Are NFTs a fad or the future? A more critical look
Blockchain technology is moving at a blinding speed. NFTs in particular took the world by storm, giving investors an opportunity to become digital art collectors.
The whirlwind of NFT madness swept up all sorts in its ascent to blockchain celebrity status. Investors rushed to line up, blind to Bored Ape’s siren call. Celebrities, eager to expand their wealth and cultural influence (or relevance), jumped at the chance to board the moving train by releasing their own collections. Aspiring elites reached a new level of pretentiousness by showing off their newly acquired 8-bit CryptoPunks on social media.
Now, after more than a year of being able to process the phenomenon following the initial NFT gold rush, we should all slow down, take a moment for reflection and ask a crucial question: What does the future look like for NFTs ?
Why did NFTs become so popular?
According to Nonfungible, an NFT data company, NFTs saw a 26x year-over-year volume growth in the first quarter of 2021 from 2020, equivalent to $1.5 billion in sales.
In March 2020, a digital collage NFT by artist Beeple sold for $69 million at auction house Christie’s, cementing NFT as a legitimate – and lucrative – commodity.
The idea behind NFTs makes sense. Around 2013, people realized they wanted to trade assets and collectibles other than Bitcoin using the newly popular blockchain. The problem arose when people had to decide what to do with the shiny new technology. Like financially irresponsible lottery winners, enthusiasts began buying anything in sight, even if it was a pixelated image of a man with a mohawk created by an algorithm.
Shortly after NFTs began appearing on the Bitcoin blockchain, Ethereum created a smart contract layer that allowed buyers to leverage several of the features of blockchain technology. Enter the flood of digital assets like CryptoKitties and bona fide NFT platforms like singer John Legend’s OurSong.
Its success is also due, in part, to the historic run of cryptocurrencies Bitcoin and Ethereum. NFTs seemed to offer the perfect solution to people missing the crypto boat. If one bitcoin was worth $5 in January 2012 and reached an all-time high of over $68,990.90 in 2021, surely a Bored Ape could pick up a cool mill in 2030 — if the AI apocalypse isn’t in full swing yet.
The fall of a short-lived empire
Cryptocurrency and NFTs have in common that the value is determined by the collective. The difference is that crypto is falling in line with traditional markets more and more as mainstream investors wade into the pool.
In addition to these investors, there is a significant X-factor at play. NFT values are at least partially supported by hipsters who judge the intrinsic value of a piece by how sleepy a cartoon monkey looks. However, this alone is not a good long-term investment strategy.
As the shiny luster of novelty wears off with time, we begin to see cracks in the armor of NFTs.
In March 2021, Jack Dorsey, then CEO of Twitter, auctioned his first tweet as an NFT on the “Valuables” platform powered by Cent, a blockchain-powered social media network.
The 15-year-old tweet — “just setting up my twttr” — was purchased by crypto entrepreneur Sina Estavi for 1,630.58 ETH, which was worth an estimated $2.9 million at the time, according to NBC.
Estavi attempted to sell the blockchain-authenticated tweet NFT on OpenSea, an NFT trading platform, in April 2022. The highest bid was worth $9,968, a drop in value of $2,905,867.
Herein lies the original sin of NFTs – value is highly subjective and many of the digital pieces stretch the definition of “collectible” to the limit.
In mid-May, weekly NFT sales plunged 50% to $255 million from $505 million the previous week, following a recent crypto crisis that saw Bitcoin fall below $30,000 for the first time since its meteoric rise in 2021.
If established cryptos cannot hold their value through fluctuations in the global economy, there is not much hope for the nascent NFT market.
Find a home
Verified ownership of digital art has a place in the world – but not the one we live and breathe in. The metaverse is becoming more mature as time goes on. Companies even set up shop in the virtual landscape of Decentraland and Sandbox. Acura, Estee Lauder, HSBC and JPMorgan Chase are just some of the names buying virtual real estate in the metaverse, but the more esoteric NFT could become the most prestigious asset to hold in your virtual hands.
Picture yourself in your Decentraland mansion you recently bought for a sick amount of money – paid in full with the latest altcoin, of course. You want to be a peacock to your mates by showing off that lavish piece of property. But the walls lack something… Art! So you transfer your Azuki avatar collection from your crypto wallet and plaster them all over the white residence. Now you and your friends can bask in the subjective beauty of anime-inspired headshots.
But that is only the tip of the iceberg. Digital clothing sold as unique NFTs can adorn your virtual body. You will undoubtedly receive VIP treatment at the growing number of nightclubs in the area. Access to exclusive clubs with popular artists is also often granted by purchasing NFT tickets.
While NFTs are still enjoying their moment in the sun, a shift appears to be approaching. The combination of high market volatility, subjective value and an emerging clarity from the hype of recent years has led to increased instability in the NFT market.
They could still rise to greatness, but the current market jitters mean a more cautious approach should be taken. Do your homework and know the research. There is still money to be made in the market, but there is also a lot to lose.
