For the past year, as NFTs have breached spectacular and speculative heights, we’ve seen a growing amount of skepticism. The most recent wave was touched off by a 138-minute video essay by Canadian media critic Dan Olson that condemned NFTs and other blockchain-based technologies as fundamentally broken and unworkable. In just over a week, it’s garnered more than 3 million views on YouTube. Regardless of your perspective on the video, it’s hard to deny that there’s a lot of bullshit percolating around NFTs. Even hardcore Bitcoiners agree. And despite what the loudest NFT boosters insist, the beatings have continued and morale has not improved.
Any way you cut it, the NFT ecosystem as it stands is a disaster.
Take OpenSea, the most popular marketplace for NFTs. Last week, OpenSea suddenly limited the number of times users could mint NFTs for free on its platform because over 80 percent that were created with the tool “were plagiarized works, fake collections, and spam." It reversed that decision within 24 hours, however, after outcry from NFT project developers. In a recent Guardian piece diving into the platform’s struggles with fraud and theft, OpenSea tried to minimize the severity of the problem and claimed it took enforcement action against 3,500 NFT collections every week, or about 0.175 percent of its 2 million total collections. But when nearly all of the NFT collections created for free on the platform are spam or stolen works, one wonders if OpenSea is now caught in an art thievery quagmire of its own making.
For artists on DeviantArt, which hosts over 500 million pieces of digital art, the problem has gotten so bad that the platform implemented a fraud alert system that scans the Ethereum blockchain for NFT copies of artwork. DeviantArt has issued 80,000 alerts since August 2021, doubling from October to November, then increasing by 300 percent from November to mid-December.
OpenSea’s buzziest competitor, LooksRare, is fraught with another serious problem: wash trading, a normally illegal type of market manipulation that inflates trade volume and value by buying and selling an asset to one’s self or among an organized group.
LooksRare financially rewards users for their trading volume, which predictably led to people gaming the system. Just this week, it surpassed OpenSea in trade volume thanks to what crypto analytics firm CryptoSlam estimated to be $8.3 billion worth of wash trading―approximately 87 percent of its total trading volume since launching on Jan. 10, Decrypt reported. On Jan. 12, the LooksRare Twitter account retweeted a thread discussing and defending wash trading on the platform, commenting: “Discuss.”
These are not isolated incidents, however. Forms of self-dealing among an elite are also baked into the market and the history of how it got so big in the first place. Take Vignesh Sundaresan, a collector known as “MetaKovan” who purchased the $69 million Beeple NFT that touched off one of the earliest hype cycles around the digital assets. MetaKovan is the financier of Metapurse, a Singapore-based investment firm that earlier this year listed its mission as to "democratize access and ownership to artwork." Metapurse has bought 20 Beeple NFTs, four virtual museums, a soundtrack, and consolidated it all into an "NFT bundle" that offers fractionalized ownership through 10 million B20 tokens. Beeple, as it turns out, happens to be a business partner of MetaKovan and owns 2 percent of all B20 tokens, while MetaKovan owns another 59 percent.
Or consider some of the conclusions of a landmark October study published in Nature analyzing 6.1 million trades encompassing 4.7 million NFTs since 2017: the top ten percent of traders account for nearly 90 percent of all transactions, this group trades 97 percent of all NFTs at least once, and the greatest predictor of any NFT’s value isn’t its appearance but its previous price points. None of this sounds like a functional market so much as a mad grab for profit.
The froth of enthusiasm combined with the market’s weak infrastructure—most projects are run from Discord, a chat platform for video games—has also led to a spectacular amount of scams and hacks targeting investors. NFTs are regularly used to raise money for dubious projects that end in spectacular failures or in a sudden “rug pull” where anonymous founders make off with everyone’s money. The Evolved Apes NFT project raised millions to help develop a fighting game and cover project-related expenses, only for founding developer “Evil Ape” to disappear with $2.7 million. Big Daddy Ape Club’s creators stole $1.3 million worth of tokens on Solana. Blockverse, an unofficial Minecraft NFT project, sold out 10,000 NFTs in a few minutes before its creators disappeared with over $1.2 million worth of tokens.
All of this is just scratching the surface. Besides nefarious developers, NFT buyers have to worry about an unending stream of scammers who, for example, pose as crypto wallet support staff only to drain said wallet and the NFTs inside. Or, if you approve the wrong smart contract, say, on a rather legitimate-looking website set up by thieves—goodbye to your apes. You can get screwed even without a hacker coming for you, if you slip up even a little bit: recently, a bunch of people had their valuable NFTs swept up for dirt cheap because of a flaw in how OpenSea handles listing and re-listing NFTs, and how those listings are broadcast and then fulfilled elsewhere.
The core problem isn’t the size of the theft or fraud―though these are worrying―because they don’t pose a risk to anyone outside of the crypto community, for now. What is concerning and could lead to the development of systemic issues, however, is that no scandal, exploit, bug, or scam is yet big enough to temper the manic insistence that NFTs represent the future of digital assets and their ownership. If anything, NFTs are being used to propose increasingly more nebulous, abstract, and unwieldy categories of objects and goods and services.
And as all this develops, we are forced to suffer more obtrusive attempts to entice us: NFT advertisements during the World Series and billboards plastered across major cities; an NFT collection from a former First Lady; Jimmy Fallon and Paris Hilton boosting their Bored Ape NFTs and cryptocurrency payment company MoonPay in a strained advertisement on Fallon’s Tonight Show―which was teased on Twitter earlier that day by MoonPay. All of this and more just to increase the value of a digital asset primarily held by a small group of corporations, celebrities, and wealthy individuals that will enrich them even further.
That there are now multiple projects promising to give you ownership of a color, even promising royalties from every NFT that uses “your” color, shows just how far down the bottom the idea barrel we’re now scraping here. And although boosters will point out that NFT prices in crypto have remained fairly stable even as the price for the underlying asset (ETH) has crashed, that is likely because the underlying price has crashed. It’s a fire sale, low-key.
This is all a major problem considering how many of the boosters and advocates for NFTs also believe they’ll play an integral role in the coming of “Web3” and the “metaverse”―two nebulously-defined technologies that don’t currently exist, but are so revolutionary in their supposed potential that the real value of NFTs lies in their future role, whatever that is, and the many issues plaguing the space now will somehow disappear.
"NFTs are the bridge to the metaverse, and facilitate identity, community and social experiences in the metaverse," opens one December blog post by Binance, the world's largest cryptocurrency exchange. In January, a blog post by OpenSea boasted that last year "we saw the world awaken to the idea that NFTs represent the basic building blocks for brand new peer-to-peer economies." NFTs, it goes on to argue, would yield "greater freedom and ownership over digital goods" as well as facilitate the creation of "powerful, interoperable applications." All of this falls in line with Coinbase's own blog scrying the meaning of Web3 and its "defining feature" of ownership: "Web3 gives users full ownership over their content, data, and assets via blockchains. It empowers users to read-write-own."
In a recent essay, tech critic Evgenvy Morozov called Web3 a “territory-free map” that thrived on performativity and self-referencing: "we’ve got this beautiful map on our hands—all that’s missing is the territory it is supposed to refer to." This, combined with how many discussions of Web3 assume its inevitability, conjures vague visions of non-existent blockchain technologies that are just waiting to be midwifed into reality by VCs, VC-backed projects, and VC-run platforms, is an ominous augur of what’s to come.
This is not to say there aren’t NFT projects out there that are interesting, or at least more rooted in reality. Gaming companies seem intent on giving so-called “play-to-earn” (P2E) gaming (which offers players a way to make money by flipping NFTs) a shot, and the proliferation of P2E games like Axie Infinity that allow individuals to exploit people in the Global South to generate profits they’ll only see a fraction of is both a more familiar and realistic endeavor than most of what fills the NFT space. Unique tokens that signal ownership of a digital good and impose artificial scarcity—something that has until now been frustratingly abundant, for DRM-happy companies—are obviously attractive and also familiar to firms, though what is good for investors is not always good for the public.
It’s also true that the current NFT ecosystem might improve. OpenSea might limit its free minting tool and cut down on the epic amounts of theft. LooksRare’s incentives might change. Hell, a new product might come around and annihilate them both. People may get wise to the Discord scammers, like how we’re all wise to the scam calls constantly blowing up our phones. All of this might just become more normal.
But should it? As it stands, NFTs are useful primarily for pursuing enclosure: the explicit goal here is to turn every inch of our physical world―and any digital world―into a place where nearly every experience and thing is quantified, commodified, and privatized. As a secondary purpose, NFTs currently facilitate a great deal of fraud, spam, theft, plagiarism, and also allow some retail investors to join in on the gambling typically reserved for the sludge that sits atop the pool of investors. As a tertiary purpose, they confer some benefits to some creators who are lucky, wealthy, or cynical enough to take advantage of them.
Right now, their value is locked up in a dark vision of the future that believers insist will not only inevitably exist but will turn out much better than this one. Most of these grand visions will never come to pass. And yet, if you watched the ridiculous exchange between Paris Hilton and Jimmy Fallon as they showed off their JPEGs on TV and muttered “what the fuck is this” to yourself then you must realize by now that the allure of dizzying profits far exceeds any shame or scorn cast their way. At least, until the profits stop coming.