Is The NFT Market Dead? - All You Need to Know About Non-Fungible Tokens in 2024

NFTs are still one of the most discussed segments of the crypto industry.

In this article, I will analyze the current state of this trend and find out the possible reasons for its downfall. I will dive into the specifics of NFT tokens and break down the basic principles of the ERC-721 and ERC-1155 standards. I’ll find out which directions can make NFTs really useful for our world and how much potential still remains in them. I invite you to dive into this segment and find out what you should consider when developing your own NFT or any other crypto project.

State of the NFT market

The market for non-fungible tokens (NFTs) has taken a serious downturn in recent years, as indicated by significant price falls in core collections and decreased participation in this market: collectors and investors are selling off NFTs.

The NFT market drop started in the second quarter of 2022, and several factors impacted it. During this period, a long, bearish trend started in the global crypto market. Since NFTs are most often traded in cryptocurrencies and are part of the crypto market, this could not help but affect them.

The downfall of the crypto market (and thus of the NFT segment) was significantly affected by the collapse of several large crypto projects: FTX and TerraUSD, among others. Crypto-attacks that affected NFT holders also had an impact, which reduced trust in this sphere. We should add that at that time, the NFT market was mostly speculative, and volumes were artificially high. The speculative nature was confirmed by the lack of real usage of NFTs.

Currently, the NFT segment has still not recovered from the downturn, as indicated by the Nansen NFT 500 Index, which was above the 1,800 value at its peak in 2022 and is now at around 250.

However, NFT still has a huge potential for real-world usage in a wide range of areas that remain to be realized, which we will discuss further below. With the condition of positive dynamics in the cryptocurrency markets and the increasing real-world usage of NFT with benefits, the chances of the NFT segment reaching new highs are becoming more and more likely.

What are NFTs and the major standards?

NFTs are tokens that are not fungible. This means that each token is unique, cannot be replaced by another, and has its own unique identifier. NFTs also cannot be divided into smaller units and are managed by smart contract logic.

NFTs usually have additional information, which is called metadata, and contain some additional data. For example, it can be a description of the token, the image that represents it, and other parameters. The uniqueness of such tokens is guaranteed by the unique address of the smart contract in which they were issued and the identifier of each token. NFT tokens can represent anything in different areas, such as artwork, copyrights, certificates, gaming items, rights, and more. Essentially, any unique tangible and intangible things of the real and virtual worlds can be represented in the NFT format.

The pioneer of NFT, which is the standard in Ethereum, is ERC-721. It implies that each token exists only in a single instance and is indivisible. Each token has its own unique ID. It also means that only one address can own one token.

Below is an example of what these records look like. For example, let's say user 1 owns a token with ID 8, and user 2 owns tokens with IDs 2 and 5, etc. When a token is transferred, its owner changes.

The ERC-721 standard is mainly used for objects that exist in a single copy - certificate, painting, image, copyright, jewelry, etc.

One of the other popular standards is ERC-1155. It combines both fungible and non-fungible tokens. The logic is as follows: if only one token is issued within one token-ID, then it is non-fungible, as in the case of ERC-721. However, the ERC-1155 standard allows issuing multiple tokens within one token ID. Then, they will be fungible within that token-ID. This opens up many opportunities, for example, for selling tickets: as long as the ticket is not sold, it is no different from the others and can be replaced by any of the same. This can be applied to any class of items that can be replaced by another of the same kind. With this standard, split ownership of one unique item can be implemented. For example, a painting is unique and represented by a separate token ID, and multiple token issuance within that token ID allows split ownership of it into many parts.

For example, a token with ID 8 is issued in a single instance and is held by user 1. Tokens with ID 10 are issued in multiple instances and are fungible. The records in this case look like this: user 2 owns three tokens with ID 10, and user 3 owns two tokens with ID 10. What token ownership records look like in the ERC-1155 standard is shown in the example below.

This standard is most often used in games but can be used in DAO and many other areas where its properties are useful.

NFT usage potential

Tokenization of real-world assets (RWAs): NFTs allow the tokenization of almost any real-world asset, which opens up new possibilities for interacting with them. It is possible to tokenize works of art, real estate, and securities. This will allow a more secure transfer of rights to real-world objects and increase liquidity. Tokenization also makes global deals much easier and more efficient, as there is no need to be there in person. At the same time, it increases the speed of transactions, reduces transaction costs, and makes them available 24/7.

Right now, this is the direction that has the greatest potential to use NFT for practical benefit. The volume of global real assets that can be tokenized is around $800T. Read more about tokenization and its potential in this article!

Digital IDs and certificates: The use of NFTs for digital IDs and certificates provides a high level of security and data protection due to immutability and distributed storage. Each NFT can be uniquely identified, making it impossible to fraudulently forge or modify digital IDs and certificates. As a result, the efficiency and usability of such forms of documents will increase, fraud will be easier to combat, and people will be able to trust documents more.

It is important to note that NFT tokens are programs, thanks to which it is possible to use almost any conditions in them to make such tokens non-transferable, which is typical for real documents. For example, we cannot transfer the right to use our diploma to another person because it is issued in a specific name. In addition, we can benefit from the blockchain network.

Gaming industry: NFTs open up opportunities to create new game models: games with collectibles or platforms for creating and selling user-generated content. This opens up additional opportunities for gaming industry growth and improves the user experience, as NFTs allow players to own and trade unique in-game items, creating real value for virtual worlds. This stimulates economic interactions within gaming communities and can be a source of revenue for players and content creators.

Metaverses: NFTs can become an important part of metaverses by giving users the ability to own virtual real estate, items, and content, opening up new possibilities for interaction between the physical and virtual worlds.

Supply chains: NFTs can be used to create digital identifiers for items to track their origin and journey through the supply chain. In this way, transparency can be ensured, and consumers can be assured of the quality and authenticity of items.

How do you create your own NFT project?

In order to create a successful NFT project, it is critical to choose a company or team with extensive experience in Web3 development and deep expertise in NFT. This is crucial: there are a lot of peculiarities in this segment, and if they are not taken into consideration, the project may not be marketable, and resources will be wasted.

One of the significant things is the security of smart contracts. There was a relatively recent exploit of ERC-X smart contracts for 168.8 ETH (about $470,000 at the time) that included NFT standards. In order for a project to avoid such a scenario, it is important to audit smart contracts. Auditing greatly increases the trust of the project users, which gives a greater chance of its success.

What’s next?

Despite the fluctuations and challenges faced by the NFT market, there remains a lot of promise for this trend. The NFT segment continues to be implemented in a wide range of industries and offers new opportunities and solutions.