NFT coins come to life as this high-risk crypto industry faces five key hurdles in 2023

Non-fungible tokens (NFTs) are making a comeback after a terrible year, with Enjin coin up more than 70% this month and the Rarible (RARI) NFT market and flow
FLOW2
well-known blockchain for NFT developers are both beating bitcoin. They still have a long way to go to recover from last year’s 80% plus wreck.

January’s NFT enthusiasm is not a sign of a turnaround.

The idea is that NFTs were collectible art. Great, you own a ten-second soundbyte of Tom Brady and you paid $100,000 for something that’s going to get lost on your laptop or stuck on a thumb drive in your desk drawer in your home office. Meanwhile, retail investors have just agreed, hoping players will spend crazy money buying fake swords and cute characters for some Axie Infinity playtime.

“It is possible to make money by buying and selling NFTs, but they shouldn’t be treated as an investment tool,” says Sagi Maman, CEO of Xternity in Tel Aviv, a blockchain game development platform. “NFTs don’t have the same characteristics as traditional investments, such as stocks or real estate, which have the potential to increase in value over time.”

Not only that, NFTs do not have the same characteristics as bitcoin, or major blockchain players such as Ethereum
ETH
. These are high-volatility, high-risk cryptocurrency trades, no matter what you think about the technology or the future of this segment of the Web3 universe. (What is Web3? Read this on Forbes.)

“To me, you’re buying an NFT because it has a certain aesthetic appeal or rarity and gives you some kind of status,” says Maman. “This is not a way to generate long-term financial returns.”

Biggest NFT hurdles

According to data compiled by Casinos EnLigne in Canada, NFT sales volume decreased by 83% year-on-year from January 2022 to January 2023.

The NFT space surged to an all-time high in January 2022, with monthly sales hitting $2.8 billion, but that number has since dipped to just $492 million in January 2023, Canadian news portal said on Jan. 16. news and information about online players.

All NFT coins were affected: those related to games, art and collectibles.

The fact that the Canadian casino industry is tracking this describes buying NFTs in spades. (I got $1,000 on 0’s and $2,000 on double zero! Roll that ball, baby!)

Some in the crypto space say NFT issuers need to act together. Some headwinds they listed via an emailed Q&A to a handful of attendees listed the following negatives and positives for NFT buyers:

Limited use cases: Most NFTs are still used for digital art and collectibles, but have the potential to be implemented across a wide range of industries. Expanding the use cases for NFTs and showcasing their potential to a wider audience remains critical to gaining mainstream appeal. (Think of NFTs that steal money from celebrities for no good and harm the industry at large as nothing more than a cryptocurrency scammer’s box.)

Fake Ads: NFT Market Magic Eden said this month that an unresolved issue in the market allowed fake NFTs to be listed and sold as part of real collections.

Transaction costs prohibitive: The high transaction fees associated with NFTs, especially on Ethereum, remain a barrier to adoption, especially for smaller transactions. More NFTs are popping up on layer 2 blockchains but lack the visibility.

Lack of interoperability: NFTs are spread across multiple blockchains and isolated, making it difficult to easily exchange or use them across different blockchain platforms. Interoperability between platforms will be necessary for NFTs to achieve wider adoption.

Regulatory uncertainty: The lack of clear regulations on NFTs creates uncertainty and risk for buyers and sellers. For example, if an NFT is indeed an investment in a GameFi-related token, why shouldn’t it be treated as an investment?

“The NFT space has made a lot of progress in solving problems such as plagiarized works, fake collections and spam,” says Shaban Shaame, CEO of Wakweli, an infrastructure protocol standard in Geneva that allows users to buy genuine NFTs and be sure to own the rights to the property.

NFT marketplaces and platforms have begun implementing measures such as whitelisting and manual curation to help prevent fraud. More recently, automated systems to detect plagiarism (“copymint”) have been put in place and are helping to bring some trust back into the ecosystem. “However, much more needs to be done to improve the overall trust and authenticity of NFTs,” says Shaame.

NFT: Beyond Bored Monkeys

The initial coin offering was the only crypto story to ever blow up and vanish. The hype is gone, even though new coins are continuously arriving on the market. NFTs rocketed into 2021 after being relatively boring, only to come crashing down to earth in 2022. Whenever this happens in a crypto industry, be it decentralized finance or new blockchain fads, investors are stop and the debate rages on the vitality sector.

NFTs are not going away in 2023.

Market participants say there is still room for greater NFT adoption, and the consensus is that big brands will lead the way.

For example, Starbucks
SBUX
‘ Web3 rewards platform is generating some buzz. Participants purchase a low-cost NFT that gives them access to different “coffee experiences,” the company says. Once new users get past the crypto wallet learning curve, the concept of NFTs becomes more plausible for some.

Those who raked in the money (and lost it) are the investors. It was probably more interesting to investors and developers than to consumers.

Coral Gables-based venture capital firm Bored Ape Yacht Club (BAYC) is a leading investor in this space. They issued a coin last year. It’s down 9.6% so far this year. This is probably the best known of the digital art NFT projects.

NBA great Shaquille O’Neill is an owner. So was singer Post Malone. He and DJ Khaled once had their bored monkey featured prominently on their social media pages, but not anymore.

“The bored monkey’s NFT property is a digital flex. Show that you are in the business and that you have the money,” says Yaroslav Shakula, CEO of YARD Hub in Barcelona. “There are other concrete benefits. Some NFTs give access to exclusive online/offline events and communities where you can do great networking What looks like an overpriced image of a monkey is actually the key to a number of real benefits.”

Six-figure payouts for some Bored Ape NFTs, and the money-losing coin associated with it for now, are another NFT headache for traditional investors. The wealthy lead the way by paying hundreds of thousands of dollars for an extravagant-looking monkey that may or may not be printed on canvas to hang in their crib. Or, again, lost on the pen drive in the desk drawer at home. But since it comes with access to the BAYC online, perhaps that membership has its privileges.

“Up until now, the main asset type that has been tokenized is cartoons. Bored Ape is a tokenized cartoon. The token also has some utility, such as being able to participate in exclusive parties. The fundamental value of an NFT is only as strong as the value of the asset backing the token,” says Asif Kamal, founder of Artfi in Dubai, a technology company that allows people to invest in artwork using blockchain. “Say that NFTs are dead misses the bigger picture that an increasing portion of the world’s assets are coming on-chain in tokenized form.The success of Ethereum Name Service NFTs is a case in point.”

Investable Name Service on Ethereum makes it easier to find an NFT collection. While a Domain Name Service is designed to resolve domain names into IP addresses like Forbes.com, ENS does the same with long cryptocurrency addresses. For example, an Ethereum blockchain address with a jumble of letters and numbers that only an AI bot could remember can be transformed into The Bored Ape Yachties of Los Angeles.

“Just as with all crypto segments, the real gems are often overshadowed by speculators, whose only goal is to play on people’s fear of missing out,” says Alexei Kulevets, CEO of Walken, a Lisbon-based GameFi startup. “The good thing about NFT is that once the hype is over, the true value of the company and the token will be revealed. We see tons of examples of this despite all the nonsense out there,” Kulevets says.

NFT art sales have declined over the past year. The number of digital art NFTs dropped from 36,000 sales in January 2022 to 18,000 in January 2023, based on data from Casino EnLigne.

The sales volume is also declining. According to the data, NFT artwork sales volume decreased the most, dropping 87% year-on-year.

Last year gave a bunch in the mouth of the entire cryptocurrency world. On Thursday, Jamie Dimon, CEO of JP Morgan, went so far as to call bitcoin an “advertised fraud.”

*The writer invests in Enjin coins and bitcoins.

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