NFTs have a future in the metaverse, but it’s still risky

NFTs risky
Image by Metelev Andrei | Bigstockphoto

NFTs continue to offer a sexy new growth opportunity, with transactions will keep rising in number over the next five years. But growth isn’t everything – the market remains a risky proposition for anyone who wants to play. And how well NFTs fare in the future hinges on the development of the metaverse.

That’s according to a new report from Juniper Research, which forecasts the global number of NFT transactions to rise from 24 million in 2022 to 40 million by 2027. That’s based on the research firm’s medium scenario for adoption, with brands leveraging the metaverse to boost digital growth.

Metaverse key to long-term NFT success

Indeed, the report says, the success of NFTs will be linked to the success of the metaverse. While Juniper allows that the ‘metaverse’ is still a nebulous concept for now, the general idea is that the metaverse will bridge the gap between the physical and virtual worlds. NFTs (and the blockchain powering them) likely to be a key component to this.

From the white paper:

Where NFTs come in, within a metaverse environment, is through the need for proof of ownership and a means of transaction. In a closed centralised platform (such as in the video game Fortnite), the platform can define its system of ownership of the in-world goods. However, in a metaverse, the in-world goods would need to demonstrate proof of ownership in an open and verifiable manner, so that users can move their in-world goods across platforms and worlds.

Consequently, Juniper, expects metaverse-linked NFTs to be the fastest-growing NFT segment over the next five years – increasing from 600,000 transactions in 2022 to 9.8 million by 2027.

Juniper says consumer-facing businesses that want to capitalise on this growth need to create NFT‑based content to meet changing demands from a younger, tech-savvy demographic who are more ready to purchase novel forms of online and digital content.

The downside of NFTs: environmental impact and scams

However, while NFTs present a new channel for growth, the report warns vendors to pay close attention to the risks of operating in an unregulated environment that is also plagued with fraudulent activities and scams.

The report stresses that vendors who partake in the NFT space may risk brand damage by association, due to the role NFTs have had in illegal activities, such as money laundering, scams and fraud.

Then there’s the environmental issues associated with NFTs. As with cryptocurrencies, concerns have already been raised that the current way NFT transactions are facilitated on the blockchain requires massive energy usage:

There is a need for regulators to work with industry bodies to standardise processes with reduced environmental impact and built-in consumer protections to enable vendors to utilise it as a medium to further engage with consumers.

The full report is available here.

Related article: NFTs are losing their fizz, but they’re still the future of … something

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