Is it data or lack thereof which is hindering mass adoption of NFTs?

March 15, 2023

By Anjali Kochhar

Strap: How does the paucity of market data impact mass adoption? Why is NFT taking time to intrigue new-age investors?

“India leads the way at 7%, with Germany at the other end of the spectrum with 1%”, stated a recent report by Finder. Countries like Germany, the United States of America, and Brazil were far behind. And yet, mass adoption of non-fungible tokens (NFTs) might still be a distant dream for Indian traders.

The reasons however are not limited to lack of awareness or risk of fraud. But many believe that lack of reliable data is a major cause of hesitation in adopting NFTs.

Why is mass adoption of NFT taking time?

According to Dr. Ravi Chamria, Co-founder & CEO, Zeeve, “The lack of clear regulation, perceived lack of utility, opaque valuation methods, and potential for fraud are some of the key reasons why mass adoption of NFTs is taking time.”

NFTs are largely unregulated and decentralised. After the FTX debacle, investors have become even warier about investing in such virtual digital assets (VDAs). The lack of clear regulation is enough to create uncertainty even among potential buyers and sellers.

In addition to safety, there exists a perceived lack of utility shadowing NFTs. The perception is limited to NFT being merely a “digital collectible” or “artwork”.

Surprisingly, several use-cases surrounding NFTs have been announced since 2022. However, there is no data to prove or support these use cases. An early report by Cointelegraph had stated, “Hype may have been a factor in the rise of NFTs, but the actual utility will be the catalyst for the mainstream adoption of the technology.”

The portal was seen quoting Ted Mui, CEO of Kuma Games. He reiterated “The market is going to shift towards a focus on utility because people are becoming more careful with how and where to spend their money. People will need more than the promise of good art to convince them and increase their confidence in investing their hard-earned money.”

If and when the data supporting NFT use-cases goes public, people might become more forthcoming toward adopting these VDAs. Currently, owning art is still a sign of “luxury” and is relatively foreign for most consumers. Utility-based data can add more worth to owning an NFT.

Traders remain hesitant

Usually, when investing in an asset like equity or bonds, traders look for ongoing or past market trends. But without substantial data, can market trends be predicted?  The answer is leaning towards a strong ‘no’. So, how does the paucity of market data impact mass adoption? Why is NFT taking time to intrigue new-age investors?

“The unfiltered data and lack of transparency in the market have contributed to the inflation of NFT trading volumes, with wash trades accounting for nearly 35% of the total volume. Addressing these concerns and creating a more transparent and trustworthy market could help to accelerate the adoption of NFTs in the future”, explained Dr. Chamria.

Largely fragmented data

Some may argue that key aspects of NFTs are accessible to the public. These include team, project timeline, number of active members to total member count, etc. These data points are enough to gauge the success rate of an NFT project. But there exists a catch.

“The NFT market is largely fragmented, and with hundreds of NFTs being listed across various marketplaces, it can be challenging to index all data on one platform”, explained Dr.Chamria.

He continued, “One may need to spend dozens of hours on social media, digging deep into raw data to find real NFT alpha. Understandably most NFT buyers don’t do that. The majority of them may rely on hype or market sentiment to make investment decisions.”

As the age-old trading advice goes: don’t blindly follow the crowd. And so, relying on herd mentality for trading in NFTs is never the right option.

Market trends in absence of longstanding data

Undeniably, predicting market trends in the absence of long-standing NFT data is challenging. “Historical data is necessary for filtering and identifying patterns and trends vis a vie, the 2022 NFT market data that suggests PFP NFTs are currently the most popular, with a total market cap of over 5.64 million ETH,” states Dr. Chamria.

Data ultimately is the backbone behind identifying these trends. So, how does India pave the way for the mass adoption of NFTs?

Unfortunately, the answer is not a straightforward solution. While traders and consumers want data and transparency, NFT creators want freedom of innovation. Thus, the need of the hour is to introduce a framework for NFTs that safeguards the interests of both parties – consumer and creator.

“It is important to strike a balance between regulation and innovation. The NFT market is still in its early stages, and overly burdensome regulation could stifle innovation and growth”, implies Dr. Chamria.

About the author

Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.

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