Most people became familiar with NFTs after March 2021, when digital artist Mike Winkelman – better known as Beeple – sold his work at Christie’s auction for the equivalent of $69 million in ether, a cryptocurrency. The work, titled Every Day: The First 5,000 Days, was won by programmer and digital art collector Vignesh Sundaresan.
Since then, NFTs have attracted more and more attention, becoming one of the most important assets in the crypto sector, a term that refers to everything to do with blockchain and its applications. The acronym NFT stands for Non-Fungible Token (in Italian it can be translated as “Non-Repeatable Token”) and denotes a digital certificate of authenticity: in short, they are labels that testify, through the blockchain, to the originality and uniqueness of the content. In the case of Beeple and most NFTs, a visual artwork.
After a year of strong growth, the industry peaked last September, when it recorded around 225,000 sales in a single day. Things have changed since then, as reported in an article in The Wall Street Journal Lots of quotes and comments on it these days in the sector: In the last week of April, the number of daily trades fell to about 19 thousand, a drop of 92%. The number of wallets – digital wallets of cryptocurrency – active in the market also decreased by 88%, from 119,000 in November to 14,000 in early May.
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The sharp drop in activity appears to go hand in hand with a general decline in interest and enthusiasm for the sector. In March 2021, Sina Estafi, an active entrepreneur in this field, was awarded the NFT Award associated with the first tweet in history (published on May 21, 2006 by the social network’s co-founder, Jack Dorsey) for $2.9 million. Last April, just over a year after the purchase, Estavi brought it back to OpenSea, the leading NFT trading platform, where he initially requested $48 million. At the moment, his highest bid was $24,000.
Things have not been better for Coinbase, the cryptocurrency exchange that launched Coinbase NFT, a division dedicated to these tokens, this month. On its first day, the service had fewer than 150 registrations, according to data from analyst firm Dune. About a week after launch, only 1236 used it to purchase NFT.
There are many factors behind this crisis. Among all of that, the massive growth that the sector recorded during 2021 and the beginning of 2022, a trend that is hard to maintain forever. Also because, despite the rise, the sector has not been able to expand as much as necessary in the number of users. According to Chainalysis, a cryptocurrency analytics firm, as of last April, 9.2 million NFTs were purchased by nearly 1.8 million people. About five NFTs per buyer.
Monkeys and metaverses
The distinctive centralization of this sector is also reflected in the excessive power accumulated by companies such as Yuga Labs, creator of the successful NFT Bored Ape Yacht Club line, which last March acquired two other hugely successful lines, CryptoPunks and Meebits. On the same days, the company announced that it had received $450 million in investment to build a “metaverse for NFT,” a video game that should be called Otherside. Also in March, the company introduced ApeCoin, a cryptocurrency to be used to purchase goods and services in this digital world.
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At the time of introducing ApeCoin, journalist Casey Newton explained how the coin — and its corresponding DAO, a type of organization that can be accessed by purchasing tokens — allows Yuga Labs to control the product and retain a portion of the profits, without dealing with other investors. According to Newton, a company can “talk about the advantages of decentralization.” […] while enjoying the benefits of centralization.
On April 30, Yuga Labs put up the first assets of another metaverse for sale, which led to high demand, despite a general downturn, which ended with the exposure of a structural flaw in the blockchain. Each transfer that occurs on Ethereum, the blockchain used by Yuga Labs, in fact provides for an additional fee, called “gas fee,” which all users pay miners, those whose computers they operate to validate transactions. This commission is not fixed but increases with respect to the traffic recorded in the network: due to the great interest from Otheride, this additional expense has doubled. For example, the user got to pay $45,000 in gas fees to cover the purchase of an NFT that cost just over five thousand.
As for Ethereum, it did not withstand the traffic of these 55,000 NFTs, which overloaded and created a lot of inconvenience. In those same hours, taking advantage of the chaos related to the event, many users were victims of theft and phishing attempts by bots that emptied their wallets. An increasingly common phenomenon in the cryptocurrency world: in 2021 alone, this type of fraud earned $14 billion.
A few days after the confusing launch of the metaverse series Otherside, the decline that affected the NFT has also overshadowed Bitcoin, the world’s main cryptocurrency, which today has lost 54% of its value compared to last November’s peak (down to par). psychological threshold of thirty thousand dollars). Ethereum also suffered similar losses.
However, the cryptocurrencies that have lost the most value, thus undermining the entire cryptocurrency economy, are the so-called stablecoins, which can be translated as “stable currency,” which are cryptocurrencies designed to maintain a fixed value – usually in dollars – to prevent volatility Typical of this speculative market. Some of these coins, such as USDC and Tether (not to be confused with Ether), maintain this stability by accumulating liquidity and assets with which to “hedge” the circulating stablecoins.
There are also “algorithmic” stablecoins, such as Terra, which do not have this type of reserve “but maintain their value based on an algorithm that automatically creates a balance between the stablecoin and the partner coin.” This bond is called a peg and is based on the ongoing creation and sale of tokens: in the case of Terra, the reference currency was the Moon. These are systems whose stability, according to many critics, is found only in name, and already encourages the constant issuance of new cryptocurrency units, without any hedging.
Over the course of this week, Terra, USDC, and Tether all lost their correlation with the reference currency, causing huge losses and also bringing the value of Bitcoin down to $24,000 – as Terra invested a lot of resources in a circle. The malware that caused the cryptocurrency market to lose $800 million (estimate updated as of May 11) and Alex Hern del guardian To the chain of events that led to the downfall of the investment bank Lehman Brothers, the symbol of the 2008 financial crisis.
Until a few weeks ago, their supporters blamed the NFT crisis on inflation or other emergency factors. On the other hand, the facts of the past few days point to the structural causes of the entire crypto sector, and some analysts are speculating that the collapse of the NFT may be just the first sign.