What happened in the NFT space this year?
Non-vulnerable tokens (NFTs) remain an integral part of the Web3 ecosystem in 2023, with many community members constantly braving new waters and trying to find solutions to the space's challenges throughout the year.
While critics routinely write off NFTs, users who trade the asset class attest to the fact that the space is very much alive. In the last 30 days alone, the top 10 blockchains used for NFTs recorded a combined sales volume of more than $1.5 billion, showing that there is still demand.
In the year While a lot happened in the NFT space in 2023, some changes stood out more than others. These include historical developments for the industry such as the creation of Bitcoin Ordinals, the first United States Securities and Exchange Commission lawsuit, and the split over creator royalties.
Rise of Bitcoin Ordinals
Software engineer Casey Rodermore created Bitcoin Ordinals in 2023. Following a blog post on January 21, the developer deployed the program to the Bitcoin mainnet. The protocol created Bitcoin's version of NFTs, described as “digital artifacts” within the Bitcoin network.
You know what this normal thing does
— Casey (@rodarmor) January 16, 2023
Traditional NFTs usually only contain metadata that points to the off-chain storage that holds the NFTs. This approach has sometimes led to issues such as NFTs showing blank images or worse pornographic images. The fall of crypto exchange FTX in December 2022 affected NFTs hosted on its platform. When the company restructured, the NFTs fell apart, showing blank images instead of the original artwork.
On January 4, a third-party hosting service used by NFT marketplace Magic Eden crashed. At the time, users reported seeing some pornographic images on the NFT thumbnails instead of the NFTs artwork.
With Bitcoin Ordinals the contents of the assets are stored on the blockchain. While this saves Bitcoin NFTs from being exposed to having their data destroyed and mapped to empty images, it doesn't save the platform from people making sweet images on the Bitcoin network.
In addition to those arguing that Ordinals blocked the Bitcoin blockchain, the decentralized nature of Ordinals allowed a bad actor to film someone using its private parts after it was opened. The image is immediately removed from the ordinals, but the text lives on the Bitcoin blockchain forever.
Despite the downside, many still believe that the emergence of a new use case for Bitcoin is good for the network. Throughout the year, there has been a back and forth between Bitcoiners as to whether or not they have a place in the ecosystem. However, it was clear that the acceptance of the protocol started earlier.
In May, the Bitcoin network surpassed Solana in monthly sales volume due to regular transactions. In December, the network took the top spot for most sales in 30 days, bringing in over $744 million, while the Ethereum network earned $391 million.
Regulatory issues surrounding NFTs
NFTs will see their first unregistered securities sale claims with US regulators in 2023. On August 28, the SEC charged Los Angeles-based entertainment company Impact Theory with an NFT collection, Founder Keys, for selling unregistered securities.
According to the SEC, the company encouraged investors to purchase NFT as an investment in its business. The SEC has argued that NFTs are investment contracts, and as such, they are securities. The regulator's actions show that the company violated the law by selling NFTs without registration. The securities regulator issued a cease and desist order to which the firm agreed.
How it started is how it's going pic.twitter.com/REUcdwwY0k
— ZachXBT (@zachxbt) August 28, 2023
After the impact theory was filled, the SEC sued another company for selling NFTs. On September 13, the SEC sued the creators of the Stoner Cats animated series Stoner Cats 2 (SC2) for offering unregistered crypto asset securities. As in the first case, the SEC issued a cease and desist order to SC2, and the company accepted it.
Hollywood actress Mila Kunis helmed the Stoner Cat project and collaborated with several NFT creators to create an animated series. The cast of the series includes big names like Kunis, Ashton Kutcher, Chris Rock, Gary Vayenchuk and Ethereum founder Vitalik Buterin.
According to the SEC, the company had marketed NFTs as having secondary sales potential. The SEC also pointed out that the announcements will increase the value of NFTs due to the testimony of those involved in the project.
Many disagreed with the SEC's crackdown on NFTs. In the year On August 28, SEC Commissioners Hester Peirce and Mark Uyeda published a statement of objection to the SEC. The duo challenged the SEC's assertion that the company's and buyer's statements cited by the SEC were not promises creating an investment contract.
The SEC filed its first NFT enforcement action today and settled: Here's Commissioner Uyeda and my objection: https://t.co/WhLKX3Tl8X
— Hester Peirce (@HesterPeirce) August 28, 2023
In an interview with Cointelegraph, Oscar Franklin Tan, chief legal officer of the NFT platform, said that the lack of clear rules discourages developers from trying Web 3 models and leads to a place where the full potential of NFTs is not known.
NFT creators lose royalties.
Getting royalties after releasing NFT collections is one of the best benefits of NFTs for artists and creators. With royalties recorded in smart contracts, every time an NFT is sold and resold, the original owners receive a percentage of the sale. However, things changed in 2022 when NFT marketplaces began experimenting with an alternative royalty model.
Under Optional Royalties, buyers can set the amount of royalties they wish to contribute to the NFT project. In this model, there is a possibility that creators may not receive royalties when NFTs are sold.
By 2023, the effects of the alternative royalty trend are beginning to be felt across the industry. Research data revealed on March 29th that Web3 creators are losing royalties. According to the data, out of the major collections of NFTs developed by NFT company Yuga Labs, Bored Up Yacht Club (BAYC) and Mutant Up Yacht Club (MAYC), losses were already around $20 million.
Yuga Labs did not give a reason for the loss of royalties, but it laid off employees in October as the company announced a restructuring effort. An NFT firm focuses on its core goals with a small team.
We support royalties. We always have and we always will.
On September 30th, orders from OpenSea, LooksRare or X2Y2 cannot be totaled. pic.twitter.com/BfOWVTCboT
— Rarible (@rarible) August 22, 2023
Although some NFT marketplaces have gone in the direction of alternative royalties, some have taken the other direction, supporting creators and ensuring they get double the royalties. NFT company Rarible has launched an Ethereum virtual machine testnet with royalty payments in its code to reinforce its commitment to supporting creators.
Meanwhile, NFT Platform Engine has launched a mainnet with NFT transfers and royalty enforcement integrated into the blockchain base code.
NFT position in 2024
As NFT marketplaces continue to compete for market share in NFTs, products in the space are set to improve over the next year. Also, a competitive market demands more products and services from its suppliers.
Additionally, the NFT space is set for another attractive year in 2024, continuing the move on Web3 with new innovations such as Bitcoin Ordinals and the US SEC. While there may be ups and downs, NFT users “hodl,” the industry is here to stay.
