Before it shut down, a disclaimer on the NFT marketplace of FTX, the now-defunct crypto exchange that owes billions to its creditors, warned potential investors: “NFTs do not necessarily have any intrinsic value. They also might be illiquid. If you buy an NFT, you are not necessarily going to be able to sell it for much later, or gain any specific utility from it.” FTX Founder Sam Bankman-Fried joined the ranks of other disgraced millennial schemers; the company went bankrupt in November and Bankman-Fried will likely enter a plea deal. The link to FTX’s marketplace now leads to an outline of the case.
Alongside FTX’s dramatic implosion and the descent into a so-called “crypto winter,” the value of NFTs also plummeted. Last year, the industry peaked on January 8 at $17 billion, according to data from Dune Analytics, but by late September, NFT trading volume was down 97%. Even at their height, NFTs garnered ethical criticism over their environmental impact and the difficulty of enforcing royalties for artists whose NFTs are resold, among other concerns. The apparent end of NFT “hype” has shown its face in a string of high-profile embarrassments: Several celebrities lost their small NFT fortunes and, most recently, some were even sued for promoting the famous Bored Ape NFTs without disclosing that they were receiving a paycheck. The Coachella music festival found itself in hot water after selling $1.5 million worth of NFT passes that became stuck after the FTX collapse.
Perhaps the most glaring sign of NFTs’ dismal future is not their descending value but their growing resemblance to the rest of the art market. Touted by celebrities, sold by auction houses, and boasting million-dollar price tags for a select few, the medium is arguably almost unrecognizable from the format some artists were drawn to at the beginning.
Artist and researcher Kyle McDonald said his first involvement with NFTs was in the artist-led exchange platform a2p in 2019, where a “few dozen digital artists traded artwork like trading cards.”
“No currency, no collectors, no cashing out. Just having fun swapping and chatting about work that we made and loved,” McDonald told Hyperallergic.
NFTs once presented a long-overdue way for digital artists to make their practice financially sustainable, echoed Lauren Lee McCarthy, an NFT artist, computer programmer, and professor of design media arts at the University of California. (McCarthy and McDonald are collaborators.) Digital creators were finally able to earn money for their work, and new ones entered the marketplace, too. The burgeoning field was also viewed as a democratizing force. NFTs allowed artists to show their work to audiences they may not have had before, says software engineer and crypto skeptic Stephen Diehl, “even if that audience is speculators or hedge funds or people who are buying up art basically to flip it around.”
Then the traditional art market got its hands on NFTs. Christie’s and Sotheby’s launched dedicated NFT departments and the two auction houses sold works for record highs: A CryptoPunk NFT went for $11.7 million at Sotheby’s and an NFT by artist Beeple went for $69 million at Christie’s.
Now, McCarthy thinks the only crypto artists selling their work are those who are connected to a gallery, institution, or other organization — just like in the regular “art world.”
“My pessimist view is that the days of NFTs being a chance for any outsider to make it big are long over. You need a connection to an established institution again, just like before,” McDonald told Hyperallergic. “There was a real but temporary moment of decentralization, but it was just part of a longer process of recentralization.”
McCarthy offered an even more pessimistic view, although she continues to create NFT art herself.
“I don’t know that it was ever quite so utopian,” McCarthy said. “I think there’s always been an aspect of it that’s always been an insider’s game.”
In the eyes of some NFT artists and researchers, however, one aspect of NFTs has not disappeared yet: the medium’s ability to forge community. María Paula Fernández, who has worked in NFT software design since the system’s early days in 2018, said her initial interest in NFTs was due not only to their artistic possibilities but their potential as financial instruments. But the most interesting aspect of the field lies in people’s ability to network, something she thinks happens every time an NFT transfers ownership or changes value.
McCarthy also pointed to NFTs as a way for artists to finally trade digital art amongst themselves, stating that although artists have been sharing this work for a while, there was no good way to exchange it because there was no system for it to be preserved and archived. The blockchain, then, replaced JPEG files saved on a desktop.
Christiane Paul, a media studies professor at the New School and adjunct curator of New Media Arts at the Whitney Museum of American Art, described another appeal: the “gamification of the NFT art market,” which occurs when NFTs are publicly displayed and traded. Even during this downturn, she says, artists will continue to work with the “mechanism.” (Paul describes NFTs as a mechanism for sale, not a medium.) “Artists never stop painting whenever painting is proclaimed to be dead — always a good sign — and there isn’t a major market for it,” Paul said.
Even if artists continue to create NFTs, the market downturn means they will likely have a hard time trying to sell them. But will the death of the “hype” bring new artists to the format? With rock-bottom sale prices, some creators may no longer think the field resembles a pyramid scheme and therefore be less wary to enter. It’s been suggested that without the possibility of striking it rich, artists could use NFTs as a space for “experimentation,” and crypto enthusiasts argue that the crash mirrors any normal economic cycle and prices will eventually bounce back.
For his part, McDonald does not plan on reentering the space. He said he began rejecting NFTs in 2020 after their environmental impact came to light. Last year, Ethereum transitioned to a new protocol that is expected to be less energy-intensive, but McDonald also cites “rampant scams, anti-regulatory practices, individualism, casino-style speculation, [and] lies about royalties and permanence.” Like others, he believes the real purpose of NFTs within the crypto ecosystem is to onboard new crypto users and convince people to spend their money there.
Software engineer Molly White, who runs the critical and informative blog Web3 Is Going Just Great, echoes this view.
“I think that it’s important to view the NFT for what it is — which is just a platform for speculation,” White told Hyperallergic. “The goal is for people to be able to make money off that, and people don’t care about what the actual image is.”