It was 2021, a year into the pandemic. Life had largely moved into the virtual world – classes were online, any work that could be done from home was, and you couldn’t go a day without hearing the word “zoom” which now meant “video conference”. Things were starting to open up again, but many of us still felt stuck at home.
Whether you liked it or not, society and its relationship to technology was changed forever. As a result of the accelerated digital transformation and economic uncertainties triggered by the pandemic, interest in cryptocurrencies increased and, by the end of 2021, NFTs had entered the scene.
What is an NFT?
Many of us primarily associate the acronym with digital drawings of apes – the so-called Bored Ape Yacht Club was one of the most popular NFT collections, with even celebrities like Justin Bieber and Paris Hilton displaying their purchased apes. Eminem and Snoop Dogg performed as their Bored Apes at the 2022 VMAs.
But an NFT is much more than just a piece of digital art.
To understand NFTs, we first need to understand blockchain. A blockchain is a series of information on transactions (the “blocks”) that are linked (or “chained”) to each other. What’s special about blockchain technology is that it’s open and decentralised, meaning it doesn’t rely on third parties (like banks) in order to record transactions, and is therefore more efficient and democratic. It’s also fully transparent, making transactions more secure. Blockchain technology is the basis for cryptocurrencies and NFTs.
An NFT or non-fungible token (non-fungible meaning non-replicable) is a unique object recorded on a blockchain. Unlike cryptocurrencies, NFTs are all one-of-a-kind and non-divisible. An NFT is made up of its unique identification code and the metadata linked to it, which can contain digital images, songs, videos as well as physical items like cars or yachts or things like event tickets.
What this technology allows us is to securely establish the creator, ownership history and value of the item recorded in the metadata. Ideally, it offers an opportunity for the digital art marketplace to become more secure and profitable for the artists as well as for the purchasers/collectors. Since each NFT is unique, it also creates market interest due to scarcity and they (theoretically) gain more value.
The Rise
NFTs started to reach the mainstream in early 2021, with the sale of Mike Winkelmann (aka Beeple)’s NFT Everydays: The First 5,000 Days. It sold for $69.3 million at Christie’s, making Beeple the third-most expensive living artist in the world and his piece the first NFT to be sold at a prestigious auction house. This showed that NFTs could be taken seriously – they weren’t just a passing trend among tech-bros.
Then the Bored Ape Yacht Club launched its series of 10,000 digital images of apes in May, starting off the trend of profile-pic NFTs. Suddenly, it seemed that everyone wanted a one-of-a-kind algorithm-generated picture of an ape that they spent tens of thousands of dollars on as their profile picture. In 2022, Elon Musk even added a separate feature for NFT profile pictures available to paid subscribers of X (formerly Twitter).
Two years later, the situation has completely changed. Musk quietly removed the NFT feature on X in January. 95% of NFTs are now worthless, according to one recent study. Public interest in NFTs has waned. So what happened?
The Fall
While many people believed NFTs would revolutionise the digital art scene, they were mostly only popular within a niche demographic. A recent YouGov poll showed that only half of the respondents even knew what NFTs are. Another study conducted by Maru in 2022, the peak period for NFTs, showed somewhat higher levels of awareness but quite low interest and belief in the potential of NFTs. For the majority, NFTs were perceived as something difficult to understand, risky to invest in and essentially just not very useful. It was mostly young, tech-savvy people with high disposable income who were interested in the novelty and investment potential of this new technology – especially people who were already involved in cryptocurrencies.
Future Outlook
As for whether there is any potential for NFTs to make a comeback, most remain doubtful. NFTs are best known as a way to copyright digital artwork – but as people have pointed out, there’s nothing stopping another person from right-clicking and selecting Save As on any NFT image and posting it as their own. After all, it’s “just” a digital image. It’s also possible for someone to steal a digital artwork and mint it as an NFT under their own name. For the average consumer, there just doesn’t seem to be any real point to NFT technology.
There are some use cases for NFTs that potentially offer more – NFTs can be linked to physical objects and events in the real world, too. Potential benefits to purchasing physical assets as NFTs include heightened security, as the asset’s ownership history and authenticity can be securely stored on the blockchain, and efficiency, as NFTs are purchased digitally and directly, without any third parties or paperwork involved. The sale of event tickets as NFTs has potential benefits, too. Currently, online ticket sales are done through third-party vendors that are vulnerable to bots and scammers. Using NFT technology could provide better security, as all purchases (including secondary purchases) are stored on the public blockchain and can be more easily monitored.
Zuckerberg’s Metaverse was another planned use case, but has proven as successful as NFTs themselves. Have you heard anybody talk about the Metaverse recently? Right. But then, at least In theory, so was the idea, as people get more comfortable with virtual marketplaces, they will also become more open to spending money on novel virtual technologies such as NFTs – although, as long as their investment value remains unstable and the cost of living crisis continues to affect people, especially younger people who are more likely to be open to novel technologies, it seems unlikely that digital NFTs will become more than a fun novelty for people with higher disposable income who treat NFTs as a quirky hobby for “the ones in the know”.
Maybe one of the more interesting potential appliances for NFTs could be the tagging of luxury items such as designer handbags and other fashion icons. Because tracing an item from creation to the customer to future resales in a second-hand fashion shop could actually be interesting and meaningful for both the labels and the clients. Because from a manufacturer’s perspective, knowing where your items end up and following their journey would be invaluable information. And for clients, having the knowledge that your purchased item is actually not a counterfeit would really mean something. So, let’s see, we will return to the subject in the future.
