Introduction

In March 2021, a non-fungible token (NFT) in the form of artist Beeple’s digital collage sold for US$69 million at a Christie’s auction. It created a buzz among retail and professional investors who began to take a serious look into this new revenue stream for digital artists.

Around the same time, Dapper Labs’ NBA Top Shot reached record volumes in its collectibles series comprising NFTs of National Basketball Association highlight clips. In February 2021 alone, NBA Top Shot moments generated about US$230 million in gross sales with the rarest NFTs fetching hundreds of thousands of dollars.

NBA Top Shots and Beeple kicked off an NFT boom in 2021. Popular projects emerged to congest the Ethereum network, much like how Dapper Labs’ CryptoKitties did so in 2018.

But unlike the Ethereum congestion of 2018 which had little long-lasting impact, Ethereum’s market dominance is being challenged by alternative blockchains. Solana emerged as an alternative for users to mint and sell their NFT avatars without the exorbitant gas fees on Ethereum. Meanwhile, Ethereum sidechain Ronin essentially put food on the table for Covid-ravaged communities in the Philippines.

Ironically, the rise of these Ethereum “killers” has helped the smart contracts leader by decongesting the network and lowering transaction fees to affordable levels.

As the NFT industry enters 2022, the marketplace is being transformed in multiple areas from the rise of alternative blockchains, the entry of new buyers and sellers, new use cases, a surge in funding from investors, demand for better policing and the threat of increased scrutiny by regulators concerned about fraud and money laundering as well as tax evasion.

The NFT business is expected to continue its growth in 2022, but it will be a bumpy ride with many potholes ahead.

“I feel like the bar will continuously be raised by NFT enthusiasts deciding where they will deploy their fiat or crypto,” CryptoSlam Founder and CEO Randy Wasinger said. “This will spur innovation, but many low-effort projects will fade away.”