New record: is a bubble looming in the non-fungible token (NFT) sector?
The Non-fungible Token (NFT) sector is booming like never before. From CryptoPunks, digital artwork to NBA TopShots, selling NFTs has become an extremely lucrative business. But some are already warning of a bubble – why?
NFTs are unique crypto tokens that cannot be multiplied as often as desired. They are often referred to as digital collectibles because you can create scarcity in the digital space with such tokens. Some of these Bitcoin Rush tokens are already sold for several 100,000 US dollars and almost every week there is a new record.
In addition, data from Cryptoslam shows that NFT collectibles have generated over 100 million US dollars in sales in the last 30 days. This represents a new record for the entire sector.
Furthermore, at the moment NBA Top Shot is the largest platform for trading NFTs. The project uses the Flow Blockchain. Within the last 24 hours, NFTs worth more than 6.7 million US dollars were traded there. Over the last 30 days, it was even almost 70 million US dollars. What exactly NBA Top Shot is, you can find out here.
Hashmasks and CryptoPunks are the second and third largest NFT trading platforms by volume, according to Cryptoslam. CryptoPunks are 24×24 pixel artworks that are algorithmically generated and unique. One of the CryptoPunks images sold for a whopping 605 Ethereum (ETH) in late January.
Hashmasks is a Swiss-based company that owns a collection of unique digital artworks. These NFT artworks have been created by over 70 artists. One of the NFTs sold for ETH worth $650,000 in early February.
There is no denying that NFTs are a big topic in the crypto space, which is getting more and more attention. However, there are also critics who warn against excessive hype and a bubble.
Litecoin creator Charlie Lee warns of a crash of the NFT sector
One of these critics is Litecoin creator Charlie Lee. In a series of tweets on Monday, he sharply criticised NFTs.
He believes the hype is unsustainable because unlike „real art“, NFTs have no creation costs. According to Lee, real-world artists are constrained by time and effort and are therefore comparable to proof-of-work (PoW). For Lee, such constraint creates scarcity and, because of it, value.
NFTs, on the other hand, would create an artificial scarcity, as it costs almost nothing to create another NFT. As a result, he suspects that at some point the market will be so flooded with new NFTs from artists that supply will far outstrip demand. This in turn would inevitably lead to a crash sooner or later.
Lee’s criticism is quite justified. However, there are also arguments that the art scene, both in the real and digital world, is flooded with reproductions. The true value of a work often depends on the artist himself.
By being able to cryptographically sign NFTs, it is possible for metadata, file links and other necessary copyright elements to be easily incorporated into NFTs. This advantage is often mentioned by artists as the key difference between NFT art and real-world artworks.