NFTs Had A Huge 2021 – What Comes Next?

NFTs certainly expanded at an unheard of rate in 2021. So much in fact that NFT became the word of the year for one dictionary.

At this point, some of you may know what an NFT is—a non-fungible token which represents ownership on a blockchain. So I won’t spend too much time on that. There are a lot of good resources for learning about NFTs and opinions (on both sides) for the necessity of them in an increasingly digital society.

What I’ll do today is go through where I see NFTs heading in 2022 and some interesting ways to invest if you’d like. Please note that NFT investing is exceptionally volatile and none of this is advice.

The NFT Thesis

The NFT craze is about ownership. The digital world allows for mass production of anything, and so in the crowded noises of the internet, having an establish and verifiable ownership of something is increasingly valuable.

In 2021, we saw this pop up in a few ways: collectibles and artwork. It makes sense that these two places were some of the first NFT crazes since both take ownership quite seriously. Any fan of collectibles will know how important items like a certificate of authenticity would be. NFTs solve that by keeping entire histories on a visible chain like Ethereum (ETH-USD).

Sites like Rally, Otis, and Autograph.io have started to put prized collectibles up for “fractionalized” investing. Some of these use actually NFTs (providing a token of ownership into a wallet) while others are simply using the principle of democratized investing. The NBA (through the popular TopShot), MLB, and NFL are also getting into this – where the idea of a “collectible” is expanded to a highlight or image.

In the art world, collectors are constantly requiring proof of authenticity, as the forgery issue has crept into art sales. Again, NFTs come in here to provide unique and trusted ownership.

But many will ask: it may be nice to have a digital ownership certificate on the blockchain but can’t these things be copied infinitely? Many point out that one could “right click and save” the image file of a half-million dollar image like a CryptoPunk or Bored Ape.

Yes, it’s true. The likeness of those images could be held on anyone’s PC, but the true “owner” of the original is only one wallet.

An interesting example here is in the physical art world. Anyone can have a mug of the Mona Lisa or a printed poster of Monet’s lilies, but there exist only a few “real” copies of these. And without the blockchain, it’s very difficult to know that those real copies are, in fact, real.

Here’s another example: you know the famous Thinker sculpture by Rodin? Did you know that dozens of those were made from the outset, dozens more made by his students, and then a dozen more made by the excess works from the Rodin museum?

This isn't unique—lots of famous art exists as one of a certain number of original prints. But the Thinker sculptures made by Rodin himself are valued much higher. A few questions come from this: how can one be sure it's a Rodin-made original? And why would it matter, being nearly the exact same sculpture, that it's a complete original?

If you value the answer to these questions—meaning if you think the answers are important to understand the value of each sculpture—you're started to see the value of NFTs. Because ownership, verifiability, and record-keeping of origin are all questions that blockchain-based non-fungible tokens can answer.

Punks, Apes, or Other?

In 2021, lots of people made a lot of money – or Ethereum – on buying the NFTs that have made the news: Punks, Apes, Beeples, etc…

And in the years ahead, lots more will. There are projects that will 1000x and many, many more that will lose anything invested. In short, there will be a ton of noise.

So how do you choose the next project to provide the insane rewards we’re seeing. Or have celebrities and influencers join in as a owners?

It’s nearly impossible to say, but there are some indications.

First, the NFTs have to have some originality and a lot of good marketing and branding. With so much noise, the clear message of what NFT represents as a brand in the digital world is vital. Bored Ape did a great job with this and now they sell for hundreds of thousands of dollars.

Another indication is that ownership provides perks. This could be new coins that owners will receive, or part ownership in a DAO or enterprise like these Gambling Apes offer. If you are going to own an NFT and be incentivized not to sell it the first minute you can for a profit, it has to offer something long-term. Again, Bored Ape did a great job with this since owners of BAYC get to “mint” new mutants and other things as owners, access that non-owners would not have.

Lastly, you’ll have to be able to read the buzz. And this is where things get hard because most don’t have the time to keep up with Twitter and Discord, but if buzz is started to build around a project, prices can move up quite quickly.

But if you can’t do this—or find the idea of spending precious ETH (or thousands of dollars) on a picture of a digital animal too absurd to venture into, there are other ways to get involved with NFTs.

NFTs Beyond Art

I think 2022 will be the year where NFTs make an impact across many digital industries and platforms. Three I’m looking at to start the year are:

• Gaming
• Identity
• Digital Real Estate

Gaming

Let’s start with Gaming—an industry projected to be worth more than $250 billion in the next three years—a growth of over 30% from today’s numbers. I think a significant part of that 30% could be in the cryptocurrency and blockchain space.

If it does come into that space, NFTs present a great way to bring digital goods, services, upgrades, and ownership into the gaming world (one place the early “metaverse” is already taking form). You can think of aspects like owning land in a game, having your own unique character that you own the likeness of, or running your own business within a game’s environment as ripe opportunities for certifiable ownership (NFTs).

Some examples that are already in place: a game called Vulcan Forged offers land plots required to play its game (or you can rent land from someone)—and has an impressive payment structure for those that do own land. This could be the next Axie Infinity (AXS-USD) which saw its market cap as a cryptocurrency multiply by 2000 in 2021.

Looking ahead, the coin I'm looking at in this space is PYR (PYR-USD), the native coin of Vulcan Forged. Sandbox (SAND-USD) is another interesting opportunity that combines gaming with some of the more art-focused NFTs described above.

Identity

An interesting play in NFTs is the idea of digital identity. As we have SSNs and other government-issued IDs across the world, in the blockchain world it may be difficult to prove who you are (if you should want to). You may have wallets, of course, but how can you prove that you’re the owner of that wallet?

And really what better use is there for non-fungible anything than confirming an identity? Think of something like a digital social security number that can be tied back to you and only you.

We’re not there yet and we may never be (though digital passports are becoming a term). Where we have gotten to though is web presence and wallet identification. And the leader in that space is ENS Domains — an Ethereum-based protocol that allows user to buy names for .eth domains. You may see these popping up on Twitter from time to time.

What ENS has done is created a sort of GoDaddy (NYSE:GDDY) or Squarespace (NYSE:SQSP) for Web3 and allowing people to own their digital identity. It can “name” a wallet that assigns your identity to Ethereum holdings, as well as NFTs. And soon people can have their own named wallet with their own NFT images.

ENS has offshoots on both Solana (SOL-USD) and Terra (LUNA-USD), but it’s certainly the leader. This was confirmed late in 2021 when the ENS team “airdropped” ENS tokens to users, creating billions of dollar in coin value overnight. You’d think the price of those coins would dump immediately, and yet ENS coins are up since the airdrop? Why? People believe in the mission of identity-based NFTs and the future of the organization (the ENS DAO).

Looking ahead, the coin opportunity I'm looking at in this space is ENS (ENS-USD) on the Ethereum chain, as well as Bonfida (FIDA-USD) on the Solana chain.

Digital Real Estate

Outside of the idea of buying real estate inside of a game, there are plenty of NFT-led sites that are selling “real estate” inside of a metaverse or created universe. These include Decentraland and Sandbox, the latter which made big news in December by selling a plot to PwC Hong Kong.

Why buy “fake” land inside of another reality? Same reason as anyone would have for ownership. They see an inherent value in what that ownership could bring. If there are commercial options within the new alternative reality, and you can own a piece of that, it’s as savvy of an investment as buying a plot inside a town’s commercial center.

Now, this can get quite noisy, as well, since anyone can develop a different “earth” or alternate map, but again there will be those that create value and those that simply die within the noise. The story though is that developers are already buying this up as they see that those that are deemed valuable will have a scarcity to them like the real world.

Looking ahead, the coin opportunity I'm looking at in this space is Decentraland (MANA-USD).

Conclusion

The headlines for NFTs coming out of 2021 painted a certain picture of the scene. Millions were being made on simple pictures of digital avatars, animals, and abstract art. Many did not understand what justified the price tags.

2022 is a year that I think changes that paradigm. NFTs are likely going to continue down the path of art-as-a-piece-of-ownership which is what the above paragraph describes, but the true essence of NFTs is unquestionable ownership and that has far-reaching opportunities.

The ones I'm paying attention to are the three items above: gaming, identity, and the equivalent idea of real estate in the metaverse.