NFTs – A Game Changer or a Bubble in the Digital Market?

Abstract

Non-fungible tokens (NFTs) have gathered worldwide attention over the past several years. NFTs are cryptographic assets that use blockchain technology to represent ownership of digital goods and to store a digital asset’s ownership certificate (Kanellopoulos, Gutt, & Li, 2021). The non-fungible aspect of NFTs makes each token unique and can represent a specific object. These tokens are stored on a blockchain and can be used to merchandise digital assets in various forms (e.g., photos, videos, and audio). Furthermore, the creator of an NFT can earn royalties for each successful trade made on any NFT marketplace which is a website where one can create, sell, and buy NFTs. Due to the transparent and immutable properties provided by the blockchain, the entire historical record of ownership transactions becomes verifiable by each network participant, providing a promising intellectual property protection solution. NFTs were only known by blockchain amateurs at the beginning but have gathered mass attention and have their own market in recent years. People have expressed tremendous interest in various types of NFTs in different industries, such as gaming, arts, collectibles, and the metaverse. For example, CryptoPunks, one of the first NFTs, made one of the most significant digital art sales in history for nearly $24 million (Manoylov, 2022). CryptoKitties, a digital cat breeding game, had 1.5 million users responsible for $40 million worth of transactions on its platform (CryptoKitties Explained, 2021). Besides art and game, NFTs also promote the development of ticketing events, news, fashion, supply chain, and surrounding markets such as social portals (e.g., DappRadar), trading marketplace (e.g., OpenSea), and financial instruments (e.g., Defi) (Wang, Li, Wang, & Chen, 2021). Many leading global consumer brands such as Adidas, Coca-Cola and Nike have started to engage with their loyal fans using NFTs (Shanmugham, 2022). A report estimated that the overall value of the NFT market in 2021 is around $15.7 billion and would rise to $122 billion by 2028 (SkyQuest Technology Consulting Pvt, 2021). On the other hand, NFTs have their drawbacks. The generation and transaction of NFTs are highly energy-intensive and may negatively affect the environment over time. For instance, one NFT transaction costs as much electricity as the typical home for about a day (The Renewable Energy Hub, 2021). Also, NFTs are illiquid and speculative investments (Wilson, Karg, & Ghaderi, 2022). Since it is a new market asset, its value is unstable and is based on the price someone is willing to pay for it without much historical data for reference. NFTs can still be attacked and stolen by hackers, which face the risk of fraud and abuse (Wang, Li, Wang, & Chen, 2021). Moreover, owning an original NFT does not mean the owner can control its distribution or duplication. The owner cannot stop others from making and sharing “prints” (Rehman, E Zainab, Imran, & Bawany, 2021). So, how will the NFT market evolve in the coming years? Will it keep blooming or bursting? Although NFTs have a tremendous impact on the current decentralized markets, research on NFTs is still in a very early stage. This study aims to summarize the current status of the NFT market, discuss the potential challenges and promising opportunities related to NFT, and suggest some directions for further research.