NFT 2.0: Lessons Learned for the Great Restart? Part 2

By the end of 2022, NFT buyers could be divided into four distinct groups:

• Progressives

Crypto-millennials and Gen Z enthusiasts drawn to all things novel, uncharted, and thus intriguing. Their interest in digital assets began with the rise of cryptocurrencies as a challenge to the traditional world and extended to art during the COVID-19 pandemic, supporting contemporary artists in times of crisis.

• Imitators

Gen Z and younger Gen Alpha, lured by big brands to buy physical goods wrapped in NFT packaging. Their primary motivation was the glamorous lifestyle shared on social media by NFT owners, often stars emulated by the younger crowd.

• Speculators

In 2021, 8 out of 10 NFTs were bought for speculative resale. By 2022, the pace of "quick money" slowed, reducing interest. However, some speculators remained.

• The Curious

According to the Artsy Collectors Report, in 2022, about 5% of traditional art collectors had made at least one NFT purchase. These experimental buys reflected a desire not to miss potential shifts in the art world rather than a deep trust in the new market.

In early 2023, all four groups realized that many promises tied to NFTs—from purchasing to selling—were unfulfilled. Unlike traditional collectors, who benefit from networking, in-person events, and managing physical collections, NFT owners felt they were left with just digital artworks, often with a celebrity endorsement. Despite no qualms about the collectibles themselves, NFT buyers missed the experience that traditionally makes collecting a “Passion Investment.”

Major market players tried to patch the gap. Yuga Labs, with $450 million in investments, organized physical festivals for their "Bored Apes" NFT holders and began building a golf course in Miami, where club cards were represented by NFTs. Magic Eden offered collectors a chance to meet artists personally—only to find many artists preferred anonymity. SuperRare and Solana opened physical spaces in New York but quickly closed after low attendance post-opening.

The 59th Venice Biennale initially included a digital platform in its 2022 parallel program but later excluded it. Sotheby’s and Christie’s, major contributors to the 2021 NFT frenzy, nearly ceased NFT activity the following year. The Uffizi Gallery in Italy attempted to sell digital copies of its masterpieces but later canceled the project and initiated legislative moves to ban the "NFT-ification" of museum archives across Italy. Only the State Hermitage Museum saw modest success, raising $150,000 for specific needs by selling an NFT based on Leonardo da Vinci's "Madonna Litta."

Meanwhile, clothing and jewelry brands, observing youth disillusionment, halted their NFT-based product initiatives. Tiffany & Co, for instance, responded to shifting market sentiments by quietly removing all references to NFTs from its releases and website.

Another often overlooked issue arose from NFT ownership itself. Back in early 2021, ArtTactic warned that if a marketplace hosting digital artwork closed, ownership of the artwork would be lost; most platforms used free but imperfect 2018 code, tying NFTs to their sellers. This warning went unheeded until the closure of Hic Et Nunc, a marketplace with $18 million in turnover. Its founder, claiming burnout, erased the technical code and user records. Another surprise awaited NFT owners who discovered that many digital contracts signed between 2018 and 2022 didn’t grant them ownership of the art but merely reselling rights. A reminder: always read what you’re signing, even if it's in code!

Before we continue with recent history, let’s address two frequently asked questions:

• What about Damien Hirst, who sold NFTs for "millions"?

The British artist & self-promoter sold digital replicas of his works similarly to how he once sold a shark in a tank for $14 million and a diamond-encrusted skull for $100 million — transactions so opaque that even the artist's own earnings were unclear.

• Why didn’t the omnipresent metaverse help?

Metaverses — virtual reality ecosystems designed for purchases, gaming, and social interaction via avatars — were expected to be a "promised land" for NFT owners. However, the concept of metaverses was a decade ahead of its time, as was NFT technology itself. VR headsets were prohibitively expensive, uncomfortable to wear for extended periods, and offered graphics reminiscent of '90s video games rather than the cinematic experiences people expected.

Returning to 2023, NFT owners found themselves disappointed by the lack of promised utilities (real-world perks) bundled with digital assets. Marketplaces and artists attributed the issues to the broader cryptocurrency market recession, often ignoring the real problems or lacking funds to address them as investors grew skeptical. At the same time, a new toy — ChatGPT — distracted the public from discussions of NFT’s future. Some NFTs rebranded themselves as generative art (created via AI); others returned to the umbrella term "digital art," yet both continued to use blockchain contracts, technically remaining NFTs but no longer openly labeled as such.

Some players continued to champion NFTs proudly and loudly. At the start of 2023, Bitcoin’s blockchain "woke up" and launched two NFT ecosystems, Ordinals and Stacks. The logic was straightforward: since Bitcoin holders still had substantial funds even amid the "crypto winter," they might be willing to spend. For several months, the gamble paid off — Ordinals and Stacks traded actively until buyers discovered that the project had hired non-professional creators. Feeling deceived, Bitcoin investors withdrew.

An innovative approach to NFT sales emerged from LiveArt, a marketplace that had acquired CADAF, a digital art fair. By accessing CADAF’s collector database, LiveArt shifted focus to the Chinese market, debuting a Chinese artist’s limited edition NFT postcards featuring grotesquely smiling figures reminiscent of 1980s “ugly realism.” The initial sale grossed $1.5 million, which was considered a moderate success by the market.

In autumn 2023, New York's Museum of Modern Art (MoMA) seemed poised for a breakthrough by acquiring two digital works by top artists Refik Anadol and Ian Cheng. Yet there was a catch: the pieces were labeled "generative art" without mentioning the NFTs at their core, and reports surfaced that MoMA received the works as a donation from a persistent (and wealthy) collector and an NFT marketplace. Nevertheless, MoMA’s selective acceptance hinted at progress.

Towards year-end, the blockchain Solana, recovering from legal disputes with its main investor, the fraudulent FTX exchange, took action. Solana displaced Tezos as Art Basel’s partner, becoming the sole crypto partner at Miami Beach. Eschewing traditional NFT displays, Solana’s pavilion featured live artist studios with creators producing work on-site, attracting a young audience eager to meet artists and make mindful purchases.

These developments, however, were events rather than milestones for the NFT market — they were episodic and had limited impact. In 2023, the average NFT price dropped from $2,000 to $660, and the number of sales declined from 22 million to 16.5 million. In other words, the NFT collector’s wallet continued to feel the recession, while leaders in the NFT community assured that "crypto growth will come — and then..."

The "then" finally arrived in 2024. In January, the U.S. regulator (the largest market for investment assets) approved the legal operation of Bitcoin exchange-traded funds after years of anticipation. This, in turn, fueled trading activity and Bitcoin’s market capitalization growth, culminating in March with a historic price record of $71,000 per coin.

Even prominent NFT sales in February, including two CryptoPunks that fetched $16 million and $16.5 million, failed to spark renewed interest. One impatient investor even sold their stake in top marketplace OpenSea for a tenth of their initial investment, plummeting the company’s valuation by 90%, from $13 billion to $1.3 billion. By April’s end, Yuga Labs announced it had "lost its way" and began with layoffs, starting by cutting half its workforce.

With this, we arrive at some conclusions. Realizing that NFT forecasts often reach readers through media in an ultimatum style ("It will be like this, so get your money ready"), we won’t impose our opinion. Instead, here’s a list of "FOR" and "AGAINST" the further development of this technology, followed by some philosophical reflection.

FOR:

• NFTs as Digital Infrastructure

NFTs represent part of the digital world's infrastructure, a legal and technological wrapper for digital assets. And digital assets—undeniably—are here to stay. Much like how yesterday’s subway tokens became electronic passes and today a phone tap, NFT potential is still at an early stage, used only about 30%. It may eventually rebrand, but its essence will remain.

• The $150 Billion Benchmark

Adding up all the money users spent on NFTs, we see a sum of nearly $150 billion. While NFTs may currently be worth less, buyers parted with that $150 billion at some point. In a way, this reflects collective dissatisfaction and resentment towards the market. In the next cycle, NFT owners will likely attempt to reclaim their positions, even if it takes another $10 billion.

• Marketplace Evolution

By 2023, NFT buyers divided marketplaces into "curated" (SuperRare, Foundation App, Art Blocks, Magic Eden) and "flea markets" (OpenSea, Rarible), meaning sellers who selectively curate art versus those who accept everything. Unsurprisingly, Magic Eden secured an additional $100 million in investments, while OpenSea’s valuation fell tenfold.

• Potential for Transparency

Digital art, including NFTs, promises unprecedented market transparency. Unlike the traditional art market with its 55% hidden gallery and dealer sales, blockchain-registered NFTs are here to stay until the "global switch" is flipped.

• Brand Re-engagement

Major brands quietly observed NFT's fate from the sidelines in 2023. Yet, in March this year, the Aura Consortium (LVMH, Nike, Mercedes-Benz, and others) held its first meeting in 12 months, considering how to respond to possible digital asset growth, including NFTs, and how to attract young audiences once again. Brands remain focused on physical goods, but their renewed interest in NFTs suggests that a rebranding is imminent.

• NFTs for Cultural Preservation

Despite the negative image tied to museums' commercial use of NFTs, the technology holds promise for preserving cultural heritage. Currently, this isn’t an urgent concern, but let’s ask: how many ancient Greek paintings (in the traditional canvas-and-oil format) are known to us? Few have survived the ages. Though preserving our digital history may seem unnecessary today, NFTs on blockchain offer a technically secure way to archive culture for future generations.

AGAINST:

• NFTs and Crypto Cycles

While NFT advocates hoped for a "refresh" with the next crypto market cycle, mass purchases didn’t materialize as investors turned to more reliable earning options. Though some early 2024 sales achieved local records, traditional media stopped covering these events, rendering the NFT market almost invisible.

• Disillusioned Artists

Ironically, the group most dissatisfied with NFTs’ first iteration isn’t the collectors, but artists—especially those who missed out on early profits. Many are now vocal critics, despite once queuing for royalties generously offered by marketplaces. When platforms reached a comfortable number of contributors, royalties were slashed or eliminated in fall 2022, leaving artists without a clear incentive to revive the NFT market.

• Shifts in Collecting Preferences

In a previous piece, we noted that "traditional" collectors accounted for only 5% of NFT buyers. Meanwhile, 75% of young collectors who began with NFTs eventually purchased physical art. While established collectors didn’t lend their support to NFTs, young collectors have evolved and seem less inclined toward speculative digital art.

In summary, we have six points "FOR" and three "AGAINST." Quantitative comparisons are unnecessary. NFT supporters have large financial resources, while opponents represent shifting tastes and sentiments. Historically, the former often prevail, often through soft power.

Meanwhile, technology marches on. We once listened to music on vinyl, then cassettes, CDs, and MP3 players, and today, streaming platforms dominate. Similarly, NFTs are far from the final "wrapper" for legal ownership of any object, including art. They’ll reappear in some form, likely more technologically advanced, and there will be those who profit or lose in the next iteration.

By understanding the factors behind NFTs’ initial successes and failures, we hope to prepare readers for their return, under a familiar or new name. Will this protect you from repeating past mistakes? Perhaps for the most discerning. But history repeats itself, and people tend to follow the crowd.

May love and art save us all, as always.