NFTs Are Such A Wasteland

Desert with dead trees.

Two years ago, I watched drops on Nifty Gateway, where people were making $1M in five minutes. Beeple set the record back then, selling a giant NFT for $69M at Sotheby's.

Looking at drops on Nifty Gateway now, most people are getting a few hundred to low thousands at best. Resales are collecting tumbleweeds. Even the enormously popular Bored Ape Yacht Club makes very little for its owner Yuga Labs. Every NFT site is now overrun with copycats of the cartoon Apes, all built precisely the same way with different parts. Even Donald Trump is selling himself that way.

At the start, NFTs were a new phenomenon—you could buy them with crypto and almost immediately make a ton of money as the product and the underlying currency increased rapidly. The progenitor (as far as I can tell) were Cryptopunks, a pixel art face created by drawing a ton of face parts to fit onto a simple underlying framework, then after purchase generating a unique face by randomly choosing parts (such as two eyes, mouth, etc.). This basic pattern, hiring some artist to draw the parts and then writing simple code to generate a unique result, is still the most common NFT pattern—in the case of Open Sea, it's almost the only pattern.

For those who don't know what an NFT is, you pay for one with crypto, mostly Ether, and now control a single entry in a blockchain that points to an asset, most commonly an image or animation (though it can be any digital asset). You don't, however, actually control the asset itself. Confusingly what you do "own" is the right to sell that pointer to someone else, which enters the blockchain as a new entry. If the item pointed to is unique, you might own a copyright of the image, though I don't believe that has ever been tested in court for individual owners. Anyone can generally download the asset.

If you buy a Van Gogh painting, you own it, you control it, and no one can do anything with it without your permission unless they steal the actual painting. NFTs are not like that at all.

So why buy an NFT two years ago? You might want to help an artist make a little money, but most sold NFTs benefited large companies or famous individuals, not regular artists. In the early days, you might have bought them to make money as they rapidly increased in value due to scarcity (Bored Apes were sold for a small amount at release but then rapidly exploded in value, often into the millions, with the original provider making a percentage of each future sale). You might have wanted to brag about owning a unique item. Unfortunately, with exploding availability and rampant copycatting, the values stopped growing, and sales dried up as you would expect from an economic standpoint. Values then dropped precipitously as the underlying cryptocurrencies crashed; no one made money anymore.

During the rapid crypto price increase, many early sales were also driven by individuals who had made millions or even billions of dollars. This inflated the value of everything they bought and attracted vast new supplies of copycats into the markets. Then the inevitable fall in the value of everything flipped the market upside down. Finally, I think people began to realize they were buying nothing but hype instead of actual art.

The fall of FTX indeed killed what was left of the NFT market. I briefly tried to participate in an NFT project with a rather noble purpose of empowering individual artists, but the initial plans took too long, and it came out on the same day FTX collapsed. They are still trying, but the market is not there.

NFTs had a brief moment in the sun, but the conditions did not remain for long, and I don't see any reason they will ever be revived. Paying good money for nothing makes a great song, but otherwise is not much fun.