From the outside, it really doesn’t seem like a good time for NFTs. But, when you take a closer look, could this dramatic crash actually be a welcome rejuvenation? It’s not necessarily the end of crypto art, but maybe it’s time to make way for more practical use cases.

The NFT world certainly isn’t a calm and quiet one. Definitely not right now. The seeming collapse of crypto art and digital collectibles has resulted in some eye watering stats. But, amongst the chaos and panic, can you feel that tentative breeze? Ah yes, the winds of change.

In 2021, NFTs were in their prime. The hot new thing, the price of these exciting tokens was astronomical. Even at the start of 2022 NFTs had a trading volume of $17 billion. However, this number has since crashed to $466 million at the end of September 2022. That’s a 97% drop – a fall big enough to wind you as you crumple to a heap upon reaching the bottom.

The peak of the hype around NFTs made them difficult to ignore, even if you weren’t really sure what they are. Now, some people are blaming a bear market for the cataclysmic drop-off in investments of NFTs. But, such a dramatic change of fortunes has to be attributed to more than just one thing, surely?

Why Are NFTs Crashing?

We mentioned above that some people are blaming the bear market for the decrease in interest for NFTs. Since the NFT market is still relatively new, it is closely tied with the crypto market. Currently, things are a little volatile. As the prices of cryptocurrencies fall, so too do the prices of NFTs. Will this always be the case? Ethan McMahon, an economist for Chainanalysis, believes that if the crypto art market matures, it could mirror the physical art market, and become less linked to cryptocurrencies. “I think as the broader crypto market matures and the NFT world matures, we may see a detangling of this.”

If it isn’t solely the bear market causing NFTs to crash, what else is it?

When NFTs were at their height, it was the likes of Bored Ape Yacht Club and CryptoPunks leading the charge. Essentially, these were JPEGs that were being traded for inordinate amounts of crypto. Celebrity interest caused collections like BAYC to skyrocket. If it looked like this pattern of buying crazy high was unsustainable, that’s because it was.

The NFT market was overhyped and overinflated. It simply couldn’t last. People caught onto the fact that besides bragging rights and showing off, these ridiculously expensive NFTs didn’t actually do anything.

Of course, there is still a demand for PFP tokens and collectible artwork. But those previously enormous prices aren’t justified. Also, crypto art and more solely visual-based digital collectibles work well when linked with some kind of utility.

So, if crypto art is sort of on its way out, what’s the next stage of NFTs going to look like?

NFT Utility

Just like blockchain technology, there are lots of types of NFTs, with cool and impactful uses. Tokens with utility – or a real world function – could very well be the frontrunners of the next phase of NFTs.

Some great examples of practical use cases for NFTs include real estate. Last month, a property in the US was purchased by a developer as an NFT. No, it wasn’t some futuristic digital rendering of a house and that was it.

NFTs originally were developed to authenticate ownership of something. A digital certificate that was immutable and transparent. In this case, the NFT was the transaction of the transferred ownership of a property from one party to another. The guy got an actual physical house by using NFTs, and only paid a fraction of the fees that usually come with purchasing property.

NFTs with utility also include digital birth certificates. These types of NFT can be assigned to a child at birth by the hospital, ensuring accurate records which cannot be lost or tampered with. These records are issued quickly, and can be accessed and viewed by anyone with permission across the globe, i.e. other hospitals.

Non-Transferrable NFTs

A large contributing factor to the crash of NFTs is the fact that the main motivator for many was to make money. This meant the actual potential and ability of NFTs was overlooked. Irene Veng, founder and CEO of Certi.NFT, stands by this theory. She believes that “NFTs have great characteristics, and can transform how the various processes in our society operate and the economic efficiencies that can be achieved.”

The key to managing this, however, might just be down to SBTs. These are Soulbound tokens – NFTs that cannot be transferred. These tokens retain the proof of ownership element, making them incredibly useful for things like educational applications. An example of this is giving grades for certificates like degrees. These can be issued to students, proving they obtained a certain grade at a stated time. Prospective employers can quickly access this information, and trust it to be correct.

SBTs are also useful for companies who want to market to the right audience. A company can scan the blockchain, checking to see who holds the non-transferrable NFTs they dished out. Because these holders have not changed, the company can target people with relevant exclusive offers and content.

NFTs & Royalties

Another utility that ring in a new era for non-fungible tokens is, of course, royalties.

Using smart contracts within tokens is a fast and effective way to assign royalties to artists and investors alike. At Fractis, we’re championing an ecosystem where musicians can take back control of their art, whilst allowing fans and investors to support new creative projects.

Sharing royalties as NFTs provides an instant revenue hit for artists. This can then fund future albums, EPs, whatever an artist wants to work on to continue a creatively satisfying career. Investors can enjoy passive income that is paid out monthly from digital music streaming revenue. In addition to this, investors can resell NFTs for a potential profit, and the original creator benefits from a share of that secondary sale.

Ethan McMahon describes the current NFT dip as revitalisation. Changing the way we think about and approach NFTs opens up the possibility for a completely new-look market. One that serves a purpose in the real world, is accessible to everyone, and acts as a sustainable way for industries to function in a new and efficient fashion. Rather than seeing this as the end of NFTs, it could instead be an indicator of change and possibilities abound.

Sign up to Fractis today, and be ready to get involved in a fresh, fair, and exciting way to invest in music!