By Khaled Itani | Staff Writer
The rollercoaster journey that is NFTs, the digital art that shaped the art market and gained mainstream momentum in 2017. A dream that every investor sought after, and tried to shape their careers towards. However, this seemingly ascending and popular venture worth millions became worthless. What were the challenges it faced? And how did it crash?
Non-fungible tokens (NFTs) emerged as a groundbreaking innovation in the digital world, offering a unique way to authenticate ownership of digital assets through blockchain technology. They served as digital certificates of authenticity and ownership rights (George Burlakov, 2023), which is particularly important in the fields of art and collecting. Initially, NFTs were hailed as a revolution for the creative industries, providing artists with a secure platform to monetize their work and ensure authenticity through decentralized ledgers. However, the meteoric rise of this digital art was followed by a significant downturn, leading to questions about their sustainability and long-term impact on the market.
The rise was marked by a surge in interest from celebrities, artists, and influencers, driving a 60-fold growth in the market between 2018 and 2021. NFTs may take the form of an image, meme, video, blog, or even a tweet, such as Dorsey’s first ‘just setting up my twttr’, owned by Sina Estavi (Eva Thomas, 2023). Influential icons like Logan Paul, MrBeast, and even Cristian Ronaldo sought direct contact with their fans and audience. This led to a lot of traction around the world, causing a lot of people and investors to trust in the potential of this digital asset and potentially put their money into buying them, along with collectors who viewed them as lucrative investments in the digital economy.
NFTs reached their peak in 2021, achieving prominence by providing a secure, verifiable, and decentralized method of proving ownership and authenticity in the digital space and gaining endorsements from the likes of Adidas and Yum Brands which is the parent company of Pizza Hut, KFC, and Taco Bell, and staggering sums sold. NFTs opened new avenues for artists and creators who previously struggled to monetize their work (Forbes, 2024). This allowed them to gain fame and recognition, furthering their careers and creating a canvas for their works with a lot of collectors interested in them.
What went wrong?
Described as a bubble bursting, NFTs’ fall was caused by cracks in the foundation of the digital market industry, with a plethora of changes and disasters that occurred in the cryptocurrency industry and global economic conditions.
Tera Luna, a prominent cryptocurrency project, collapsed, leading to a decline of billions in market value, which in turn lost investors’ confidence in the cryptocurrency industry, and this includes NFTs. Along with this collapse came the FTX catastrophe: the bankruptcy of FTX, a prominent figure in the crypto exchange domain. This spread panic and a significant decline in the value of cryptocurrency. This had a direct impact on the prices of its respective tokens and since most NFTs utilized them, this resulted in a significant blow to the crypto market which subsequently led to a drop in NFTs’ value.
The challenging global economic issues, with rising inflation and cost of living affecting the incomes of the broad public, also played a role in the decline of the NFT market. Economies struggled to recover from the impacts of the pandemic, individuals and investors became more cautious with their spending (Forbes,2024), and since NFTs were considered speculative and risky investments, they became unattractive and volatile.
As the NFT market continues to evolve, it faces both challenges and opportunities. While NFTs have shown potential as a tool for certifying ownership and authenticity of assets, their long-term impact remains uncertain. The focus has shifted towards using NFTs for collectibles, digital trading cards, and exclusive access to events, indicating a more practical approach to their utility. NFTs’ future depends on their effective integration in widespread applications apart from art, which includes sectors such as virtual real estate, digital identity verification, and decentralized finance (DeFi). This allows NFTs to further diversify their uses into a plentitude of new avenues for innovation and creativity. Moreover, regulatory frameworks will play a crucial role in shaping the industry by providing clarity on issues like taxation, intellectual property rights, consumer protection, and fraud prevention. This regulatory guidance will be essential in fostering a sustainable and secure environment for the continued growth of the NFT market.
In conclusion, the rise and fall of NFTs reflect the dynamic nature of the digital market and the challenges of integrating blockchain technology into creative industries. While NFTs have reshaped the concept of digital ownership, their sustainability hinges on addressing security concerns, regulatory issues, and market volatility to regain investor confidence and establish a more stable ecosystem for digital assets.