This week, many news outlets such as BusinessInsider posted that two years after the height of the NFT boom, most NFTs are now worthless. A recent study by DappGambl found that 95% out of the studied NFTs have a market cap of 0 ether (Rosen, 2023). Nearly 23 million people are now holding NFTs which are practically worthless. While I did see that NFTs were not that popular anymore compared to two years ago, this news still surprised me. In 2021 reports mentioned that NFTs would change the art world and how we think about ownership (Kugler, 2021). So, this poses the question of why we can now say that NFTs failed? And does the development of AI have anything to do with this?
First, we need to understand what NFTs are. An NFT is a unit of digital information that is stored on a blockchain (usually Ethereum) and is not interchangeable with other digital assets (Chohan, 2021). Because of their technology, the peak of NFTs was at the same time as the peak of cryptocurrencies, two years ago, a Bitcoin traded for $70K while today it is worth $27K. DappGambl mentions that today, the supply of NFTs is enormous. Out of every five NFTs, four remain unsold. In addition to a large supply, demand has decreased as it is also a highly speculative market and people are likely to wait for a peak again (Vigliarolo, 2023).
So, does AI have anything to do with this? I think it could have. Especially with AI, everyone is now able to create original NFTs. I used the platform: ChainGPT AI NFT Generator to try this out. Even without having to create an account or pay, I was able to create multiple NFT options based on my prompt: “A dog riding a skateboard in the park at sunrise.” While results were not perfect (the wheels of the skateboard often had weird angles and twists), it still provided multiple NFTs in seconds. There are obviously other ways to create NFTs without AI but I do believe that generative AI has increased the massive supply of NFTs and with that helped crash the market.
I am curious to hear your ideas and opinions! Feel free to add any comments.
Kind regards,
Menno Smit
Bibliography
Chohan, U. W. (2021). Non-fungible tokens: Blockchains, scarcity, and value. Critical Blockchain Research Initiative (CBRI) Working Papers.
Kugler, L. (2021). Non-fungible tokens and the future of art. Communications of the ACM, 64(9), 19-20.
Rosen, P. (2023, September 21). Remember when NFTs sold for millions of dollars? 95% of the digital collectibles may now be worthless. Markets Insider. https://markets.businessinsider.com/news/currencies/nft-market-crypto-digital-assets-investors-messari-mainnet-currency-tokens-2023-9
Vigliarolo, B. (2023, September 21). 95% of NFTs now totally worthless, say researchers. TheRegister. https://www.theregister.com/2023/09/21/95_percent_nfts_worthless/
Thank you for your blog contribution! I also saw numerous news pages covered with your topic about the ’worthless amount of NFTs’. Interesting topic to elaborate about whether generative AI destroyed NFTs or not.
I would like to comment on one of your questions: “why we can now say that NFTs failed”. I disagree with this statement. Plenty of NFTs are indeed generated via AI, but NFTs are not only about artwork. NFTs have some more ‘use cases’. One good example is event ticketing. NFTs would eliminate intermediaries (third-party sellers) and, thus, decrease the portability of scams happening. This would create a much more secure way of ticketing compared to traditional ticketing.
There are some more use cases of NFTs: music, gaming, buying a car or house, etc. This is the reason why I don’t necessarily think that NFTs have failed, yet. On the other hand, I definitely can see how generative AI has increased the supply of NFTs and crashed markets for artwork, like OpenSea.
I find your article very interesting as NFT is still relatively new to the market, yet it has already faced a major downturn as you explained. I think the discussion on NFTs should be similar to talking about art collectors. Your experience with the ChainGPT AI NFT Generator shows how GAI is on the increase and how much this oversupply decreases its value. Although AI is quick and easy to produce NFTs, it often lacks the creative and original part that were traditionally present in original, limited NFTs. With that being said, I believe that the limited supply and related to that the originality of NFTs confirmed with an advanced blockchain technology should be the main source of its value. In real world, people can also wear fake product of well-known, expensive brands, but there still will be demand from people that value its legacy and quality over the pure ‘look’ of the product.