What crash are we talking about?
After cryptocurrencies, blockchain technology has given rise to a new craze – the non-fungible tokens or NFTs. NFTs have been all the rage throughout 2021 and the craze has been growing until the downturn started in May this year, and reached their all time lows within a span of just over two months.
Bitcoin, the world’s largest cryptocurrency plunged to $19,340 on 5th July 2022, an all time low in about two years. All cryptos have been falling. A similar trend is being observed in the NFT spaces. According to the CryptoSlam NFT tracker, the NFT sales since April have dropped by 150 per cent.
What exactly is an NFT?
Fistly, what is an NFT? NFT acts a unique digital certificate that states who owns a photo, video or other form of online media.
“NFTs (non-fungible tokens) represent a variation of cryptocurrencies in the sense that these are not swappable. For example, bitcoins are fungible tokens, i.e. a bitcoin is not different from another bitcoin and is interchangeable. But NFTs are identified uniquely. This is why digital art pieces are now sold as NFTs on blockchains, which guarantees their authenticity. In simpler words, anybody can have a digital copy of the Mona Lisa, but the original and authentic Mona Lisa will be with the owner of its NFT,” explains an online article.
How NFTs work
In his article titled “The Rise of NFTs and What it means for Marketers”, Richard Yao explains that NFTs are like the serial numbers that a luxury brand would issue for each of their products to verify their authenticity. “Except in the case of NFTs, there’s no central authority (aka, the luxury brands) issuing those serial numbers, just like there’s no central bank issuing new bitcoins”, he explains. Instead, most NFTs in circulation today are built on Ethereum blockchain, and each NFT is created to represent a particular piece of digital asset and verified by the blockchain network.
Most NFTs that have been created so far are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from the Ethereum coin. It has to be noted that other blockchains can implement their own versions of NFTs too.
From a high to its lowest points
Throughout 2021, interest in NFTs have been growing with many celebrities and artists releasing their own series of virtual work. “The influx of interest has caused the cost of NFTs to skyrocket, with 2021 becoming a record-setting year in terms of sale prices”, according to Graham Turner on digit.fyi.
“Memes alone can now be sold for over half a million dollars. Some – which at this point could be considered internet classics – sold this year have included the ‘Disaster Girl’, which sold for $473,000 and ‘Nyan Cat’, which sold for $590,000”, he reported.
But the craze began to cool down and finally began to crash in the last two months or so. Right now, NFTs are at their lowest point.
“In late June of 2022, U.S. daily sales of nonfungible tokens dipped under $2 million a day. That’s a decline of 99.2%. The cheapest Bored Ape NFTs were listed at $429,000 in April. They are now less than $100,000. Curry and some other celebrities have unceremoniously taken them down from Twitter” reports a news article on vtcng.com.
“All the prices across NFTs have been really, really high. We’ve seen a lot of the NFTs that were bought for hundreds of thousands of dollars a year ago can only fetch a couple of thousand now in this market,” an NFT expert is quoted as saying.
The website nftpricefloor.com tracks the lowest prices that 380 different series of NFTs have sold for, a metric called the “price floor.” “Most collections are going to zero. I mean, 90% of collections,” says the website’s cofounder, Nico Lallement. “I don’t think we will see more than 20 communities really thriving.”
NFT Marketplaces
An NFT marketplace allows you to trade in NFTs. It is like the Amazon for trading digital assets verified through NFTs. “NFT marketplaces are your path to start investing in digital assets, collectibles, and art, but there are lots of options out there. Be sure to choose one that suits your buying and storage needs based on the type of NFT you’re after and the crypto you’re interested in using for transactions,” advises Mr Nicholas Rossolillo on fool.com (Motley Fool).
“Also be aware that this is a new industry and is highly speculative. Some NFTs may rocket higher in value, but there’s no guarantee. The value of digital art and collectibles works much the same as physical art and collectibles: Value is subjective and determined by factors such as uniqueness and the reputation of the artist who made it,” he adds.
What is the future of NFTs? Will they die?
NFTs may be crashing, but there are many players who place their bet on this new technology. eBay made its biggest move yet into the world of digital collectibles with recent news today of the company acquiring NFT marketplace KnownOrigin. The online auction company is keeping lips sealed on the deal’s value but confirmed in the press release that the deal is closed as of June 21st.
“This partnership will help us attract a new wave of NFT creators and collectors,” said KnownOrigin co-founder David Moore.
KnownOrigin describes itself as “one the world’s first, and largest, NFT Marketplaces,” and it currently ranks No. 10 on the top10.com currently.
eBay started allowing NFT sales on its site in 2021. With the KnownOrigin acquisition, eBay has the opportunity to control a proper digital marketplace. “Currently, approved sellers on eBay can list NFTs in the same format as a physical item, and many listings today share the details of the NFT mint number and what digital wallet the buyer will need to receive the transfer post-sale” say reports.
“Coinbase is not the only company invested in NFTs that is persevering despite the withering drop in values. NFT marketplace Magic Eden, a San Francisco startup, raised a $130 million Series B funding round in June. NFT startups have raised $2.9 billion this year, according to PitchBook data” according to reports.
NFTs may be crashing, but many believe that NFTs do have a future. “NFTs aren’t going anywhere anytime soon,” the stock website The Motley Fool wrote June 3. “NFTs are proving that they can provide more utility than just a profile picture.”
So, crash, it may have, but NFTs are there to stay, and will be one of the defining technologies for the near future.