In a turbulent seven-day period that started with Twitter founder Jack Dorsey proving that almost anything can be tokenized – even the old one tweets – and culminated on Thursday with a Christie’s art auction that generated a mind-boggling $ 69.3 million bid for a tokenized work by Beeple – reaching more at an auction than pieces by George Seurat, Paul Gaugain or Salvador Dalí – some observers asked: Non-fungible tokens are getting out of hand?
Even before the famous auction house catapulted artist Mike Winkelmann, also known as Beeple, to the rarefied company of Jeff Coons and David Hockney – that is, living artists capable of commanding stratospheric prices for their works – some questioned the sanity of the market . Marketing guru and author Seth Godin, for example, wrote in a blog post: “NFTs are a dangerous trap”, and the current craze is “an unregulated and non-transparent movement with ‘bubble’ written all over it”.
Meanwhile, on March 8, an NFT version of a deliberately burned Banksy painting was sold for almost $ 400,000 in the OpenSea market, prompting London gallery director Zavier Ellis to tell The UK’s Telegraph : “I wonder if this is some form of pyramid selling where, in the end, someone will be burned”. David Knowles, who runs an art consulting firm, Artelier, commented that buying contemporary works of art is often risky, but buying non-fungible chips seems to be the “extreme end” of that.
It is worth asking after a week: Is the NFT market boiling, and if so, are people going to get hurt??
Going for a fall?
“NFTs are an exciting innovation,” Fabian Schär, professor in the business and economics department at Basel University, told Cointelegraph, “but that doesn’t mean that every doodle is suddenly valuable just because it’s represented by an ERC-721 or Token ERC-1155 ”, adding:
“There are some interesting projects out there and they are probably here to stay, but the vast majority of NFTs will be completely useless when the campaign is over.
“I wouldn’t say things are out of control, but NFTs seem to have become the hot trend today, and many opportunists are joining the wave in hopes of making quick money,” Gary Bracey, co-founder and CEO of Terra Virtua, said Cointelegraph. “I fear over-saturation of mediocre products and newcomers that don’t bring anything innovative or different to the party.”
What could be driving this speculation? Misha Libman, co-founder of the art market Snark.art, told Cointelegraph: “Rising prices are tied to governments that inject trillions of dollars into the global economy to counteract the damage caused by the pandemic, and that excess liquidity is showing itself across the border. ”
Do the bubbles usually cause any damage when they pop? Bracey replied, “I would like to think that people are smarter than that and will not fall for any of the ‘Emperor’s New Clothes’ antics.” The entire NFT community would be negatively affected if things went bust, Libman suggested, adding:
“But I think it is important to note that the current attention and investments that are being poured into the sector are also helping to build the necessary infrastructure and tools that will make it easier and cheaper to build projects that use blockchain technology.”
Blake Finucane, co-author of a position paper on NFT-based art entitled “Crypto art: A decentralized view”, said Cointelegraph: “A bubble is especially difficult to avoid with NFTs because one of the notable advantages of NFTs is the ability to buy, sell and exchange them instantly, from anywhere in the world. ”So, according to her:“ Reversing is inevitable in a heated market, where buying and selling is as easy as pressing a button. ” Those who are in the short term – “just to lose everything they are buying” – are at the greatest risk, she added.
Are buyers “blind” to the limits of NFTs?
Godin also wrote in his post: “Buyers of NFTs may be blind to the fact that there is no limit to the supply.” An example he gave was that “in the case of art, there are a limited number of famous paintings and a limited amount of space on Sotheby’s shelves”.
Is this a valid review? While agreeing that the NFT market is currently overheated, Schär disagreed with that assessment, noting that while anyone can create an NFT, “it is not possible to create copies of a specific NFT”. As for the specific examples cited in the post:
- “When I have physical baseball cards, I have no way of knowing how many copies of that rookie card there are. In addition, cards are very easy to counterfeit. Both problems can be solved with NFTs. “
- Regarding the comparison of “famous paintings”: “I agree that most NFTs are completely useless. But the same is true for paintings, and it certainly does not mean that the concept of NFTs is fundamentally flawed. “
- As for the “shelf space” analogy: “There is really no reason why there is no virtual equivalent for ‘shelf space’”. Platforms like OpenSea can be used for curation.
“I would totally disagree with that statement, as it fails to understand the nature of digital collectibles,” said Libman, referring to Godin’s observation, adding: “In the art world, the practice of editing has been around for a long time, particularly in photography and printmaking, and although an artist can certainly violate the trust of his collectors by selling more editions, the loss of reputation would devalue any future work ”.
A wasteful use of energy?
In his post, Godin also warned that “the rest of us are going to pay for NFTs for a long time. They use a surprising amount of electricity to create and market. ”Responding to this criticism, Giovanni Colavizza, an assistant professor of digital humanities at the University of Amsterdam, told Cointelegraph that” technological innovation is already ahead of the curve “, adding:” Ethereum will soon transition to a test protocol. game that is much more environmentally friendly. ”
Farooq Anjum, an associate professor at Harrisburg University of Science and Technology, told Cointelegraph that he was unsure whether the rebuke for excessive energy use was valid. “Do we spend an impressive amount of dollars to protect the Mona Lisa or other valuable non-digital assets?”
Bracey admitted that the ecological issue significantly bothered him when he started getting involved with blockchain, “but technology and efficiency have improved since then, and my understanding is that the processes are underway that will largely address the gas / energy issue, particularly with level two and the next generation Ethereum. ”
Meanwhile, some questioned whether the NFTs were just so many castles in the air. “Is this a bubble?” asked Mati Greenspan, founder of Quantum Economics, in his daily newsletter. “It may be, but in my humble opinion, we are just getting started.” He showed the NFT to a pixelated monkey that “just sold for 800 ETH (approximately $ 1.5 million), and here I am using it as part of a newsletter without paying a cent, not even breaking any rules” .
But it’s not about copying art, Greenspan continued: “What these artists are doing is more like selling autographed copies of their work, only the autograph is digitally verifiable and limited in supply, ensuring the element of scarcity that collectors want” .
Colavizza told Cointelegraph that it is difficult to identify a bubble when one is actually inside a bubble, adding: “In the short term, the growth of NFTs and crypts will need some adjustment after a rapid increase. The volatility is likely to remain high. ”In the long run, however, the market is expected to grow significantly:
“The innovations in cryptography and NFTs have not yet fully materialized. We are still in the early days, as was the case with the World Wide Web in the late 1990s. Was there a bubble then? yea. Does this mean that these innovations will not, in the long run, be extremely successful and impactful? I think not.”
Is there an appropriate use for an NFT?
Is there a proper use for NFTs, then – beyond mere speculation? “Certainly,” replied Schär. “For artists, it is a way to reach a wider audience and monetize their work”, while for collectors it is a “verifiable scarcity”.
Anjum added: “NFTs can be used to solve the problem of assigning ownership of digital media without a trusted third party”, although this problem has not yet been solved, presumably because the market is insufficiently decentralized. “We are trying to run here, although we have not learned to walk,” said Anjum.
Related: Attacking the ‘last bastion’: anguish and anger as NFTs claim high culture status
Colavizza acknowledged that some “peculiar uses of NFTs” were shown recently – he mentioned tokenized tweets – but added that “we are already seeing a lot of serious creatives and creators being able for the first time to directly reach their market and monetize their work. “
“There are a multitude of ‘proper uses’ for NFTs,” added Bracey, going on to say: “Being able to authenticate ownership, safeguard a limited edition launch of a special collectible or anything that requires formal validation or certification will benefit from NFTs. We’re just scratching the surface. “
“Is it a bubble?” asked Libman. “It might be.” But it could also be about something that can fundamentally change the way digital content is created, sold and accessed, he said, adding, “This is not a trivial technological change that will just go through and revert.”