The primary reason behind creating non-fungible tokens (NFTs) was to represent digital goods, but there is now an increased potential to use them in future to represent physical goods and experiences as well, according to a new report by Ripple.
The report, titled ‘New Value Crypto Trends in Business and Beyond-2022’ noted that as with all human activities, there is also an environmental cost associated with NFTs, and now both consumers and developers are putting more thought towards mining them on energy-efficient sustainable Blockchains.
That said, not all Blockchains are as damaging to the environment as some of the others, the report said.
The report also noted a common line of thought that most people associate with NFTs.
It said most people think of NFTs as tokens representing “ownership of something digital, like a graphic, or a photo, or video clip. But, in fact, NFTs can represent ownership of something physical, like a case of wine, or a pair of sneakers, or a plot of land.”
The report surveyed over 800 people across 22 countries in Asia Pacific (APAC), Latin America (LATAM), North America, Europe, and Middle East and Africa (MEA).
The findings revealed that 75 per cent of consumers globally prefer sustainable NFTs.
It said that as with all human activities, there is an environmental cost associated with NFTs, too. “This is particularly true for NFTs that are minted on a proof-of-work Blockchain, such as Ethereum (until its upcoming transition to proof-of-stake), where the majority of NFTs are currently minted.”
More than a fourth of the people surveyed strongly preferred to buy sustainable NFTs, and while a fifth of the people said they would only buy a sustainable NFT.
As for Blockchain developers, Ripple recorded that two-third of all developers viewed their organisation as more likely to choose a sustainable Blockchain for NFT projects, adding that their customers also wanted them to select a more sustainable Blockchain.
Further, a fifth of the developers said that they would select sustainability as a top-5 attribute for a cryptocurrency which they would use in their Blockchain application.
The report also shed some light into the amount of energy required to mint NFTs on Ethereum. It has been estimated that minting a single NFT on the “Ethereum Blockchain uses 231.31 kWh of energy, which is equivalent to more than what the average US household consumes in a week,” the report said.
Ramkumar Subramaniam, the CEO and co-founder of Guardianlink, a NFT marketplace, said, "There are a couple of concerns concerning sustainability when it comes to blockchain. And solving those concerns will make them more viable and practical. The first is concerning the network fees, referred to as gas fees. There are some cases where the gas fees are so exorbitant that it is more expensive than the transaction amount itself. "
"Another concern about blockchain is the magnitude of carbon footprint it leaves for every processed transaction. A lot of mainstream blockchains have come under heavy criticism because of this. However, sometimes, it is only justified that the dependability of a technology is explored first before taking steps to make it sustainable," Subramaniam further added.
“But not all NFTs drive huge carbon emissions. The carbon footprint is related to the type of consensus mechanism that drives validation on the Blockchain on which the NFT is minted and traded. There are other Blockchains with much, much lower energy usage like Solana, Flow and the XRP Ledger,” the report added.
What Type Of NFTs Do Consumers Want?
The report recorded responses of consumers and asked them whether they would prefer digital, physical or experimental NFTs. It found out that 25 per cent consumers preferred all three types of NFTs.
“The response rates were similar across regions, with just slightly less being interested in NFTs representing experiences than those representing digital or physical assets, though in Europe, they are comparatively more interested in experiences than in digital and physical assets,” the report said.
The report further added that there is a massive opportunity in NFTs in the future since the vast majority of things in the world are non-fungible. It illustrated the concept with an example.
“An NFT can also represent something experiential, like front row seats at a concert, or voting rights in a community. Or, it can even represent a combination of digital, physical and experiential assets,” the report said.
"The future of NFTs seems to be resilient. NFTs represent real world assets like artwork, gaming, collectibles and have been used to buy online event tickets, gaming, fashion, and much more. Even celebrities and brands have launched unique NFT collectibles, making it a useful tool to promote engagement between customers and brands," said Abhay Aggarwal, founder and CEO of Colexion, an NFT marketplace.
Future Demand For NFTs
According to the report, NFTs representing digital goods now form the focus area, but in future, NFTs representing physical goods and experiences will have good upside potential, as “people move more and more fluidly across the physical world and the Metaverse.”
“But, NFTs for digital goods will continue to be important — particularly those that combine aspects of community, access and credentialing,” the report added.
Future Scope Of Consumer NFTs
According to the report, the current complex and confusing knowledge surrounding NFTs will give way to greater simplicity and understanding. This will also clear the way for more individuals to feel more directly the emotional value of NFTs, the report said.
According to the report, as more creators join the trend of minting NFTs, and also as NFTs get more innovatively used by well-known creators, the “trendiness of NFTs will solidify and expand into a long-term way for consumers to engage with their passions, and for creators and consumers both to realise and manage economic value from those engagements.”
“Consumers themselves are roughly equally split when asked if NFTs are a temporary fad, a medium-term trend, or going to be around for a long time. We believe in the next two years, the number who say they will be around for a long time will rise dramatically,” the report further said.