The Future of NFTs: Poised for a Comeback?
May 18, 2023
When NFTs first stormed into art world headlines in early 2021, commentators were quick to make bold predictions. And soon, everyone took a side. Some said that these blockchain-based tokens would redefine art buying and owning as we know it. Others said that not only would they change little, they would be gone as quickly as they came. So, the question seems to be: what is the future of NFTs? (For those still confused about these digital assets, check out our NFT primer.)
The Collapse and Future of Art NFTs
Looking at the current situation, NFTs appear to be in dire straits, to put it mildly. As has been reported for months, their total trading volume is down by unfathomable levels — OpenSea, the world’s biggest NFT trading platform, lost 99% of volume from May to August of 2022 alone. That isn’t the sign of a bad year or a deep recession. For NFT’s, this is total collapse.
A combination of factors created a situation where people simply weren’t interested in feeding the speculative value. The first and probably most important is the fate of cryptocurrency, which experienced devastating losses in 2022 as well. In a sign of the times, the third largest crypto exchange in the world FTX went belly up in a process that revealed massive amounts of fraud. It was about to be purchased by the biggest crypto exchange Binance, which turned out to be under investigation for money laundering and tax fraud as well.
Needless to say, the blockchain bulls have had their optimism considerably tamped down. NFTs, many of which are minted on the same blockchain as the cryptocurrency Etheruem, were hurt in a case of guilt by association. There is also much more skepticism about the future of NFTs than there was just a year ago. In 2021, many people believed that the large prices for NFT art would hold and even grow, meaning people were willing to purchase these works as speculative assets. When that growth didn’t materialize and even led to tremendous losses, fewer and fewer buyers were interested.
This is not to mention the enormous amount of fraud that has occurred in the NFT realm. One of the most pernicious is “wash trading” — an issue that cuts to the heart of NFT art. In this scheme, owners of NFTs will surreptitiously buy from themselves (sometimes over and over again) to make the price of the asset appear to be increasing. Many high profile successful thefts of expensive NFT assets also undermine the claim that the technology is secure. A major report showed that more than $100 million worth of NFTs were publicly reported as stolen from July 2021 to August 2022 — a staggering amount to think about. With so many bad news stories and cautionary tales, NFT art sales have suffered tremendously. But are they going extinct?
How NFTs Might Be Used
NFTs in the art world has largely failed in only one category: as a way to own digital artwork. In that narrow sense, the apocalypse is here. But NFTs have many more applications, even in the art world. NFTs aren’t just useful as a way to own art. They can serve as a way to prove provenance for real world art, and they can even be used as certificates of authenticity. These applications, while much less exciting than a full digital revolution of the art world, can still provide a service that are vital to art collecting.
It is a dramatically reduced outlook, and that can be hard to stomach for those true believers who have sung the praises of NFTs. Yet there is one benefit to this more humble and sober use of the technology: it can actually work, it isn’t dependent on the market, and it might actually be helpful. Used this way, NFTs could also still work to provide kickbacks to the artist whenever their artwork is resold. That would be a great way to maintain the positives of the technology without exposing buyers to the vagaries of the NFT market.
NFT as a Digital Asset
NFTs do seem to be sticking around in areas where there is no non-digital alternative. The video game industry has found this to be particularly helpful, and there are similar applications where assets exist solely in a digital space. That makes connecting them to an NFT much more of a natural fit. Digital art might one day be a good fit, too, but the amount of early speculation, inflated expectations, and fraud produced an explosive situation that couldn’t last. Can it continue to be a viable way for digital artists to sell their work?
The NFT art boom was not so much a phenomenon of traditional art buyers spending more of their dollars on NFTs and fewer of them on traditional fine art. What it really represented was a massive increase in the number of people who purchased art. That means it introduced a lot of people to the world of art collecting, teaching them valuable lessons and making them interested in this fascinating world.
But for NFTs of digital art to succeed, they need to draw in more traditional collectors who have a better sense for what is normal and what isn’t. That will give the overall market more reliability. That will convince people who enjoy paintings, sculpture, and other physical mediums to take the leap into a world that they simply don’t find as enjoyable.
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