The NFT market has been experiencing some significant volatility in recent days, with average selling prices for the digital certificates down 70 percent this week over late February, Bloomberg reported. Overall transaction volume is also down and to the right, bringing into question whether the recent boom in digital art sales has staying power.
Creating digital scarcity — NFTs, or non-fungible tokens, are certificates of authenticity that have created a market for digital collectibles as creators can “sign” their digital work with immutable cryptographic keys that are stored on a blockchain ledger, providing proof of provenance and a trail of ownership.
In the same way that bitcoin is valuable because circulation is limited to 21 million coins, NFTs make digital artwork, like images and GIFs, rare by linking it to a signature by its creator that can’t be tampered with. Creators can choose to sell one or many signed copies of their work, therefore creating a rare art market.
The market for NFTs exploded into the public consciousness just last month after a .JPG picture titled “The First 5000 Days” from digital artist Beeple sold for an eye-popping $69 million. Since then, famous celebrities have jumped on the bandwagon, offering one-of-a-kind “artwork” of dubious quality — Twitter CEO Jack Dorsey sold an NFT version of his first tweet for $3 million, for instance, meanwhile rapper Azalea Banks even sold an audio sex tape.
During the week of February 21, NFT transactions totaled $196.4 million, but in the past seven days volumes have totaled $30.2 million, according to data from NonFungible.com.
Boom or bust — Collectors who buy an NFT don’t actually gain ownership of the art — anyone can look at Beeple’s picture online and save it to their computer, and copyright ownership is a grey area. Collectors are really purchasing the right to say they own one of few, or the only, version signed by the original creator.
Because NFTs are a sort of abstract concept, there’s been speculation that major sales like that of Dorsey’s tweet have been made by wealthy crypto whales making the purchases in hopes of flipping them for a quick buck.
The buyer of the Beeple picture was a cryptocurrency entrepreneur who added the NFT to a digital art collection that individuals can buy fractional ownership in as an investment.
It’s possible that the massive ride up in NFTs will give way to more modest growth. A major problem thus far has been that much of the “art” sold really isn’t art at all, like Dorsey’s first tweet. Optimists hope that true, lesser known artists and creatives will be able to monetize their skill by selling NFTs to their biggest fans. Someone who is a fan of @dril might be willing to buy one of their tweets for a couple bucks just as a collector’s item.