Non-fungible tokens. NFTs. Pictures of monkeys and three-dimensional animations of Donald Trump puking rainbows were all over our Twitter feeds just a few months ago; where are they now?
An NFT, as the name suggests, is a unique token identified by a code attributed to it. In contrast, Bitcoin would be a fungible token because it is not unique. An NFT could be a picture, GIF, video, voice recording, artificial intelligence (AI) system, or anything digital to which you can allocate a code. Still, most of what we associate with the term today is digital “art.” The word “art” is in quotation marks because there has been lots of contesting the idea that some of these images could be considered art. Surely, you have seen pictures of the notorious Bored Ape NFTs. You might have noticed that the linework on them is not unique for each. That is because they are not hand-drawn, except for the first one. After the first one, the artist used AI to mix and match to create thousands of the same images with slight alterations. Now, what is the purpose of my telling you this? I want you to remember what everyone is talking about when they mention NFTs. The details become easy to forget without an image to associate them with.
NFTs were all the hype just a few months ago; now, unless you are following NFT-related people on social media, all you will see are the articles saying NFTs are “dead.” Justin Bieber bought a picture of a crying monkey for 1.3 million dollars at the beginning of this year. That very same picture is now worth 69 thousand dollars, which is quite convincing for people trying to claim NFTs are dead, but are they really?
There are two ways to look at it: 1. The market is reaching equilibrium and stability. 2. The hype is dead, and so are NFTs. Currently, there seems to be no hope for another boom in the NFT market, and here is why. First, from January 2022 to September 2022, there has been a 97% drop in trading volumes of NFTs. That is a drop from 17.2 billion dollars to 466.9 million. Second, approximately 48% of the Ethereum-based NFT trades in October were fake. This signifies three points; one, since a majority (76% to be precise) of NFTs are Ethereum-based, this speaks to the rest of NFT market activity; two, there is an attempt to artificially increase the movement in the market, which creates suspicion regarding the authenticity of any demand. Third, NFT sales have been continuously dropping, the latest data on them claiming the sales fell 60% from the second quarter of 2022 to the third. Data is saying there is no longer as much demand for this commodity. Likewise, there has been a 95% drop in the number of NFT traders between the first quarter of 2022 and the third. Coupled with the information that the average price of NFTs dropped from 3,894 dollars in May 2022 to 293 dollars in July 2022, this percentage of user loss shows, once again, that the demand for NFTs has dwindled dramatically. What is the reason for this lack of demand, then?
Volatility plays a significant part in it. You might ask, hasn’t there always been volatility? Yes, but this time, investors have volatility paired with inflation to deal with. People have the need to secure their assets in a condition of uncertainty, and that is precisely the reason why they are drawn to more “grounded” tools for investment. Investors have two options; they could either purchase foreign currencies that experience lower inflation, which is quite difficult in this particular time period because a majority of the developed world is experiencing record inflation, or they could deposit their money in banks to get interest on them. Both methods include withdrawing money from the cryptocurrency market, which consists of the NFT market. It is still unclear whether this crash in the crypto market will come to an end when the inflation problem is resolved. Clearly, the data is not in favor of NFTs. So much so that we can say the market has imploded and collapsed beyond repair, but does this necessarily signify that NFTs have come to an end?
There seems to be a faint hope that NFTs will survive this crash. Floor prices for major NFT collections remain the same. This means, in terms of Ethereum, most Bored Ape NFTs still retain the same price. If the cryptocurrency market gets out of this crash, the cost of NFTs in United States dollars will increase again, which could expectedly increase demand for NFTs as a whole. Furthermore, NFTs are being integrated into applications. Reddit, Twitter, and Instagram have started implementing integration policies. Influencers use these platforms to show off their collections, which also increases demand for them. Likewise, game developers have also started implementing NFT-friendly policies. People have begun to use NFTs in games developed using blockchain technology, and if significant platform developers like Microsoft, Sony, and Nintendo pick up on the idea, NFTs could possibly make it out of their predicament. This would perhaps lead to a more stable and grounded market where investors know what to expect. On the other hand, it is crucial to underline these are all hypotheticals. It is quite possible that we will not hear much of NFTs in the future.
Finally, I would like to call for you to be responsible investors by looking out for “AI art” when investing. AI art, as many call it, is imagery created by giving a prompt to AI programs. These programs use all kinds of sources to draw out data to put together images, but what most of the popular software like DALL•E does is access copyrighted material from the Internet and use that to generate images. While it is fascinating that a computer can create from writing such realistic or well-developed images, it is irresponsible to support people who intentionally or unintentionally abuse artists’ work without their explicit permission or giving them credit. Hence, if or when you decide to get into the NFT business, please look out for “creators” using such tools. If there is mention of AI, look more into how the relevant AI creates images. While we are all for fascinating technology, we should also respect intellectual property.