Ever since NFTs were launched primarily, there has been a lot of chaos and commotion regarding their value, existence, usability, and much more. Yet, as times have passed, it is seen that NFTs have gained much popularity and are being used by populations consisting of artists and other digital composers. It’s the year 2022, and as of now, the NFT marketplace industry is being transformed in various areas ranging from the rise of alternative blockchains, entry of new traders, different use cases, and an increase in the funding from investors, better policies and regulations concerns. Let’s understand the state of the NFT market, as of today.
Global Sales Volume
In the previous year, 2021, the NFT sales amounted to USD 18.5 billion, which was a 570-fold increase from 2020. From the data of February 2022, it is predicted that in the present year, the market for new NFTs is likely to grow to at least USD 30 billion. On the contrary, cryptocurrencies have failed to provide investors with cover as the total market capitalization fell below USD 2 trillion in January 2022, the lowest since September 2021. Nevertheless, since July 2021, monthly NFT sales have crossed the USD 1 billion mark, and haven’t been cut back since then.
Buyers and Sellers (Traders)
Even though the diversity of buyers and sellers has grown, the value remains centralized in the hands of certain traders and investors. Other detailed transactions from the data derived from CryptoSlam (all figures are in USD):
- Average Sale (January 2022) – $ 666.12
- NFT Sales Total (January 2022) – $ 4.48 billion
- Unique Buyers – 923,400
- Total Transactions (January 2022) – 6,730,843
- Unique Sellers of NFTs (January 2022) – 768,932
While investors having a notable profile and portfolios are anticipated to continue driving the industry, the improvement in the number of new buyers shows that the NFT-curious are warming up to this novel asset class.
Blockchain and NFTs
The world’s most dominant blockchain for smart contract applications and NFTs is Ethereum. Until now, it has handled over 72% of all NFT sales, along with its ERC-721 NFT standard. However, it has certain drawbacks like high transaction fees, carbon footprint, etc., which has given rise to the coming up of new blockchains offering cheaper and more environment-friendly alternatives.
As of February 2022, Ethereum has topped a million unique buyers, after which is the second blockchain network, Ronin. Ronin is a sidechain of Ethereum and uses Ethereum technology while unloading transactions to its blockchain which runs parallel to the latter. Another competing blockchain is Solana, wherein the number of buyers is only 25% less than that of Ethereum. Moreover, it has faster and cheaper transactions, which is why it is popular among NFT collectors and game developers. It also consists of DeFi elements.
As the number of blockchains increases, Ethereum’s dominance is likely to subside and remain non-uniform across the statistical board.
NFTs avatars refer to digital portraits or sketches or digital depictions, that are mostly formed by either pixelated characters or illustrated animatedly. They are algorithmically generated so that each NFT has unique identifiable traits. The ownership of these avatars describes the community membership.
One of the most successful NFT avatar collections globally is the Bored Ape Yacht Club. The average price for a single Bored Ape, as of February 2022, was 110 ETH, which is equivalent to USD 319,947. Another notable mention is of Azuki, an anime-inspired NFT collection that provides its owner with access to The Garden metaverse, wherein the Azuki avatars become the owner’s identity to communicate and interact with the community. Through digital transformation, the metaverse is likely to transition from a sci-fi luxury into a future necessity.
NFT in Asia
Next to the west, is Asia, wherein NFTs are gaining more vogue and popularity now and then. Globally, Google search for “NFT” surpassed “crypto”, in January 2022. The most popular searched term in the countries – Japan, Taiwan, and South Korea – was “NFTs”. In Hong Kong, there was a 60-40 % tie between “NFT” and “crypto”. In mainland China, the results were almost similar to that of Hong Kong, due to its internet restrictions, including a ban on Google.
Southeast Asia – Philippines, Thailand, Indonesia
- A soft wallet known as ‘MetaMask’ has its sole largest market in the Philippines, while the same renders Vietnam in the third position.
- Thailand, at the second position, claims that 27%% of its correspondents are NFT owners.
- Bali (Indonesia) is transforming into a crypto hub.
- In order to stand up to government policies, ‘Alibaba’, a Chinese tech giant has rebranded NFTs as ‘digital collectibles’ that can be only purchased by using fiat currency.
- Beijing is building its own version of NFT on the state-backed Blockchain-based Service Network (BSN).
- The Chinese NFTs have also been renamed as DDC or “distributed digital certificates”, whose network is likely to support the nation’s national currency, yuan.
- Only 2% of the adult internet users own NFT, despite the country being tech-savvy.
- The massive contribution to NFTs in this country is through its world-famous K-pop industry and its tech conglomerates.
- However, not all kinds of NFTs are permitted. NFTs such as blockchain-based play-to-earn games are banned.
Metaverse and NFT
In recent years, ownership of virtual real estate involving the use of NFTs has expanded and flourished. In one of the most admired metaverses, Decentraland, the price of property has hiked to 400-500% since October 2021, ever since Facebook claimed about going virtual completely. Metaverse, NFT and Blockchain in Sports
NFT Marketplace and Competition
The current NFT marketplace is dominated by an Ethereum-based blockchain, OpenSea, that has a market share of over 80% (February 2022). However, since the advent of newcomers, the competition has risen, giving rise to new tricks and tactics to win over the NFT enthusiasts. A ‘vampire attack’ was launched in January 2022, by LooksRare, an NFT marketplace upstart. The platform airdropped its $LOOKS tokens as trading rewards and accomplished sales that were five times more than OpenSea. The entire commotion here, in high volumes, was partly due to ‘wash trading’.
Another marketplace, Mintable, launched a ‘vampire attack’ by holding a huge sale of nine Mutant Ape Yacht Club NFTs, at a price lower than their floor price. As a result, the offer was sold up very quickly due to the immense discount offered. Other notable players in the scenario are Nifty Gateway, Rarible, SuperRare, Binance, Coinbase, etc.
Investments in NFT
NFTs have become mainstream and are now attracting masses of investors. A few cases of NFT getting investments are:
- OpenSea (Jan, 2022) – USD $ 300 million
- Animoca Brands – USD $ 358,888,888
- The Sandbox – USD 93 million
- CryptoSlam – USD $ 9 million
Scams in NFT
Since NFTs are a part of the digital domain, they can experience hacks and scams, on several levels. The two most common crimes related to NFT are money laundering and wash trading. Through Chainalysis ( a blockchain analytics company ), it was estimated that such activities generated illicit profits of USD 10 million, in the year 2021. Other news surrounding the same is January 2022, bug vulnerability detected in OpenSea NFT marketplace, that was done to purchase NFTs at lower prices than that of the current market. Illicit activities are also going around NFT communities present in Discord, wherein certain individuals try to impersonate official servers of big NFT projects. As such, it becomes essential for investors and NFT collectors to understand and be transparent while getting involved with NFTs.
As of now, it is seen that regulations from the physical world move into the virtual world as well. The Financial Action Task Force (FATF), does not consider NFTs to be virtual assets but has however claimed that countries need to contemplate applying FATF standards to NFTs on a case-by-case basis. There is also very little know-how and other agreements among the governments in order to regulate the NFT sector.
There are some ecological concerns regarding NFTs such as carbon footprint. Mining an NFT requires at least 35 kWh of electricity, while the process from clicking on the mouse until claiming the rights produces the block to emit 20 kg of carbon dioxide. NFTs and Bitcoins have higher carbon emissions. Other challenges include guarding against copyright infringement, and taxation.
NFTs are maturing into digital and novel assets that can function as the best digital proof of ownership globally. They are likely to present valuable and creative use cases in future digital economies.
Forkast | Research Report: State of the NFT Market | Q1 2022