NFTs, An Emerging Asset Class: Reports

By Bharat Web3 Association

What is NFT?

NFTs or Non-Fungible Tokens are unique identifiers for digital art and other virtual assets. They are called non-fungible because, unlike a few other crypto assets, they cannot be mutually exchanged and therefore not fungible. The primary purpose of NFTs is to indicate the authenticity and ownership of assets. Every NFT is recorded on the blockchain. This helps to permanently document an identifier that cannot be copied, replaced, or split, thus ensuring that one official record of ownership is maintained.

The creation of NFTs dates back several years to 2014, when the first known NFT was created for a video to “monetize graphics”. However, the sale of “Everyday: The First 5000 Days,” a digital collage of 5,000 images, as an NFT for $69 million in 2021 is what put the asset class on the map. Unsurprisingly, it has been on the rise ever since. And while it’s easy to mistake NFTs for digital imitators of a marketplace for buying and selling art, there are several unique benefits that they offer to both buyer and seller that make informal coinage particularly attractive.

Unlike physical artworks, NFTs have a permanently documented ownership cycle to which they are always associated. Since NFTs are digital in nature, it is impossible to separate this form of digital identity from them. Moreover, since NFTs are essentially unique tokens which essentially act as proprietary tokens, their replication is impossible due to their unique entries. As a result, buyers can be sure that what they receive when purchasing an NFT is an original work that they own according to the terms of the smart contract.

Every NFT sale is recorded on the blockchain and is a permanent part of the asset’s history. Since NFT funding is always recorded in a single digital ledger, in the blockchain, the original creators of the NFT can continually receive royalties on the art they create. Thus, the benefits from the sale do not end once the artist gives up the creation.

Use cases

Many companies across a variety of sectors are starting to recognize and leverage these characteristics to make NFTs a part of their business model. And so NFTs have been able to expand exponentially in scope and size as more and more companies from a variety of sectors are starting to take notice. The digital art market has formalized the existence of the asset through online NFT marketplaces such as OpenSea, which has provided daily trading volumes of up to $2.7 billion, driving up fees. Participation from traditional companies and organizations with a non-crypto background has also helped expand the niche client base. Adobe has made efforts to integrate NFTs into its social media platform, Behance. Leading auction houses such as Christie’s and Sotheby’s have begun successfully auctioning NFTs for the millions. Even major sports organizations like the NBA, ICC, and FIFA have integrated NFTs into their ecosystem to increase user engagement and engagement.

More extensive use cases for NFTs in other sectors have also emerged as their popularity has grown. The gaming sector is a perfect showcase for itself. Blockchain-based games such as Cryptokitties and Axie Infinity make NFTs central to their core gameplay loop using NFTs that users purchase as real-time in-game assets. This creates new opportunities for players to earn from their in-game achievements as they can use and trade their character or in-game item based on the NFT they hold. Additionally, NFTs have opened up a new way for game developers to monetize their games. Major game studios such as Ubisoft and Electronic Arts are also pivoting towards issuing NFTs.

This world is also being embraced by the film and music industry, with blockbusters like Deadpool 2 and Godzilla vs. Godzilla. Kong that launched NFTs for sale with several movie studios and individuals also moving towards doing something similar. In November 2021, Quentin Tarantino released NFTs based on his 1993 film Pulp Fiction. Companies like Spotify have begun creating curated playlists specifically for people who own NFTs to personalize the experience. Soon, NFTs are also expected to contribute significantly to the Metaverses, as more and more of them start to appear. Users can buy their virtual plots of land and build their homes, all with the help of NFTs. In such cases, the true potential of the asset is revealed. NFTs are on the rise now but they are still relatively young in the market and far from achieving their optimal capabilities.

Market size and the way forward

Given the unique capabilities that NFTs have and the space they have been able to create in the market, their entry into the mainstream is not surprising. The 2020s saw a booming market with an exponential annual growth. According to Statista, revenue generated from NFTs has grown from $0.72 million in 2019 to $2.4 billion in 2022, a nearly 3,400-fold increase over 3 years. The sale of “Everyday: The First 5,000 Days” alone in 2021 tripled the total market size of the previous year. The most expensive NFT on record was sold in December 2021 for $91 million USD. The growth in the market has not slowed down since then. This is because the decline in the market value of cryptocurrencies has been offset by an increase in the number of NFT sales.

Moreover, revenue in the NFT sector is expected to reach $3,546 million in 2023 with the industry’s market capitalization expected to exceed $230 billion by 2030. However, NFTs come with risks, just like any other asset class. . Only a few NFT pools are limited in supply and have a clear roadmap. While this may present a scary picture, the same can be said of the many stocks listed on the exchange. It is crucial to do your own research (DYOR), ascertain the risks and understand the features of the NFT the person is buying.

NFTs bring unique attributes such as true digital ownership, scarcity, and verifiability, making them suitable for use in almost every industry. In addition, the integration of NFTs with other emerging technologies such as artificial intelligence, 5G networks, and the Internet of Things will open up new use cases and opportunities for NFTs.

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