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Are NFTs dead and is the hype over?

Go back to 2021 and the world of tech looks like a very different place. People are talking about a new technology; something that’ll revolutionize the art world and provide people with a new outlet with which to earn money from their creative works. The number of searches for the term ‘non-fungible token’ explode as people attempt to understand what it’s all about. What’s the difference between an NFT and a regular screenshot? Why does it have value? Did someone really sell an NFT for $69 million and did someone buy a tweet, comparing it to the Mona Lisa?

NFTs certify ownership and authenticity of a digital item such as tweets, articles, selfies, music and digital art. The idea was novel and some investors were able to profit handsomely from trading in NFTs but the hype, it seems, has died down. We don’t hear about NFTs nearly as much as we did in 2021/2022. The number of active wallets worldwide that bought or sold an NFT asset rose exponentially from 412,578 in Q3 2021 to 1.9 million in Q4 2021. However by Q3 2023 that figure had plummeted to 227,588. Why did NFTs decline just as quickly as they had risen?

Google Trends data showing interesting in NFTs peaking in early 2022 and then declining soon after.
Google Trends data shows interest in NFTs peaking in January 2022 and declining considerably soon after.

Many people were initially enthusiastic about the idea of NFTs. At its core was the hope for artists to be fairly compensated for their work. However when a $4 billion market emerges seemingly out of nowhere, the innocence quickly fades and the concept of fair compensation is eroded by opportunists. Projections were made that the NFT market’s valuation would exceed that of the traditional art market within a few years, causing many to jump onto the hype train and look at it as a quick cash grab. The technology that was meant to help artists ended up hurting them as rogue profiteers screen-grabbed their art and sold them as NFTs for a quick buck.

And then there was the steep learning curve and lack of inclusivity. From understanding the blockchain to having to learn a glossary of NFT-related terms, there was and still is a high barrier to entry for the casual enthusiast wanting to engage with NFTs. Instead of an inclusive market where many people had a chance to participate, NFTs became the playground for rich investors to get richer and the rare artist to make a life-changing sale. A large segment of society didn’t engage because the whole NFT concept didn’t make sense; “Ok, you ‘own’ that tweet. But I can take a screenshot and own it too. Where’s the value?” And some who decided to take the leap lost their life savings, convinced their investments would rise in value but never did in what was often referred to as the 21st century equivalent of Tulip mania.

Those who got caught up in the hype learned buying and selling NFTs wasn’t a simple process. You’d need to keep crypto funds in a ‘hot wallet’, a wallet that’s always connected to the internet. Stories were continuously reported of hot wallets being hacked with the victims not being able to do anything about it even if they had the thief’s wallet address. Instead people were advised to keep funds in cold storage or a hardware wallet (a crypto wallet not connected to the internet) and then to transfer funds to a hot wallet once a transaction needed to take place. To be even safer, it was suggested funds were kept in air-gapped computers, a computer system completely cut off from any outside network, like the internet, or even other internal networks.

By the time one had got their head around this, they’d buy some Ethereum, keep some in their cold wallet and some in a hot wallet such as MetaMask. Maybe they’d want to mint their own NFT, registering a digital item onto the blockchain. They’d go onto OpenSea, the largest NFT marketplace. Time to get rich! Well, not exactly. As they prepared to sell their digital creations, they’d learn about gas fees, transaction fees paid to validators on Ethereum. And before one even started trading, they’d have to ‘initialize’ their wallet; something that could cost anywhere from $50 to $500. Neither MetaMask nor OpenSea had control over the fees. It depended entirely on Ethereum network congestion. To further add to the confusion and uncertainty, one could approve a transaction that didn’t go through but you’d still pay the gas fee!

To execute transactions on the Ethereum network, you need gas or computational power. Even if the transaction fails, computational power has been used up and you need to pay for it. Oftentimes someone new to the NFT marketplace would pay $300 for OpenSea’s initialization fee but the transaction wouldn’t go through. That’d be $300 wasted in an instant. As OpenSea mentions in its FAQ, “When you pay gas fees, the payment only guarantees your transaction to be processed. It does not guarantee that the transaction will succeed.”

Ethereum crypto coin
Minting NFTs require ‘gas fees’ and Ethereum transactions have a significant carbon footprint.

Adding to the cost and complexity of getting into NFTs was the environmental impact. To some, NFTs could have been our Easter Island. In the Pacific Ocean 3,540 km west of Chile is the remote Polynesian island, Easter Island. It is known for its moai, mysterious monolithic statues, of which the largest is El Gigante, a 72 foot tall statue weighing around 170 tons.

When the Dutch explorer Jacob Roggeveen landed on Easter Island in 1722, he described of it a wasteland without a single tree in sight. Timber and rope from trees would have been essential for the islanders to erect their large statues. What happened to the complex, thriving population that once lived on Easter Island? Research has indicated Easter Island was once divided into 12 territories in a competitive island society. Each territory tried to outshine the others by building bigger and more impressive statues. However a consequence of this competition was extreme deforestation, loss of water transport and loss of food sources. The population experienced starvation and was decimated. A haunting thought is thinking what must have been going through the minds of Easter Island society when they were cutting down their final standing trees. They must have known society was headed toward destruction. But they did it anyway. But how could they cut down trees when their destruction was in plain sight?

But if we look at our society today, one in which our environmental destruction is in plain sight, NFTs were speeding our descent down the abyss. At the peak of NFT hype in early 2022, Bitcoin operations were generating 97 million tons of carbon dioxide a year. A single Ethereum transaction had a carbon footprint of 116.28 kg, equivalent to 257,717 VISA transactions. If the costs and the steep learning curve weren’t enough to deter you, maybe the energy intensiveness of NFTs made people hesitate.

Statue on Easter Island
NFTs could have been our ‘Easter Island’.

When NFTs entered the scene, growth was swift. Droves of people converted from sceptics to evangelists overnight. The allure of bagging a jackpot NFT likely had something to do with it. However countering the NFT growth trend was a highly vocal detractor community that scoffed at the idea of creating scarcity when there was none before and decried their environmental impact. Today the hype is over, or at the very least, cooled down significantly. OpenSea still operates, albeit at a much lower volume of transactions, and the number of active wallets that make NFT transactions are at their lowest levels. NFTs aren’t ‘dead’, depending on how one defines it, but their chances at being the next big disruptive technology seems to have passed.

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