The NFT revolution Part 2: where we’re at – ID, Blockchain

The recent failures of crypto assets, such as the catastrophic collapse of the Luna stablecoin, underscore an urgent call for regulatory oversight in the cryptocurrency space. In this second installment of my three-part series on NFTs and the intersection with the gambling sector, I analyze the current state of cryptocurrency regulation and its implications for future innovation.

As I gather my thoughts for this second article, I reflect on the pace of change within the cryptocurrency landscape. The rapid evolution we witnessed during the internet boom seems mild in comparison to the current cryptocurrency frenzy. Predicting the trajectory of this dynamic sector has become increasingly challenging, leaving even seasoned professionals uncertain about where we will be just a few months from now.

It is evident that, beyond all the speculative enthusiasm, a significant aspect of the cryptocurrency narrative revolves around hype—a critical ingredient in the birth and inevitable risk of bubbles. While cryptocurrencies, blockchains, and NFTs (non-fungible tokens) present a multitude of exciting opportunities, many engage with these assets as they would traditional gambling—full of volatility and uncertainty. This perception may soon shift as we acknowledge that investments in cryptocurrency and NFTs closely resemble risk-laden ventures.

Recent turmoil in the crypto markets, particularly the stark decline in value across major cryptocurrencies—including the sudden collapse of Luna and Terra—has reignited discourse about the stability of digital assets. Market disruptions like this evoke discussions not only about individual cryptocurrencies but also about the broader market dynamics of digital assets. As noted by the Financial Times, the cryptocurrency market is increasingly correlated with major stock indices, including the Nasdaq Composite, which raises questions about the sustainability of such ties.

This correlation invites comparative analysis with historical market fluctuations. The rampant speculation that characterized the 1920s—driven by unchecked trading and manipulative practices—culminated in the 1929 stock market crash, propelling the establishment of regulatory bodies like the U.S. Securities and Exchange Commission (SEC). The historical parallels serve as a compelling argument for the need for regulatory frameworks in today’s cryptocurrency space.

While some cryptocurrency proponents argue that regulations compromise the foundational tenets of blockchain technology—such as decentralization and autonomy—I contend that structured oversight is essential for fostering stability and instilling investor confidence. The complexities of the cryptocurrency market demand regulations that can mitigate risks while ensuring a competitive landscape, ultimately benefiting the ecosystem.

This essential dialogue on regulation is best reserved for the concluding article of this series. However, it is crucial to acknowledge that while the crypto space holds transformative potential—promising innovations in finance, art, ownership, and identity—history suggests that idealism, when unchecked, often leads to problematic outcomes. Thus, the critical question remains: where do we stand in the evolution of NFTs?

My perspective indicates that we are still navigating the early chapters of NFT development. The journey has already witnessed the rise and fall of speculative bubbles, along with ongoing challenges like fraud, security vulnerabilities, and environmental concerns, underscoring our current inability to effectively scale technology. This reality became painfully clear during a significant incident on May 1, 2022, when Ethereum gas fees skyrocketed to exorbitant levels due to the overwhelming demand from Yuga Labs’ launch of “Otherside,” a digital real estate project within their metaverse ecosystem. This scenario magnificently illustrated the scalability challenges that still plague the Ethereum network.

The anticipated transition of Ethereum to its proof-of-stake model is expected to address some of these long-standing issues, offering a more efficient and sustainable framework for transactions. However, the timeline for Ethereum 2.0 has faced several delays and is now projected for potential release in June 2023, with uncertainty lingering over the extent of its effectiveness. Such delays may jeopardize Ethereum’s supremacy in NFT transactions amidst rising competition from alternative blockchain architectures, like those showcased by Polygon.

As we forge ahead, the mitigation of risks remains paramount for fostering a secure digital economy. Historically, those at the forefront of cryptocurrency innovation likely did not foresee the scale of challenges posed by rapidly mobilized capital. This lack of anticipation highlights a critical perspective: we may still be underestimating the current vulnerabilities, akin to a financial institution unaware of inherent risks in its vault.

It is vital to clarify that my candid observations should not be misconstrued as skepticism. The potential of cryptocurrencies and NFTs is significant, and my involvement in the industry during this transformative phase is nothing short of exhilarating. We are entering an era that promises to redefine how we engage with finance, art, and identity, with implications stretching beyond mere economic transactions to societal structures at large.

The rapid pace of change in NFTs, cryptocurrency, and metaverse technology is reminiscent of the swift currents in the gambling industry—each moment brimming with potential and disruption. Looking ahead, it is critical to forecast potential outcomes and shape our understanding of this multifaceted landscape. What paths will these developments carve for us, and how will our experiences evolve in the coming years?

In the final installment of this article series, I plan to explore these questions further, urging readers to stay vigilant in this rapidly evolving space, where each moment can redefine the narrative.

Sergio Muscat is the founder of Oxygia, a boutique management consultancy specializing in strategic, operational, and human insight advisory. With extensive experience in project management, business analysis, operations, and payments, Oxygia assists organizations of any size in adapting to and thriving in an evolving marketplace.