across multiple games that rely on the same game engine. Again, watch Ready Player One for an idea of NFTs can and do work in video games if you do not understand it.
That covers it for everything you need to know about NFTs and whether they are here to stay. To summarize, NFTs are definitely here to stay. They will only become more popular over time as more of life becomes digitized.
Sadly, NFTs will likely experience a few major pops in the short to medium term. But the general direction of the value of NFTs should be upwards, just like cryptocurrency as a whole.