NFT and Metaverse Market Overview
NFTs stand for non-fungible tokens. These are crypto-assets that share all the similarities with the cryptocurrencies, except for one, i.e., fungibility. Cryptocurrencies like bitcoin and ether are fungible tokens where the value of each unit of respective cryptocurrencies remains the same and can be used interchangeably. However, as the name suggests NFTs are non-fungible, meaning each token will be unique from another which is a characteristic that opens doors for a wide range of applications.
The uniqueness of each NFT has made it an ideal instrument for tokenizing other physical and digital goods. By tokenizing things like art, music, digital collectibles, and even land, they can be represented as NFTs on the blockchain. The NFTs thus generated will include a record of underlying assets that are tokenized, and stored on the associated blockchain signifying ownership. As a result, anyone owning the resulting NFT can be considered the actual owner of the underlying asset which can be readily verified for provenance and authenticity by referring to the respective immutable record on the blockchain. The use of blockchain to store these records protects the tokenized assets from fraud, double spending, substitution, duplication, or subdivision, thereby imparting absolute ownership to NFT holders.
The emergence of NFTs as non-mutual interchangeable assets with a variety of applications is closely followed by the advent of the metaverse. The concept of the metaverse is used as a reference to the virtual universe and signifies the next stage of internet evolution. Metaverse gains significance as it aims to replicate the components and interactions of the physical universe in a persistent, shared, three-dimensional virtual space on the internet. The metaverse connects multiple platforms, just like the internet connecting different websites in a single browser.
The metaverse can establish endless interconnection of communities, enabling the users to interact with each other as well as various other platforms. Just like in the real world, they will be able to play, work, meet, and engage in other miscellaneous activities in the virtual world, from the comfort of their living rooms. By using equipment like VR headsets, AR glasses, mobile applications, etc., metaverse users can potentially enjoy an immersive virtual experience that was until now limited to science fiction.
The emergence of Web3, also known as decentralized web, powered by blockchain technology plays a major role in the development of metaverse from the existing early prototypes to its full-fledged form. The decentralized structure of the metaverse backed by sound technologies opens the door to limitless potential for business, economic activities, and social interactions where the exchange of value and ownership of assets will be represented by cryptocurrencies and NFTs respectively.
The NFTs can provide ownership rights to various aspects of the metaverse including characters/avatars, in-game assets, virtual land, access privileges, and more.
The NFT market is one of the fastest-growing segments in the crypto industry. As the global cryptocurrency markets hover around a $2 trillion market capitalization, the NFT market has managed to net a $21.5 billion market valuation with 200x year-on-year growth in 2021. In fact, these results don’t come as a surprise, and it is just a peek into what is in store for the future.
According to Collins Dictionary, NFT was the word of the year for 2021. This year, Chainalysis observed $44.2 billion worth of crypto assets linked to ERC-721 and ERC-1155 contracts (the two types of Ethereum smart contracts) associated with NFT marketplaces and collections.
It was found that the total value of NFT transactions and the average transaction size have increased significantly in the previous years. It implies that NFTs as an asset category is gaining value while attracting new users. The last week of August, saw a noteworthy increase in the total value of NFTs sent, which appears to have been largely driven by the publication of a new collection from the popular NFT collection - Bored Ape Yacht Club (BAYC). The sale of one Cryptopunk NFT for 532 ETH appears to have fuelled the second rally in NFT markets in late October and early November.
According to Footprint Analytics, the cumulative trading volume of NFTs was $21.5 billion by the end of 2021, compared to $120 million the year before, a 200x jump in cumulative trading volume. The number of traders also increased from less than 1.3 million to 65.4 million by 2021 end, a 50x growth.
Analysis of the global web traffic shows the rising interest in NFTs is a global phenomenon. According to Chainalysis data, Central and Southern Asia, North America, Western Europe, and Latin America have been leading the way in NFT transactions. Consequently, the monthly share of the web traffic on NFT marketplaces also exhibited significant growth during this period.
The metaverse industry also gained a lot of attention in 2021, a trend that continues into 2022 and maybe beyond. The announcement by Facebook’s CEO Mark Zuckerberg about his company transitioning into a metaverse company, followed by rechristening Facebook to Meta grabbed everyone’s attention. Closely following this development, many companies like Walmart, Disney, and others have also rushed to enter the metaverse ecosystem.
Meanwhile, other tech giants aren’t far behind as well. Apple Inc. leading the way has announced its plans to expand its base in the metaverse. Similarly, as a first, the banking behemoth JPMorgan Chase became the first bank to mark its presence on the metaverse by opening a virtual branch. The banking major has gone a step further to predict that the metaverse will eventually become a $1 trillion market.
Meanwhile, metaverse-related NFTs have also started garnering interest from the community. According to a recent report, out of $17.6 billion worth of NFT sales on marketplaces, the value of metaverse-related NFTs sold during 2021 stood at $513.87 million. These numbers are of great significance as metaverses are still in their early stages of development, the kind of interest generated early on signifies the potential demand for metaverse-related NFTs in the near future.
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