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NFTs and Web3: A Beginners Guide to NFTs in the Web3 Space

By Manoj Dharra

Finding sustainability’s utility. Blockchain aficionados like crazy NFT collections. Creators accused of collecting profiteering.

To be sustainable, you must have some utility. If you have been following blockchain news over the last few years, you probably do not want to read any more about the ever-growing number of almost comically preposterous NFT collections. It seems that many creators cynically made these collections to make a quick buck.

However, NFT adoption varies across industries, with the luxury, sports, ticketing, retail, and arts sectors pioneering and spearheading the launch of NFT projects.

Among the unique assets recorded on the blockchain are digital tokens known as non-fungible tokens (NFTs). The blockchain records the ownership of NFTs, making them unique and preventing duplication or counterfeiting.

Initial development (2017-2021)

Kevin McCoy and Anil Dash minted the first NFT, Quantum, in 2014, tracing back the development of the NFT ecosystem. However, the initial growth of NFTs began in 2017 with digital art and collectibles like CryptoPunks, which gained significant attention from investors and the public.

OpenSea, one of the first online marketplaces for crypto collectibles and NFTs, revolutionized the NFT ecosystem when it opened in 2017.

In 2018, the Ethereum network introduced the ERC-721 standard, which further increased the popularity of NFTs.

As the NFT ecosystem matured, it attracted attention from non-digitally native brands. Notably, the NBA ventured into the space by creating Top Shot, an officially licensed collection of NBA-themed NFTs. Top Shot operates a 24/7 marketplace and has garnered more than 1.5 million users.

Hype and evolution (2021-2022)

Rising demand for NFTs began in 2021, helped along by a cryptocurrency market that was trending upwards.

From mid-2021 on, Ethereum, which hosts many NFT projects, saw its price rise, and a similar trend occurred with some of the most popular NFT collections, including the Bored Ape Yacht Club.

Speculation, a proliferation of celebrity endorsements, record-breaking NFT transactions, and the growth of marketplaces all contributed to the ever-increasing demand for NFTs, ultimately fueled by the ongoing ascent of the cryptocurrency market.

Several global brands went for the hype and entered the NFT ecosystem, such as Nike with its acquisition of RTFKT in 2021 or Coca-Cola launching a series of animated NFTs in the same year. This resulted in many brands entering the space, some without a coherent strategy or value proposition.

Back to Fundamentals: The Mid-2022 Drama

Between January and November 2022, the same metric experienced an approximate 90% crash following the hype cycle.

NFT volumes across the board plummeted to $500 million in November 2022, representing approximately $6.1 billion worth of NFTs traded during January 2022.

Several factors drove this decline, including the interest rate hike in the U.S. that caused a global downturn in financial markets, the crash of Terra Luna in May 2022, and the implosion of crypto exchange FTX in November 2022.

Reports suggest that despite the market downturn in mid-2022, the adoption of NFTs by institutions and global brands has remained constant.

Notable brands such as Starbucks, Warner Records, and Prada will launch NFTs in the latter half of 2022.

Prada partnered with Adidas in the “Adidas: Prada, Re-Source” project to launch an NFT that featured “user-generated and creator-owned art.

Gucci auctioned via the prestigious auction house Christie’s its first video NFT, “Aria,” for $25,000.

Louis Vuitton released its game “Louis the Game,” within which 30 NFTs were embedded and 10 were designed in collaboration with the popular digital artist Beeple.

Warner Bros. releases an NFT collection based on the movie Space Jam: A New Legacy, including 91,000 unique NFTs featuring characters from the film, selling for $2 each.

Starbucks released Odyssey, an NFT-based loyalty program on Polygon, redeemable for discounts or exclusive experiences.

While the adoption is not yet mainstream, it indicates that brands are building infrastructure and exploring more sustainable business use cases for NFTs.

But despite this, a wide variety of major businesses in 2023 have either already launched NFT collections or have pledged to do so, spanning industries as diverse as sports, high fashion, beverage, and superhero.

Nike leads the pack with a history of impressive revenue after the acquisition of RTFKT and the launch of NFT platforms such as Swoosh. The platform focuses on engaging its fan community. It facilitates the joint creation of “the future of Nike,” provides access to virtual events, allows for the purchase of digital wearables, and offers real-world benefits.

Adidas is also quite active in the NFT ecosystem, with over 51,000 NFT transactions from October 2022 to April 2023 and raising approximately $11 million through its NFT campaigns. 36 Adidas launched the NFTs line “Into the Metaverse,” collaborating with renowned NFT projects, e.g., Bored Ape Yacht Club (BAYC), CryptoPunks, and GMoney.

Decline in Trust and Volumes

Obviously, generating cash isn’t the only motivation to mint NFTs; in fact, customer interaction may serve as the primary motive. Success is determined by engaging the highest-value consumers, as the limited number of collectibles maintains scarcity. And what is the best way of measuring their engagement? How much they are willing to pay.

While Nike and Adidas have managed impressive sales volumes, most brands have languished in the low millions. Their marketing directors would not be particularly pleased with these sales volumes.

The picture over time is particularly sobering. The overwhelming majority of activity took place in 2021/22, before plummeting in the second quarter of 2022/23 and staying there, even for the likes of Nike. Estimates suggest that 79% of NFT collections have never sold anything, and 95% of NFT collections are worthless, according to data from the World Economic Forum.

So, whilst some brands have made a success of their NFT ventures, that does not mean they have cracked it. The next chapter of the story might well depend entirely on another set of technologies: the metaverse.

For some early collectors, knowing they own an NFT collectible might be enough. But the next billion might expect something more than a pathetic jpeg. Might the integration of collectibles within and across collectors’ digital journeys bring substance and style to the NFT market that remain to be seen?

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