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NFTs Aren't Dead, They're Changing

Motley Fool - Fri Jun 3, 2022

The non-fungible token (NFT) market has been in more than just a lull lately. Since the January highs, the volume of daily NFT sales has plummeted from just over $6 billion to only $850 million -- a nearly 90% decline.

For a new asset class, these types of declines can be a valid cause for concern, but they aren't unheard of. There are signs that this decrease is a part of the maturation of NFTs. Any new asset class goes through stages of development. Use cases develop as utilization increases.

Even Bitcoin(CRYPTO: BTC), the original cryptocurrency, went through a similar process. In its beginning, Bitcoin was reportedly used for transactions on the dark web. Slowly, it has gained more widespread adoption to the point that publicly traded companies like Tesla(NASDAQ: TSLA) began holding Bitcoin.

Model white airplane beside the letters NFT on a pale blue background.

Image source: Getty Images.

Chapter One

The first stages of NFT adoption have been dominated by profile picture NFTs based on the Ethereum(CRYPTO: ETH) network, like Bored Ape and CryptoPunks. As this chapter comes to a close on NFTs, we can expect more blockchains to arise and different use cases to become more prevalent.

In just the last month, NFTs based on the Solana(CRYPTO: SOL) blockchain have been increasing in popularity. So much so that NFT transactions on the Solana networks recently surpassed Ethereum in daily sales for the first time. Since Solana has cheaper fees and quicker processing speeds than Ethereum, it has become a popular alternative for NFT investors and creators.

Just a few months ago, this would have been an unimaginable feat. But now that the market share has been dispersed, it is unlikely that Ethereum will regain what it lost. The eyes of the NFT world are beginning to realize that there are alternatives to Ethereum.

This is further reflected in actions taken by NFT marketplaces. This year, OpenSea began to start listing Solana-based NFTs. To take it a step further, Meta(NASDAQ: FB) announced that their social media apps, Facebook and Instagram, would begin to integrate not only Ethereum NFTs but also Solana, Polygon(CRYPTO: POLY), and Flow(CRYPTO: FLOW) NFTs as well.

I think it is safe to say the NFT marketplace will likely never be the same. Ethereum's iron grip is likely gone. New competitors are garnering serious attention.

Chapter Two

In addition to other blockchains, NFTs are proving that they can provide more utility than just a profile picture. At its core, an NFT is a compilation of code that proves ownership. Known as a smart contract, this code can be customized to execute a plethora of actions. Sellers of an NFT can add stipulations that entitle them to a share of the sale every time an NFT changes hands.

This type of utility is beginning to catch the attention of many large organizations. Famous venture capitalist, Gary Vaynerchuk, recently commented on the role of NFTs going forward in an interview with sports media company Bleacher Report. In the interview, Vaynerchuk was asked how he sees professional sports leagues utilizing NFTs. He said, "One thing I can guarantee you is that in 25 years our (NBA) tickets are NFTs."

His reasoning is that by using an NFT ticket, the NBA can program smart contracts to ensure that every time a ticket changes hands in the aftermarket, they will earn royalties. Currently, when a ticket sells on eBay or another platform, the NBA gets nothing out of the sale.

For these same reasons, Vaynerchuk believes that NFT technology will revolutionize concert tickets, airline tickets, and even real estate ownership.

NFTs aren't going anywhere anytime soon. Investors should take note of these developments and continue to explore how the underlying technology is utilized. The profile-picture era of NFTs will likely be remembered as just the first of many chapters in the history of NFTs.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. RJ Fulton has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Meta Platforms, Inc., Solana, and Tesla. The Motley Fool has a disclosure policy.

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