Beyond blockchain and cryptocurrencies, the tech industry has been buzzing about NFTs and the Metaverse. Non-fungible tokens (NFTs) have skyrocketed in popularity, becoming one of the most dynamic and prominent parts of Web3 over the last two years, while the metaverse has steadily gained mainstream popularity amongst businesses and consumers alike.
The two terms are often coined together, as NFTs are said to be the key that is driving the metaverse. The question is: where are we now and what happens next?
The explosive growth of NFTs
NFTs have experienced an exponential surge in transaction volumes, users, and the number of active NFT collections. According to Chainalysis’ State of Web3 report, collectors have sent over US$37 billion to NFT marketplaces in 2022 (as of May 1), putting them on pace to beat the total of US$40 billion sent in 2021. The movement was so significant that Collins Dictionary named NFT word of the year for 2021.
NFT activity tends to ebb and flow with marketplaces experiencing growth, downturns and recoveries throughout the year depending on user demand and global trends. As shown in Chainalysis’ research, transaction volumes fluctuate from month to month.
However, amidst fluctuations in transaction volume, there is still a progressive increase in the number of active NFT buyers and sellers in the marketplace, where the number of active NFT buyers and sellers increased every quarter from Q2 2020 onwards, before dipping in Q2 2022. The number of active NFT collections on OpenSea has also grown consistently since March 2021, reaching above 4000, as of late April 2022.
Utility of NFTs, real estate and gaming in the metaverse
NFTs allow individuals to have entire ownership of digital assets such as audio, images, video, and even real estate within the metaverse, where individuals can sell or buy items and transfer them to the Metaverse or over the Internet.
The immense growth seen in NFTs is not exclusive to the digital space. For artists, brands, and gamers, the metaverse is a living reality. For example, Travis Scott’s Fortnite concert was attended by 27 million; JP Morgan just signed a yearlong virtual property lease; the Vatican is opening a non-fungible art gallery.
This swift adoption is a testament to the metaverse’s current and future utility, and it’s reflected in virtual real estate pricing. As reported by Chainalysis, from September 2019 to March 2022, blockchain-based virtual real estate prices grew by 879 per cent while real estate prices grew by 39 per cent.
The nascent nature of the metaverse space leaves the long-term value of blockchain-based VRE reliant on present-day and prospective utilities, such as access to private events and exclusive communities, which has been a big driver of NFT demand to date, and it looks to be translating into the sales of virtual real estate.
Also Read: The power of paid communities and NFTs
Bored Ape Yacht Club, for example, has always bundled its NFTs with entertainment, socialisation and digital community and has since been able to parlay that appeal into a sale of metaverse real estate amounting to US$310 million.
How will the new digital realm encourage mass adoption?
Interoperability will be key to the future of the metaverse. It remains to be seen whether companies interested in the space will build out their metaverse(s) in a fashion that is interoperable with current metaverse projects and blockchain technology.
However, there is at least one early indication of a more blockchain-compatible future: Epic Games’ acceptance of crypto games in its game store. While this has limited import to metaverse projects today, it’s extremely important to blockchain gaming, an industry with very similar commitments and aims.
This gaming industry will thus pave the way for other industries to hop on board the metaverse bandwagon and develop similar blockchain-based metaverse projects.
With a more cohesive system of exchanging information and resources, interoperability will also propel the adoption of new computing technologies, such as virtual reality (VR). Blockchain-based metaverse projects stand to benefit immensely from the adoption of VR technology.
The more immersive and life-like the virtual experience, the more likely it is for NFT-based ownership to feel tangible to users. The faster VR technology grows, the better it is likely to be for metaverse land offerings. As it stands, the revenue generated from VR-based gaming is growing rapidly, where VR gaming revenue experienced a compound annual growth rate of 28.5 per cent from 2017 to 2021.
The metaverse is fast approaching. Virtual real estate now offers real-world utility; VR technologies are coming closer to reality, and blockchains are imbuing digital ownership with meaning. NFTs lie at the heart of the intersection of these trends.
For NFTs to recapture the broad public interest they achieved in late 2021 and to become important instruments for redefining asset ownership in the metaverse, their value will be dependent on more utility, and not just collectibility.
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