In May this year, non-fungible tokens were hailed as the future of art markets. Only three months later, experts are saying the controversial new crypto trend is dead.

Non-fungible tokens – better known as ‘NFTs’ – captured the public’s attention earlier this year after several of the unique digital tokens were sold for millions of dollars.

Now Coinbase co-founder Fred Ehrsam is warning 90% of NFTs will have “little to no value” within the next 3 to 5 years.

What’s the deal with NFTs?

NFTs use the same blockchain technology that underpins cryptocurrencies (specifically the Ethereum blockchain, in this case), but unlike cryptocurrencies each NFT is unique.

Because NFTs exist on the blockchain, they can be used to verify ownership of digital assets including artworks, collectibles, and video game items, and to track their purchase history – something that was previously impossible.

Almost overnight, this created a new market for collectors and investors to buy and sell digital assets as the original works could be differentiated from copies and duplicates.

It doesn’t however stop anyone with an internet connection from being able to make their own copy of the work, or prevent the original creator from simply making more NFTs of the exact same piece to resell into the market.

In fact, aside from providing proof of ownership of an original digital file, an NFT isn’t really any different from any image, gif, or video online.

That hasn’t stopped collectors paying hand-over-fist for a slice of the virtual pie though. In March, the market hit fever-pitch when well-known digital artist Beeple sold one of his pieces – a JPEG file for USD $69 million.

The piece, Everydays – The First 5000 Days, received more than 180 bids. 

Beeple’s ‘Everydays – The First 5000 Days’ sold for more than USD $69 million. Source: NY Times

‘Most of it won’t work’: Coinbase founder’s dire warning

Interest in the NFT market has quickly waned since May, with sales in almost every category down significantly according to numbers published by cryptocurrency news outlet Protos.

At the height of the frenzy in early May, more than USD $100 million worth of NFTs were sold in a single day. But sales quickly dwindled, and in the entire week ending 2 June less than USD $20 million in sales were processed.

Buy this article as an NFT here. No, really, we’re being fully serious.

Even in the seven days surrounding the market’s peak, only USD $170 million was transacted – which Protos said represents a “near 90% collapse”. 

The data reflects comments made by Coinbase co-founder Fred Ehrsam in an interview with Bloomberg, where the cryptocurrency expert cautioned the NFT market bears certain similarities with the tech bubble of the late ‘90s.

“I’d go so far as to say that 90% of NFTs produced today will probably have little to no value in three to five years,” he said.

“You could say the same thing about early internet companies in the late ‘90s too, though. It’s sort of inevitable with a new technology that people are going to try a bunch of stuff, most of it won’t work at the beginning, but the technology itself will be really valuable over the long run.”

That hasn’t stopped people paying sizable sums for digital collectibles like CryptoPunks – small, digitally-generated pixel images featuring randomised accessories.

This sector of the NFT market has seen the smallest decline in sales, and some of the 10,000 images are still selling for more than $10,000 each.

For those who aren’t interested in spending millions on a JPEG image, perhaps investing in real art – like this $23,500 ‘invisible’ sculpture made of “air and spirit” – is a better option.

Sources:

• Bloomberg: Bloomberg Studio 1.0: Coinbase Co-Founder Fred Ehrsam
• The New York Times: JPG File Sells for $69 Million, as ‘NFT Mania’ Gathers Pace
• Protos: The NFT market bubble has popped and we’ve got the charts to prove it
• ABC News: CryptoPunk non-fungible token sells for $15.3 million at auction house Sotheby’s