NFTs, the metaverse and Web3: an honest reckoning

Enough time has passed to assess the 2021 wave honestly rather than defensively. Some of it worked. Most of it did not.

What was promised

A read-write-own internet: users holding their data and identity through wallets rather than platform accounts; creators selling directly to audiences without intermediaries; persistent virtual worlds with portable, user-owned assets.

What actually happened to NFTs

The dominant use was speculation on profile-picture collections. Enormous sums changed hands, and the great majority of those collections subsequently lost nearly all their value and — more importantly — nearly all their liquidity. Many cannot be sold at any price today.

Two structural problems became clear. Most NFTs point at artwork hosted on ordinary servers, so the token survives while the image can vanish. And ownership of the token rarely conveys copyright, which surprised a great many buyers who believed otherwise.

What survived is narrower and quieter: ticketing, credentials, provenance records, and some genuine creator-audience relationships. Those were always the more plausible applications and got the least attention.

What happened to the metaverse

Virtual land sold for extraordinary sums in worlds that, on inspection, had very few concurrent users. Several of the most-hyped platforms have since reported user numbers that make the valuations difficult to explain.

The underlying idea — persistent shared virtual spaces — is not absurd, and versions of it thrive in gaming. What failed was the specific claim that blockchain-based ownership of virtual property was the missing piece, and that people wanted it.

What happened to Web3

Here the record is genuinely mixed. Wallet-based sign-in works. Decentralised storage networks run. Blockchain naming services function. Tokens really can represent ownership a platform cannot unilaterally revoke.

Against that: a great many “decentralised” applications depend on centralised front-ends, hosting and APIs, so they can be taken offline by the same parties as any website. Governance tokens are frequently concentrated enough that a handful of holders decide outcomes. And most users have shown little appetite for managing their own keys — which is the precondition for the entire model.

What is worth keeping

• Verifiable ownership records for things where provenance genuinely matters.
• Censorship-resistant value transfer, which has clear real-world use for people under capital controls or excluded from banking.
• Permissionless composability — that anyone can build on top without asking.

Those are real and useful. They are also considerably less exciting than what was sold, which is why they attracted less capital and less coverage.

Why we cover this sceptically

Our readers are largely beginners, and beginners arriving now encounter this vocabulary mostly through people trying to sell them something. Presenting a promise as an achievement would not serve you. See our ethics page for what we will and will not publish.