Two days ago, I came across this YouTube video from James Jani, where he spoke about the rise and fall of the crypto world; although I do not believe web3 is a big scam, I strongly agree with his assessment of NFTs.
In 2021, non-fungible tokens (NFTs) exploded onto the crypto scene and were hailed as the next big thing in technology. But three years later, in 2024, emerging data shows that NFTs have become scams for many buyers lured into the hype.
Fraudulent failures are also rampant in the space, with over 70% of NFT marketplaces going out of business less than a year after heavily marketing their launches – taking investor money with them.
While institutional promoters like Christie’s auction house and celebrities tried to talk up the asset class – even benefiting themselves through multi-million dollar NFT sales – the reality is setting in for many retail investors.
Per a recent Coinbase survey, 43% of their customers who purchased NFTs report losing money. Almost half of buyers have ended up in the red.
And though NFTs were said to be revolutionizing industries from gaming to ticketing, the real-world utility has grown slowly at best and even some will argue, very quiet.
The hype slowly faded away, and with reality staring everyone in the face, the truth became clear NFTs were a rich man scam, and the poor ended up becoming suckers.
Here are 10 damning facts that demonstrate how the NFT space has become overrun by fraud, manipulation, and reckless speculation:
Values Have Collapsed: Over 90% of NFTs Have Lost Significant Worth.
The average NFT sold for around $4,000 at the peak of the 2021 bubble. But current sales data reveals that the average price has plunged to less than $300 – representing a devastating 92% decrease in value.
Even top NFT collections like Bored Ape Yacht Club and CryptoPunks have seen sales prices slashed by 70-80% on average compared to all-time highs in 2021.
This severe and widespread collapse demonstrates that most NFTs were severely overvalued during 2021 and failed to retain intrinsic worth over time. It signals that few investors see long-term value potential in holding these assets.
Up to 99% of NFTs Are Now Virtually Worthless.
By some estimates, up to 6 million NFTs were minted in 2021 alone, representing a digital gold rush. However, analytics show that only about 100,000 of these NFTs now retain any material market value.
The rest? Up to 99% of NFTs minted last year comprise low-quality JPGs, low-effort memes, and spam, clogging up blockchain networks. These were created en masse for quick cash-outs during the bubble’s peak.
But demand has evaporated for these essentially worthless NFTs. For every legitimate blue-chip NFT, there are likely 10,000 now dead-on-arrival NFTs congesting Ethereum and competing networks.
Half of NFT Trades Suspected as Fake “Wash Trading”
What little market activity exists in 2024 is substantially inflated by “wash trading.” This refers to sellers trading items, like NFTs, with themselves to simulate market interest and pump up prices.
In 2022, analytics firm Nansen found that over 50% of NFT trades displayed patterns consistent with wash trading. It seems much of the existing market activity is fabricated. This suggests the real underlying demand for NFT speculation is even more anemic than it appears at first glance as more buyers flee the space.
Almost Half of Buyers Have Lost Money on NFTs
Perpetuating the hype in late 2021, crypto exchanges like Coinbase heavily marketed NFTs to retail investors. But a recent survey by Coinbase itself found that 43% of those who purchased NFTs have lost money. Moreover, a quarter of buyers have lost “significant” sums, highlighting how risky and volatile NFT speculation became.
This data matches the plunging market activity and confirms that NFT speculation has caused major financial harm to many buyers who bought into the mania at all-time highs. The promises of flipping NFTs for big profits largely evaporated after late 2021.
Adding insult to injury, the blockchain technology behind NFTs has repeatedly proven vulnerable to exploits over the past two years.
According to aggregated statistics, hackers have stolen at least $300 million worth of NFTs through methods like phishing, smart contract bugs, and other security failures.
Buyers often have no recourse when NFTs are hacked or stolen digitally. Unlike traditional asset classes with legal protections against theft, NFTs present added risks to buyers amid lax oversight of criminal activity plaguing the crypto industry.
Celebrity NFT Projects Have Almost All Collapsed
However, data shows that sales for these celebrity NFT projects have mostly collapsed by 95-99% after their launch spike. The celebrity endorsements were often disingenuous PR plays to make quick cash during the bubble with little commitment to building long-term value behind the projects.
Hundreds of NFT marketplaces popped up in 2021, attempting to capitalize on the gold rush. Based on data aggregated on an NFT “funeral” website that tracks failed projects, over 70% of NFT marketplaces have already failed less than 12 months after launching.
This staggering closure rate shows that short-term speculation and cashing in fast during the bubble, not nurturing long-term value in the NFT space, was the top priority for most players. It also underscores the lack of product-market fit and real-world utility for NFTs.
NFT Creators Commit Rampant Securities and Consumer Fraud
Without proper oversight, NFT creators have repeatedly made false promises and deceptive claims about token utilities in attempts to pump up prices during the 2021 bubble. From lying about charity donations to faking roadmaps, these frequent “rug pulls” extracted millions from trusting retail investors.
While crypto promoters praise the lack of regulation in the space, it has led to rampant fraudulent behaviors, as many investors now realize. Bogus claims of utility have been used to dupe buyers, highlighting the lack of accountability across a largely unregulated NFT industry.
NFTs Present Heightened Risks of Money Laundering
According to authorities, the pseudonymous nature of crypto wallets enables money laundering and tax avoidance. NFTs present similar risks by allowing people to conceal funds and transfer value without oversight.
In fact, over $8 billion in funds used to purchase NFTs have now been flagged as suspicious. This indicates that a substantial subset of NFT activity involves potential criminal financial activity. Unlike traditional markets, NFTs facilitate secrecy rather than transparency around fund flows.
The Environmental Damage From NFTs Remains Unsustainable
Despite increasing claims about moving NFT transactions to more energy-efficient blockchains, most activity still relies on power-hungry proof-of-work chains like Ethereum. By some estimates, each NFT minted in 2021 consumed enough electricity to power an average US household for over 2 months.
The localized financial incentives of crypto mining mean emissions continue rising in places like Texas and Kazakhstan, where dirty energy is cheap and regulation is lax. While the crypto industry touts visions of sustainability, its environmental track record after 15+ years remains dubious at best.
Conclusion: A Risky Space Rife With Losses and Manipulation
Given these 10 facts – highlighting collapsed values, rampant fraud, huge failure rates, lingering environmental impacts, and more red flags – NFTs as an asset class have demonstrated abundant characteristics of scams and speculative manias.
In a previous article, Beyond the Blockchain Hype: The Future After the Fall, I explained why I believe there is real hope for Web3 to play a pivotal role in the finance transition, but for NFTs, the future looks downwards.
While a small subset of early adopters continues attempting to pump and dump their holdings, losses significantly outweigh any sustainable gains for most retail investors.
Until fundamental utility emerges beyond hype-driven speculation, investors should be extremely wary of putting more money into such an evidently risky space with warning signs.
Though some pockets of innovation may emerge around NFT applications, overwhelming statistical evidence argues that NFTs remain fertile ground for fraudsters while providing little credible value to most buyers lured by hype. Let the buyer beware.
If you find this article thrilling, discover extra thrilling posts like this on Learnhub Blog; we write a lot of tech-related topics from Cloud computing to Frontend Dev, Cybersecurity, AI, and Blockchain. Take a look at How to Build Offline Web Applications.
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