Non-fungible tokens (NFTs) are unique digital assets that represent ownership of distinct items such as art, collectibles, and virtual property. Unlike cryptocurrencies like Bitcoin or Ethereum, which are interchangeable, each NFT is one of a kind, verified on a blockchain to ensure authenticity and ownership. This uniqueness has made NFTs a valuable tool for creators and collectors, while their underlying technology opens possibilities for broader applications in areas such as finance, gaming, and sustainability. An earlier article we wrote provides an introduction to the NFT market and its associated risks.
The NFT market experienced rapid growth starting in 2020, peaking in early 2022 before facing a sharp decline in trading volumes and valuations. This downturn was driven by waning speculative interest, falling crypto prices, regulatory concerns, and reduced mainstream attention. To analyze and better understand these market dynamics, it’s essential to track activity through two key metrics: active wallets and NFT volume.
Categorizing NFTs is challenging due to the diverse interests of creators and investors, as well as the broad range of applications. The taxonomy proposed by NonFungible.com has emerged as one of the most widely recognized frameworks, frequently used by researchers and industry professionals to better understand the NFT landscape (Dowling, 2022; Nadini et al., 2021). According to this framework, NFTs can be categorized as follows:
Following the NFT market decline in 2022, overall interest has stabilized at lower levels, with niches like gaming assets and digital membership tokens remaining active. The trend now leans more toward utility-driven applications than speculative hype.
Since the concept of utility NFTs may be a bit harder to understand than more straightforward concepts like art and collectibles, we provide some additional information to explain it as follows:
Utility NFTs offer access, functionality, or benefits beyond mere ownership. Examples include membership perks, event passes, or exclusive content. Utility NFTs are often integrated with services or digital spaces (e.g., metaverse clubs, streaming sites, etc.). It is important to verify if the NFT is linked to recognized platforms or apps. Unlike collectibles, utility NFTs often provide recurring benefits rather than relying solely on scarcity.
To identify utility NFTs, look for relevant keywords. For instance, on OpenSea, check the NFT’s description for terms like “utility,” “membership,” “access,” or “redeemable.” You can use “Utility” as a search keyword on OpenSea. Here’s an example from the search results:
An NFT described as “an ERC20 token made to work with borderless exchanges. ……….. essential objective is to empower everybody in each edge of the world to utilize cryptographic forms of money by joining advanced resources and global marketplaces”.
This NFT description aligns with the Utility category. Utility NFTs are designed to provide access, functionality, or specific benefits within a platform, service, or ecosystem. In this case, the ERC20 token’s focus on enabling global cryptocurrency use and integration with marketplaces emphasizes its practical use rather than its artistic, collectible, or gaming value. The core idea is to create a token that works globally and connects different digital marketplaces.
It’s important to note that many cryptocurrency projects make similar claims about global accessibility. Therefore, it’s crucial to research how this specific project implements these ideas before making any investment decisions.
To be continued in Part 2.
This content is provided for informational purposes only and should not be considered as investment advice. It is not intended to recommend or endorse any financial products or strategies. Please consult a qualified financial advisor before making any investment decisions.
References:
Dowling, M.(2022). Is non-fungible token pricing driven by cryptocurrencies? Finance Research Letters, 44,102097.
Nadini, M., Alessandretti, L., Di Giacinto, F., Martino, M., Aiello, L. M., & Baronchelli, A. (2021). Mapping the NFT revolution: Market trends, trade networks, and visual features. Scientific Reports, 11(1), 20902.
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