Remember NFTs? The craze reached its peak in 2022 and today, the value of virtually all NFT projects have experienced major drops in value of up to 90% in some cases.

So what happened? Why didn’t NFTs “shoot to the moon” and make everyone rich? In this article I’m going to give you my perspective on NFTs and why they saw such a steep decline in value. After reading this you will be able to decide for yourself if they have the potential to make a comeback. Has the bubble truly burst, or is there a chance for NFTs to rise again?

For the record I don’t own any NFTs, so this is a purely an objective viewpoint.

What is an NFT

An NFT (non-fungible token) is a unique digital certificate of ownership. The details of this certificate are stored on a blockchain (a public list of transactions). NFTs can represent ownership in digital items like artwork, music, and virtual game items, or even physical items like real estate.

Ethereum played a key role in the rise of NFTs. Its ability to run smart contracts, which are self-executing digital agreements, simplified the creation and trading of NFTs. The ERC-721 standard, specifically designed for NFTs on Ethereum, provided a framework for developers to build projects, which made Ethereum the go to blockchain for NFT development. Later, Solana and Cardano became big NFT platforms as well.

NFTs, while an innovative use of blockchain technology, eventually became the center of controversy. Let’s look at some positives and negatives, as well as some real world cases.

The good

NFTs opened up new opportunities for creators, giving them a way to monetize their work directly and retain more control over their intellectual property. For collectors, NFTs provide a new way to own and trade unique digital or physical assets.

Because of the blockchain’s decentralized nature (no company is behind the transaction), neither side has to trust a third party to facilitate any transactions. Also, the ability to view all previous transactions provides transparency that is typically not available in traditional markets.

Overall, NFTs have the potential to create new markets and income streams that didn’t exist before.

The bad

Despite their potential, NFTs have faced many challenges. The value of NFTs is highly speculative and can fluctuate wildly, making them a risky investment. While decentralization can be beneficial in some cases, the absence of a third party to assist with correcting errors, providing insurance, or ensuring customer satisfaction can limit widespread adoption. The market has seen numerous scams and frauds due to lack of regulation, which has lead to financial losses for buyers.

Let’s take a look at some NFT projects that have seen significant drops in value from their all time highs.

The ugly

The NFT space has seen its fair share of failed projects. The Bored Ape Yacht Club, a well known collection with individual pieces selling for up to 153 ETH at its peak, has seen prices plummet to around 10 ETH according to CoinGecko. Influencers and celebrities, who admittedly didn’t fully understand the technology, were pulled into the space, presumably without malicious intentions.

This includes John Wall, Lil Uzi, Lindsay Lohan, Jake Paul, and Tekashi 69, who all launched NFTs that eventually lost their value and were abandoned after failing to maintain their initial hype, causing significant financial losses for many investors.

These examples are just the tip of the iceberg, as many other NFT projects have similarly crashed and burned.

How tech bubbles work

Bubbles in investing occur when there’s a rapid rise in market value, driven by investor enthusiasm, speculation, and a belief that new technologies will bring high returns. This hype leads to inflated prices, often disconnected from the actual value of the technology or company. As more people invest, prices keep rising until eventually, reality sets in, profits don’t meet expectations, and the technology doesn’t deliver as promised. This triggers a sell off, causing prices to crash and the bubble to burst, leaving the majority of investors with losses.

The dot com bubble of the late 90s is an example that explains this phenomenon perfectly. Companies gained significant investment for simply having a “.com” name. Eventually most of these companies were exposed for not having a true use case.

However, the companies that did have a true use case and a mission that extended beyond just being a dot com company eventually grew in the long run.

The Gartner Hype Cycle

This is the Gartner Hype Cycle chart that shows a typical hype cycle for emerging technology:

In my opinion, NFTs are now leaving the Trough of Disillusionment phase and potentially entering the Slope of Enlightenment phase.

According to the Gartner Methodology, the Trough of Disillusionment phase is where interest plummets as experiments and implementations fail to deliver. Creators of projects abandon them or flat out just fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters.

The Slope of Enlightenment phase is where more instances of how the technology can benefit users and investors start to become more widely understood. Second and third gen implementations are created. More investors fund startup projects while conservative investors remain cautious.

This shows that bubbles don’t necessarily mean failure for an industry, but are really just an over reaction of a technology regardless of whether or not it solves a real world problem. The projects that solve a real world problem will eventually rise to the top.

The success of emerging technologies typically depends on what the user thinks. Here are some use cases that I think would be favorable to users as we potentially enter the Slope of Enlightenment.

Better use cases

NFTs can provide real-world use cases, like secure digital identity verification for driver’s licenses and passports. They can also be useful in authenticating academic credentials, certificates, and degrees. These applications can potentially improve efficiency and security. (*cough* like at the DMV… *cough*)

There is also potential for NFTs to be beneficial in growing areas like RWA (Real-world asset) tokenization, which can enable the purchase of fractional shares of physical assets like real estate.

For an NFT project to be successful, there has to be a high priority placed on the user experience. Accessibility, user support, and overall user friendly features. This may mean excluding some aspects of blockchain technology such as decentralization, which can actually harm the user experience for many users.

Focusing on the utility of NFT projects by making sure they provide real, tangible benefits, is important for their long term success and acceptance in society. By focusing on user needs and practical applications, NFTs can evolve beyond speculation and become genuinely useful tools.

Conclusion

In this article, you learned about what NFTs are, as well as the positives, the negatives, and the challenges when it comes to the industry as a whole.

There will always be investors with a high risk tolerance who want to make high risk investments by essentially gambling on NFT projects. There will also always be those who want a decentralized option for making investments and transactions.

And there are NFTs that remain relatively successful based on this type of demand.

For most people, the best NFT projects are those where you wouldn’t even know they’re NFTs. If the main goal of a project is to be an NFT that can be sold to someone else at a higher price, it is likely to be a scam.

On the other hand, a project that gains popularity based on its real-world utility and just so happens to be an NFT may be one of the use cases that succeeds during the Slope of Enlightenment phase.

Of course, there’s always the chance that NFTs are just simply unnecessary, and the goals of the project can be achieved without using blockchain.

Only time will tell.

Reference: https://cyberdrip.medium.com/nfts-the-rise-and-fall-and-rise-again-1664bbc76a7c