Although NTFs – non-fungible tokens – have recently been declared dead, this is not going to be an “I told you so” piece. Their death certificate was issued in the form of research from dappGambl, a site that reviews everything crypto. It’s not my usual online destination, but its analysis caught my attention.
More than anything, its report states that although some NFTs still command very significant prices, the vast majority have a valuation of zero. Looking into data provided by the Block – a US company that focuses on blockchain, cryptocurrency and market research – weekly sales still hover above $60 million, but the average price of NFT transactions is about $30-50. This is down from the NFT peak of August 22-29, 2021, when that week’s transactions reached a value of $3.2 billion. What happened and what do we make of it?
Well, a few concepts were at play. First, there is the widespread and general awareness of the value of crypto currencies such as Bitcoin and Ethereum (NFTs were primarily traded on the Ethereum blockchain). Both reached their peak between May 2021 and April last year. It’s fair to say that a sort of intoxication took hold, and that everyone – literally – became a cryptocurrency expert, predicting that Bitcoin and Ethereum would only go up and up.
Second, the conversation about rewarding artists for their work was ripe. NFT smart contracts could include an automatic fee payment to the artist when a transaction occurred. Digital artists were also sitting on a lot of content to monetise.
Third, the online presence and growing interest in everything digital promoted the awareness among early adopters that digital art could be owned and traded – even centuries-old auction houses like Christie’s entered the fray. Digital artists such as Beeple emerged, an NFT of whose artwork sold for nearly $70 million. And so, a market developed out of thin air.
Like every market there are some rules that make or break the products sold on said market. Scarcity, abundance, price, hype, endorsements, provenance, artist, sellers, buyers and more, all determine the health of a market. Call me old fashioned, but when at $23 million, CryptoPunk #5822 with its 24x24 pixels sells for more than a Rembrandt, or more than 40 average London homes, you know the market is broken. Or at least that a bubble is developing.
Further damage is meted out by an oversupply of overly simplistic digital assets. Eventually, on the supply side, the NFT market was awash with content that was meaningless. On the demand side, the buyers were increasingly those giddy teenagers who thought they were on to something. And so, it happened – the market collapsed.
There are still some diehards who will claim that NFTs have monetary value for gamers who wish to move their digital assets across different platforms, but even that model may evaporate soon. At a recent tech event, gamer and entrepreneur Paul “The Profit” Dawalibi stated, yet again, that a gamer’s arsenal of trophies and digital assets are not about ownership and making money, but about showing off their achievements. So, what is the future of this asset class?
Perhaps the future lies in the combination of old and new. One thing that I have always found difficult to fully appreciate is the creation of new digital images of, in my view, limited artistic scope – such as the CryptoPunk series – and turn them into vehicles for real-money profit. The market hype of the moment determined that they were of value, but they have not withstood the test of time.
Drawings or a sculpture by a classical artist, or a first-edition book by a recognised writer are all physical objects that have appreciated and remained relevant over time. True, they may have limited intrinsic value, unlike gold, but they are finite and unique. A first-edition Agatha Christie novel will feel remarkably more valuable and certainly different to a ring-bound photocopy of its pages. I feel however, that there are now ways for the old and the new to come together.
A recent chance meeting with Marsha Lipton, the chief executive of NFTrends, was intriguing. This company issues un-copiable, certified high-quality digital copies of originals – Non-Fungible Digital Images, or NFDIs. In other words, a museum or the owner of an historically important piece of art might decide to make 10 digital copies (or one, or even 1,000 copies), certify them as authenticated and sell them as such. These are secured and their “authenticity” is always demonstrable. This means making a digital limited series edition available.
Just imagine: you could display your original copy of the Mona Lisa, and you’d be the only one that could do that. Sure, there are plenty of tourist snaps and smartphone photos, but you (and they) know that it is an altogether different thing. Owners of the certified digital copies could rent or display their digital piece of art, with a secure QR code that proves the copy’s authenticity.
In the future, some form of NFT might bounce back. Perhaps NFTrends’s offering is the next wave. I am convinced that there are ideas, technologies and trends that stick, while others fade. NFTs in the incarnation we saw peak in 2021 were like the first wheels developed by cave-folk; they may have served a purpose but they could have been square or oval. They were a somewhat unusable precursor to our round wheels.
The Netherlands’ tulip mania of the 1630s is often quoted as a parallel to the NFT’s rise and fall. And fall they would. I wrote at the start of this piece that I did not want to say, “I told you so”, but I did voice my doubts in another column two years ago, so I’m afraid I’ll have to go back on my word and just say it: I told you so.