Non-Fungible Tokens (NFTs) once promised a revolutionary future for artists, collectors, and creators. But a slowdown since has seen many platforms shutting their virtual doors - what’s behind this sudden downturn?
In short: a widespread misunderstanding of core NFT concepts and the technology powering them.
Speculation, hype, and genuine interest in the potential of NFT technology drove an initial gold rush. It is evident that many platforms and participants - especially within the digital art community - needed a deeper understanding of what made NFTs valuable and pioneering.
Here are three pressing obstacles that platforms must overcome for NFTs to once again thrive:
Access and usability
After gaining hype in 2017 due to its innovation in digital ownership - and ability to empower creators to bypass traditional gatekeepers so that they could promote their work directly to audiences - the world of NFTs has hit several roadblocks.
‘Gas fees’ (the transaction costs associated with making changes on the blockchain) posed an immediate barrier for many. These unpredictable fees discouraged in the same way that unfamiliar industry jargon or a lack of guidance about the potential risks and rewards of investing in NFTs could. And making the space challenging to navigate.
Similarly, with crypto wallets being needed to engage to store and manage tokens, some potential users were deterred by the prospect of having to set up and secure a digital wallet. For less tech-savvy artists, these barriers were that much more off-putting.
The confusing interfaces of many NFT platforms likely made tasks frustrating and led to an overall poor user experience.
Overemphasis on speculation
While NFT transactions reached $4.7 billion in early 2023, this is still a far cry from the $12.6 billion achieved in early 2022.
Early on, the NFT landscape was heavily influenced by speculative buying but this was short-lived and raises the question: was the lure of quick profits used to fuel a frenzy and draw many into the NFT space under the false pretense of quick financial gains?
Speculation often overshadowed the uniqueness and indivisibility of digital assets, turning them into mere investment vehicles. Moreover, over-speculation led to heightened market volatility and unsustainable bubbles. This caused trust in NFTs as a legitimate avenue for investors and collectors to erode while dissuading genuine investors and artists.
Misunderstanding of value
With interest in NFTs skyrocketing five years ago, there was a misunderstanding of value, rooted in the flood of hastily created tokens. For many newcomers, NFT value became more abstract and harder to grasp.
Some investors rushed to capitalize on the trend of countless new tokens emerging and this led to a surge in value-less NFTs. With trend-chasing diluting the market’s overall quality, genuine artistry was overshadowed and buyer disillusionment arose as it became overwhelming to distinguish between valuable and value-less tokens.
Many of these issues could have been avoided through curation to ensure a higher standard of tokens within the market.
Education gap must be filled
It is essential for platforms to create a more informed user base by offering educational resources across all domains of the NFT space to avoid letting missed opportunities slip by.
From a financial perspective, the NFT space is complex. Grasping concepts like blockchain, digital ownership, intelligent contracts, and cryptographic verification is challenging but providing education on the financial nuances of NFTs can prevent users from making rash decisions that are driven by FOMO.
Artistically speaking, educating users to understand the potential and limitations of NFTs can help grow an appreciation for the artistry behind digital assets - as opposed to simply viewing the space as an investment vehicle.
Artistically speaking, educating users to understand the potential and limitations of NFTs can help grow an appreciation for the artistry behind digital assets - as opposed to simply viewing the space as an investment vehicle.
With people wanting their purchases and investments to be secure, platforms that provide proper education and user interfaces about mitigating scams and fraud can equip users to recognize red flags.
At the end of the day, a strong community can provide insights and guidance to create a more vibrant NFT ecosystem. Platforms are not solely responsible for the success of NFTs but they do play an integral role. Ultimately, to realize the full potential of the NFT space, the industry must prioritize education to make the space more accessible and focus on genuine value rather than quick profits.
By doing so, the NFT world can regain its footing and continue to revolutionize the digital landscape.
