It’s time to redefine what has come to be known as the metaverse — a reimagined internet, integrating both established and new technologies (think mixed reality) — to Web3. Though possibilities appear to be plentiful, the ‘digital reality’ perception of the metaverse is too far off in the horizon and not currently widely relevant.
Rather than focusing on the metaverse, then, businesses need to consider the real-life use-cases for Web3 — including decentralization, blockchain, and token-based economics — including crypto and non-fungible tokens (NFTs), to gauge their true value, sustainability, and future. Web3 has given us an incredible tool — the ability to create a ‘digital value economy’, whereby something can have value in and of itself online, without a trusted intermediary.
That said, we all have a fear of the unknown, as is often the case with new technological developments. Set against the backdrop of last year’s FTX fall out, feelings of distrust have permeated Web3-based projects across blockchain, crypto, and NFTs. The realm of decentralized finance (DeFi) takes the crown for uncertainty, with desperate calls from industry players to regulate the ecosystem. This is understandable — the industry has become increasingly impactful recently, with intrigue in the space reminiscent of the early days of Facebook and Twitter.
However, there is a strong sentiment from those within the industry that regulatory measures should be approached with caution and balance, ensuring that any regulation protects users without stifling further innovation within the Web3-crypto sphere, which still has huge scope to evolve.
Let’s take NFTs as an example: NFTs are digital tokens of virtual and real-world assets that live on a blockchain. They differ from cryptocurrency tokens; characterized by their inherent uniqueness — whereby a smart contract is coded into the token — it cannot be edited or altered. As a result, these ‘one-of-a-kind’ assets represent digital scarcity in a way that no one can manipulate.
In turn, the business potential of NFTs extends far beyond selling pictures of bored apes on the internet. NFTs can transform the financial ecosystem, creating a more secure, efficient, and fairer economy.
In the aftermath of FTX’s demise, confidence in the wider Web3 ecosystem has certainly taken a downturn. The crisis reverberated across crypto and finance spheres, but industry players and critics must refrain from painting all Web3 projects and digital assets with the same discrediting brush.
The core of Web3 is about using blockchains and crypto tokens as tools for governance, organized decision-making, and financial incentives. FTX, however, was a centralized financial exchange. Its operations hardly touched the surface of the kinds of crypto-backed businesses Web3 architects have curated — including the likes of NFTs.
Just as we saw during the dotcom bubble burst, cynics were quick to dismiss the entire internet, and crypto’s current winter is reminiscent of this period. The overall macro climate has changed dramatically as the industry undergoes this evolutionary stage, which was always inevitable as the market consolidates itself.
Web3 has spun numerous projects in its web, but this is not to say that projects can’t fly the nest. NFT industry leaders have been quick to distance NFTs from the crypto sector, as the assets do not exist in a vacuum.
NFTs in action
It’s encouraging that, despite 2022’s crypto crunch, there is still $1.1tn worth of digital assets in circulation, with 300mn people holding crypto assets. A common misconception is that NFTs are valuable purely for the likes of art and gaming, but their merit spans far beyond this.
Thanks to NFTs’ uniqueness and immutability, businesses can employ them to digitally store and secure all kinds of data through the tokenization of documents. The certification can then be issued over a blockchain as an NFT and tracked directly back to the owner. Further use cases span a range of initiatives from raising capital, digitizing assets, monetizing intellectual property, and verifying the authenticity of physical assets on the internet. Recently, it was reported that almost 90 percent of businesses have adopted blockchain technology. With this, the potential of NFTs in enterprise is finally being realized.
Another key benefit of NFTs is their ability to redefine the way brands engage with customers. Examples include the likes of Adidas, Gucci and, The Hundreds using tokens to reward superfans. Enhancing customer engagement and unique experiences is key for securing customer loyalty. NFT loyalty programs can be used by businesses for leveraging blockchain technology to offer consumers more diverse rewards (recent examples include Starbucks’ Odyssey), improving their ranking within loyalty programmes.
With this, consumers can recognize the worth of their gifted asset reward, which can be traded on NFT marketplaces. Consumers then get the opportunity to grow their loyalty status and continue to associate with the brand. Brands themselves also have the chance to benefit by charging a commission from each trading transaction.
The road ahead
As NFTs exist on blockchain technology, these digital assets are incompatible with current financial ecosystems and regulations. Following last year’s infamous crypto market scandals; from FTX to the failure of Terra and its twin coin Luna last year, a raft of regulation on markets in crypto-assets (MiCA) is due to be introduced in Europe to regulate the volatile market.
Addressing the issues facing digital markets is a step in the right direction for improving and safeguarding investors’ access to the crypto market, and an important bridge to strengthening confidence in digital assets. The industry has long been waiting for an increased focus on challenging monopolies and altering the competition framework to incentivize innovation.
Proper regulation that protects consumers in what is a complex and fast-paced investment environment is essential, and will hopefully begin laying the legislative foundations required for tackling fraud and scams found in the markets.
This is the start of a new era, and with this safety netting in place, we should begin to see increased NFT traders and digital asset adoption continue to accelerate in 2023, as enterprises begin to realize their potential.
Alan Vey is Founder & CEO of Aventus.