If we take a step back into 2021, we were introduced to Non-Fungible Tokens, more commonly known as NFTs. They have been around since 2014 but didn’t break into the mainstream – disrupting the art world and various other industries – until 2021. They became a frequently trending topic on #CryptoTwitter and dominated many topics of conversation for those who invest in cryptocurrency, or people just trying to grasp the concept of an NFT.
WHAT EXACTLY IS AN NFT?
NFTs are considered any type of digital asset. Every NFT transaction is verified in a permanent digital ledger – commonly known as blockchain technology – containing every other NFT transaction. The digital ledger certifies that the digital asset is unique and not interchangeable. NFTs have many practical use cases beyond digital artwork. NFTs can be utilized in digital commerce, video games, the metaverse, music, and even the supply chain. Recently, NFTs have started to flatline, and the major hype that surrounded them last year has begun to fizzle.
OVERALL INTEREST IN NFTs HAS DECLINED
Have you started to notice that we hear less and less about NFTs in recent months? For a while, the topic took over Twitter with around 375 million tweets about NFTs from January 2021 to March 2022. Twitter even gives users the option to display their NFTs as profile pictures. Since their peak last year, sales of NFTs have declined 92% and the number of active wallets in the NFT market fell by 88%.
Many NFT owners are realizing that their investments are worth significantly less than when they originally bought them. For example, the first-ever Tweet from Jack Dorsey’s (the co-founder of Twitter) was made into an NFT and was sold for $2.9 million in 2021. The current owner of the NFT listed it in a 7-day auction for $48 million. When the auction ended, the highest bid was only $280. The NBA-backed NFT project Top Shot from Dapper Labs has seen values decline by as much as 90%. Is this a product of the natural ebb and flow of the market? Or is this a result of the hype of “the next big thing” dying down? Looking at Google trends data, it’s revealed that people in the U.S. searching for “NFTs” steadily increases throughout the year, eventually hitting its peak in January of 2022. From January 2022 to May, there has been a dramatic decline in people in the U.S. searching for “NFTs”. This fall in interest is likely because NFT owners are not getting the returns they had anticipated or people are no longer interested in learning about the complexities of NFTs, which require purchasers to exchange hard currency for Ethereum to conduct the transaction and then store their assets in digital wallets or vaults.
HACKERS, THIEVES, AND SCAMMERS
Whenever the “next big thing” in tech is revealed, we can always count on a group of hackers, thieves, and scammers coming up with ways to take advantage of people playing by the rules. A big draw to NFTs or “cryptoart” is the hope that you can flip them for tens or even hundreds of times the purchase price and net a huge profit. A large majority of the time various creators will make their own NFT projects and build a lot of excitement around them through social media or a Discord page and promote a drop date where they will release a certain number of unique NFTs to be minted. The people who are interested in buying from these particular projects wait for the public minting to happen and try to purchase these NFTs on a first come first serve basis. Minting an NFT means converting digital data into crypto collections or digital assets to be recorded on the blockchain. Buying an NFT requires an existing item that has been minted into an NFT – whether this is from a digital online project, or converting existing items (like Jack Dorsey’s first tweet) into an NFT. In many cases, these projects will include a handful of “rare” NFTs that can be sold for much more than they were purchased for and for more than the other ones in the drop.
In October of 2021, many people tried to mint the highly anticipated Baller Ape Club NFT, a project capitalizing on the popularity of Bored Ape Yacht Club (see below). The project was releasing 5,000 unique apes (yes, digitally drawn apes) available to mint for two Solana – roughly $228 at the time of the drop. Once the mint was sold out, the Baller Ape Club admins deleted their Discord, websites, and Twitter accounts that were hyping up the project and pocketed around $2 million worth of Solana. The Baller Ape Club NFT is known as the largest NFT rug pull to date across any blockchain. Rug pulls are common, making up nearly 40% of crypto scams costing users around $2.8 billion in 2021.
More recently, the NFT project Bored Ape Yacht Club’s official Instagram got hacked. The hacker was sending out a link to followers from the official Instagram to a scam website stating that the creator of Bored Ape was offering free NFT land (a purchasable plot of digital space in a metaverse project) to anyone who connected their Ethereum wallet – which contains a person's cryptocurrency and NFTs – to the website link shared. The hackers stole more than $2.8 million worth of NFTs from people who connected their Ethereum wallets to the site believing that they would get free NFT land. This scam ensnared actor and creator Seth Green, who ultimately paid $300,000 to repurchase his pilfered NFT.
Phishing scams targeting information from online wallets have become increasingly popular and once private key information from the digital wallet is exposed, hackers can steal whatever is contained in those wallets. With cryptocurrency scams rapidly growing and an apparent decline in interest in NFTs, we will have to wait and see if NFTs will hit an upswing again, or continue to decline in 2022.