Non-fungible tokens or NFTs are digital assets that run through blockchain technology. Moreover, most of the transactions in the NFTs market happen through cryptocurrencies. Therefore, any uncertainty in the cryptocurrency market directly affects NFTs marketplace.
In a short time, NFTs have become popular among investors due to the implementation of blockchain technology. However, there are some risks associated with the market regarding security and ownership.
Is there any possibility that the NFTs market will vanish? Let’s see the core logic behind the NFTs market and how we can anticipate the culture of NFTs after the 2021 market crash.
Risk of NFTs
Everyone praises NFTs as it is associated with blockchain technology. Therefore, artists and digital content creators can mint and sell their creations with the marketplace. Although it is a great innovation, there are some risks that we cannot ignore:
- Security issue
NFTs have a lot of security problems. Most of the people join here without having a solid knowledge about the industry. Moreover, it is associated with the overpriced blockchain that opens a door for security threats.
Besides, there are many examples of stolen NFTs and selling assets to the highest bidders, leaving the original owner. In the 2021 NFTs market crash, many reports disclosed the theft and hacking of NFTs and putting digital assets somewhere else to sell them in the auction. Therefore, although blockchain technology is backing up this industry, it is not entirely reliable.
- Storage problem
Since their inception, NFTs came with technological restraints. The limitation came with the incapability of blockchain as it cannot hold images and other files due to the smaller size of blocks.
The Bitcoin block can hold 1 megabyte of information in a block consisting of more than 6000 transactions-related information. However, for NFTs, it is not about the transaction; instead, it is a digital asset that requires a higher space to hold. As a result, blockchains with much higher storage are often costly.
- More token trouble
There is a threat called a zero-day exploit, which is a part of the NFT collection. They have collected a lot of money from the market and created a cyber risk. Moreover, this incident raises a question about NFTs market stability. As a result, we can consider this industry unfeasible for some organizations that ensure that assets will not be sold to the highest bidders.
NFTs crash in 2021
NFTs became popular among investors and content creators as they are non-fungible to everyone. NFTs hype attracted visual artists, content creators, collectors, and investors and ended up bringing millions of people into the process.
As a result, the potential marketplace brought $90 million on NFTs and digital collectibles. At the beginning of 2021, the overall NFTs marketplace increased by 1785%- from $23 million to $432 million.
Until now, the fantastic movement sounds crazy. The price appreciation that we have seen in the NFTs market did not sustain. On May 3, the daily sales volume peaked at $102 million, followed by a $170 million weekly transaction. However, this amount crashed to $19.4 million at the end of the month, indicating a 90% drop in transaction volume.
The above image represents how NFTs marketplace crashed in May 2021, where the weekly sales volume eliminated the price gained during the year. However, the situation has changed, and the market is moving up after the first half of 2021. Therefore, investors should closely monitor the price to understand whether it will break the yearly high or not.
Is NFTs crash related to crypto crash?
In the above section, we have seen how the NFTs market moved down in May, but the question remains- is there any relation between the crypto and NFTs market crash? Let’s find out.
NFTs market came to the limelight due to its integration of blockchain technology. Moreover, the media hype and some social media posts from celebrities made this industry famous among investors. However, in the end, things have changed, and people failed to achieve what they expected.
One of the famous NFT platforms, ArtStation, faced a backlash from the announcement that they integrated NFTs. Therefore, many people, including many members and artists, showed concern about the possibility of theft and theft of data. The controversy made a mess to the market that pushed ArtStation to hold their decision.
In the meantime, multiple attacks came in this market while the crypto market was in hot water due to concerns about electricity usage and China’s crypto ban. More particularly, Ethereum, which is fundamental to the NFTs market, also faced a collapse in the price. As a result, multiple attacks and crypto price collapses, both devastating the NFTs market.
Are NFTs dead?
The 2021 market crash did not change anything in the long term. However, the 2021 market crash left an excellent lesson for investors. It will help if you remain cautious about your investment in the volatile market with more excellent care.
NFTs market is an excellent example of innovation and technology that sure has some potentiality in the future. However, if the market still exists, it might not be the same as we have seen before.
However, a skeptical decision is essential in that case. When a concept builds, it leaves several drawbacks that may mislead users. Investors should closely monitor innovations and development rather than profitability to understand what is happening here.
In the above section, we have seen extensive information about the NFTs marketplace. Now it is time to decide — whether you should invest here or not.
If you are a digital artist, this platform would be a blessing to you. When you try to sell something on a regular website, it goes through the website’s ownership. Moreover, there is a possibility of copying your asset, which is impossible in the NFTs market.
However, investors should understand the market well before putting their money into it. In that case, focusing on innovation and development would ensure maximum profitability from this sector.