The conventional narrative points towards NFTs being similar to GameStop and Dogecoin, indicating that they’re just speculative bubbles fuelled by US stimulus checks, lockdown boredom and low-interest rates. But history dictates caution when dismissing a new technology as a passing fad, especially when NFTs have the potential to disrupt multiple industries.
While NFTs have suffered a 70% drop in average price since February this year, their numbers are still stronger when compared to the past few years:
Total value of NFT sales in 2020-US$ 250 million close to 4x increase from US$ 62.9 million in 2019.
Total value of NFT sales in Q1 2021-US$ 2 billion, representing a 131x increase from their level in Q1 2020.
The months of April and May 2021 saw 30k and 25k unique buyers, down from 39k in March this year but a drastic increase from 2020 when most months saw fewer than 10k unique buyers.
Impact of NFT on Industries
In March 2021, Andrés Reisinger’s line of “virtual furniture” earned him close to half a million dollars on Nifty Gateway. The collection includes drawers, blob-shaped couches and a pink swivel office chair. The furniture is mostly computer-generated files that can be used to furnish virtual worlds and gaming environments. But what makes Reisinger unique is that he eventually plans to make real versions of his virtual furniture. This has huge implications for the furniture industry.
Usually, a chair takes around 4yrs to gestate, with legacy manufacturers going through rounds of R&D and product testing. And once the product is ready, bringing it to the market involves a lot of effort- from pitching the piece to magazines, printing marketing materials, to entering it in design fairs like The International Contemporary Furniture Fair in New York and a global network of other festivals.
But Reisinger bypasses all these arduous steps and gauges demand by directly posting a rendering on Instagram before going into production. Though “likes” don’t translate into sales, they can garner wide public attention. He was able to gain the capital he needed to manufacture one of his pieces- Hortensia, an armchair inspired by the hydrangea flower, by selling NFTs of it on Nifty Gateway.
NFTs are essentially democratising furniture design by seeking market validation before the production happens instead of the top-down approach where a chief creative officer translates market research into creative briefs. Furniture brands have also warmed up to adopting computer-generated imagery during the pandemic as design fairs and photo studios shuttered, and much of their audience were glued to screens. Design Home, the top video game for interior design enthusiasts, is further proof of furniture going digital as it opened an e-commerce platform last year. The game allows users to buy home furnishings like rugs and lamps from the platform and actual products from Williams Sonoma and Pottery Barn appear in the game’s challenges.
The need for NFT to disrupt the furniture industry is necessitated by the alarming scale of throwaway furniture. According to 2018 data from the US Environmental Protection Agency (EPA), 80% of the 12 million tons of furniture Americans throw away each year ends up in landfills. According to a 2020 study, interior design makeovers and renovations are a significant factor in why the building industry is responsible for 40% of global annual carbon emissions.
Fashion is more about self-expression, a way to communicate status, identity and exclusivity, than about utility. With netizens seeking ways to signal these attributes in the digital world, NFTs could be the solution.
Luxury brand Gucci is yet to delve into the market itself but has made inroads in the past few years by creating digital products and environments for games such as The Sims and Zepeto. Recently it also introduced a US$ 12 pair of digital sneakers that users can purchase through its app and wear in virtual worlds such as Roblox, an online gaming platform.
While digital sneakers aren’t NFTs, it won’t be long before Gucci, and other luxury brands release NFTs for original virtual goods or for digital versions of real goods shoppers have purchased, enabling them to take their real-world items into games.
Social tokens are a broad category of tokens issued by individuals and communities. The term encompasses other similar terms such as community token, creator token, and personal token. Social tokens enable creators and communities to have more ownership of their content and can represent anything from a person’s time to collective ownership of a community to specialized access.
Within BitClout, a crypto social network NFTs are used to build Creator Coins that represent a popular celebrity such as Elon Musk, and the value of these coins fluctuates based on whether that celebrity does something positive or negative with their content.
E-commerce is also one of the areas in which NFTs can thrive. In an era dominated by giants such as Amazon exploiting their market power, a decentralized ecosystem powered by NFTs could place the power back into the hands of consumers and businesses.
Splyt, a blockchain-based inventory platform, is at the forefront of this movement. Splyt’s eNFT (e-commerce NFT) tokenizes off-chain products on the blockchain, creating a universal, standardized protocol for how data and funds are shared securely between all parties in e-commerce transactions.
Boston Protocol is another startup working in this space. The startup has developed a blockchain protocol that has been designed to exchange digital value for real-world products.
Real estate is often seen as a byzantine market and one that requires a lot of trust as important documents are often forged. But all that can change with the implementation of NFTs, which can be used to trace and track ownership and authenticity of the digitally represented asset from anywhere around the world. Propy is a US-based proptech startup revolutionising home purchases globally by deploying smart contracts on the blockchain.
Virtual real estate is another area that is fast gaining mainstream acceptability. According to one report, the global augmented, and virtual reality market is estimated to reach US$ 571.42 billion by 2025, growing at a CAGR of 63.3% from 2018 to 2025. In the spring of 2019, Estate 331, nicknamed “The Secret of Satoshis Tea Garden”, a virtual land in a digital world that can only be visited through a computer sold for around US$ 80k. Fast forward to 2021, and a plot of land on the Axie Infinity gaming and virtual real estate platform has sold for a staggering US$ 1.5 million. This trend is only set to accelerate further.
There’s also another category of NFTs known as “actual value” NFTs because their value is tied to specific off-chain assets. These NFTs could represent ownership in anything from a contract conveying ownership and royalty rights of a song to even real estate, cars and other physical assets. These NFTs can be thought of as being similar to stablecoins, as stablecoins backed by US dollars held by the issuing company makes their value relatively stable.
As AR, VR, spatial computing and the direct to avatar economy collide, NFTs will probably be one of the ways that we will conduct commerce in the metaverse. These are just some of the industries that NFT is disrupting but in the next few years, it can revolutionize how we transact, interact and own assets and may become an integral part of our lives.