According to Insider, out of 73,257 NFT collections, 69,795 of them, or slightly over 95%, had a market cap of zero (Rosen, 2023). Therefore, I wanted to start a discussion and look into generative AI for creating images and their relation to NFTs (non-fungible tokens). Perhaps this could be the reason for the crash.
DALL-E & Bing
First, I wanted to investigate one of the AI tools that is used for creating images: DALL-E and Bing. DALL-E is developed by OpenAI, who is also famous for ChatGPT. DALL-E uses a variant of GPT-3 (powerful language processing AI) to understand the text inputs and generate corresponding images.
When you start up Microsoft Edge and you have applied to the Bing beta like I have, you can let Bing AI, that runs for its ‘art creation’ on DALL-E, create images for you based on your text input. For example, I created this image based on this prompt:
“Create an image with this prompt: A shark eating blockchains (NFT) and little US dollars and euros.”
If it is this easy to create digital art and ownership, could this be the reason for the overall decline for NFTs?
NFTs
For those who do not know, NFTs were first introduced to the online community in 2012. The first known NFT, called “Quantum”, was minted on May 3, 2014, by digital artists Kevin McCoy and Anil Dash (Creighton, 2022). To continue, NFTs are unique, non-replicable cryptographical tokens that are existing on a blockchain. These tokens are used to represent ownership of exclusive, rare, or unique content. An example is the NBA Topshot platform were users can sell their rare NBA moments. Unlike cryptocurrencies such as Bitcoin, which is fungible and can be exchanged on a one-for-one basis, NFTs have values of their own and cannot be exchanged in this way.
Hype
The hype surrounding NFTs reached its highpoint in 2021 with a $2.8 billion in trading volume recorded in August 2021 alone (Hategan, 2023). This drove NFTs into the global spotlight, with media reporting on multi-million-dollar transactions involving specific NFT assets.
The initial excitement surrounding this new form of digital asset led to what seemed like a gold rush according to Dappgambl (2023). However, as said earlier, the current state of the NFT market is an utter contrast to its early days. According the The Block, the weekly traded value in July 2023 was around $80 million, a mere 3% of its peak in August 2021. So, what could have caused such a shift?
Can generative AI be related to the crash in June?
I personally think that the upcoming of more advanced AI for images is one the reasons that NFTs are decreasing in value. What you saw in my previous example, it is extremely easy to create digital content and claim ownership. However, I do not want to be shortsighted. It is also important to consider other factors. The NFT market is influenced by a variety of elements, including overall interest in the art world, (especially) economic climate and demand in cryptocurrencies. Ethan McMahon, a Chainalysis economist, (sort of) confirmed this by saying:
“This decline is definitely linked to the broader slowdown in crypto markets,” (Milmo, 2022)
From my perspective, Generative AI has made it easier for anyone to create digital art, and therefore increasing the supply of digital art available for ‘tokenization.’ In simple economic terms: If supply grows faster than demand, this could lead to a decrease in average prices.
What do you think? How big is the exposure of generative AI to the enormous value decrease of NFTs?
Sources
Rosen, P. (2023, 21 september). 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
Creighton, J. (2022, 15 december). NFT Timeline: The Beginnings and History of NFTs. nftnow.com. https://nftnow.com/guides/nft-timeline-the-beginnings-and-history-of-nfts/
Hategan, V. (2023, 29 augustus). 95% of NFTs are dead – Trends, Predictions & Statistics 2023. dappGambl.com. https://dappgambl.com/nfts/dead-nfts/
Milmo, D. (2022, 2 juli). NFT sales hit 12-month low after cryptocurrency crash. the Guardian. https://www.theguardian.com/technology/2022/jul/02/nft-sales-hit-12-month-low-after-cryptocurrency-crash
Hey Yannick, great article! I had actually never considered the fact that the NFT market crashed because it just because so much easier to create art online with the help of generative AI. I do strongly believe that the unreliable aspect of cryptocurrency also deeply affected NFTs, but I really found interesting to get your new point of view on this. This would actually be a great thesis topic 🙂