Vitalik Buterin ruffled a few feathers a few months ago when he said NFTs were “overrated” - at the ETH Denver conference this year he once again doubled-down on his stance, saying that he “welcomes” a crypto winter, arguing that bear markets are good for clearing up the noise and give more attention to more “sustainable” projects.

It’s not the sort of thing that most people want to hear, but he isn’t wrong -- the NFT hype of 2021-2022 was unsustainable, to say the least -- individual people were minting thousands of algorithmically generated NFTs, leading to an oversupply of artworks that started cannibalizing each other as supply outpaced demand. In retrospect, it was literally impossible for all of the NFTs to keep on going up, but the hype behind the craze was enough to keep its momentum going, at least for a while.

Generated NFTs also have the problem of being quasi-centralized -- the vast majority of money for each generated art collection usually goes into the hands of a few “initiators” who originated the collection itself, which isn’t really that much of a departure from the Web2 models that already exist. Put it this way: the ideal scenario for an NFT art collection isn’t for one person to generate hundreds of NFTs en masse and hoard all of the profits to themselves; it should be hosting hundreds of artists at a time, sharing the profits among each other in a collective, networked fashion. (Royalties and distribution deals can help with this, though still not very possible in the state that Web3 is in today.) Many NFT projects of 2021-22 were simply copying the proof-of-concept model of CryptoPunks (which arguably still has some historical value) but never really went that much beyond what was already there.

As Buterin says, NFTs as it stands now is not quite there yet, and there is a lot of work to be done until the ideals of Web3 can really be achieved -- the bear market we’re experiencing now is really a test to see how committed people are to the ethos of decentralization that blockchain technologies have the capability to bring. I’m confident that the crypto space will survive its winters and downturns in the long run but I do believe that we need to see the space for what it is right now so that we can better plan ahead, accordingly.

Clearing the Space

As mentioned in a previous article, the “gentrification” of the Ethereum ecosystem has lead to a mass exodus of artists and creatives from the ETH platform and into other platforms like TEIA (a recent rebrand of Hic et Nunc after a difference in opinion with the original founder, Raphael Lima - the community is now restarting it’s second wave) and other Layer 2/low-fee systems, purely out of necessity.

Artists are mostly platform agnostic since their primary interest is creation and community -- not the loyalty to any particular coin or project. I often find myself telling artists that the interest they create is what will make or break Web3 -- and that they should start acting like it. (Let the platforms fight over our talent, in other words -- a flip in script from Web2 thinking.)

The unfortunate part of the generative NFT phenomenon is that instead of forming a diverse and resilient network of hundreds of artists empowered by self-sustenance, we now have an art market full of hundreds of robot NFTs that are controlled by the hands of a few. It’s not so much Web3, but Web2.1, in a way. As moneyed interests celebrated their “mooning”, they failed to realize that the community that spawn the interest in NFTs to begin were no longer there -- they were priced out of the very neighborhood that they helped create. (But as they say, money talks, BS walks.)

Market downturns are when a lot of these works get flushed out -- many of them, fortunately or unfortunately, will never come back up in price. Not to mention the fact that many people bought NFTs assuming that it was going to be worth something in the future, but never considered the fact that they were going to have to find a buyer for it at some point. Unlike coins and stocks, there are no aggregators to average out the price.

As the market gradually gets cleared out of less sustainable projects, what can an artist creating works in good faith do to standout? I believe that there’s enough creative talent out there to satisfy the need for art, content, creativity for virtually everyone out there -- for every artist, there is also an ideal fan out there, where the connections between them would amount to more than the sum of its parts. There is no need for mass-generation of the same works over and over, in other words, because the market itself is already complete. The only thing Web3 advocates need to do is to connect those dots together and stay out of the way.

Taking a step further, another way for artists to stand out is for the “real-world” to make a comeback -- it may be a tall ask in the wake of the COVID crisis (and a potential global conflict looming in the horizon) but the physical connection to IRL is one way for artists to differentiate themselves from the algorithmic banality of auto-generated NFTs. Some are talking about it already:

https://twitter.com/VirtualElena/status/1496495195197788164?s=20&t=Z4zp-Uj7FUWb61OIPmlncw

Physical NFTs - Bridging the Digital/Analog Divide

In that vein, I minted a few projects recently as a proof-of-concept (currently not for sale, but may open it up later on as the shipping logistics get figured out) for what these “physical” NFTs might look like, and I got something like this. (Or this, if you’re having trouble loading.)

I originally got the idea from -- of all things -- a “physical” version of a Dogecoin that I bought some years ago. Back then, DOGE was all about fun and I thought it’d be funny just to own a “real” coin, just for the sake of it. But on top of the coin, it also came with a serial number that proved that it was, indeed, a “legitimate” coin of the Doge. 😂

What's the difference between a fake coin and a real coin? Just a serial number, really. So, if I ever need to sell or give away my physical Dogecoin to someone later on and they’re skeptical whether or not it’s “real”, all I have to do is give them that certificate along with the coin itself. (This link if you’re having trouble loading.) High-value artworks all have a similar tag or at least a certificate of authenticity attached to them as “proof” that they are “real” -- NFTs can act as the immutable, digital version of that certificate that can be carried basically anywhere. All people are looking for is some proof-of-authenticity, after all -- it’s just a better version of what’s already there, in other words.

If we’re talking about bragging rights, there’s no reason why NFTs should be used for exclusively in the digital space -- people like to brag about the things they own in physical spaces as well. Why not both? I do think that this is how NFTs will be able to break into the mainstream markets and eventually become the new normal -- not everyone wants to live inside of a computer, and I don’t think that Web3 advocates should expect that to change, either. (COVID may have made it seem like people were never going to leave the house again, but as the pandemic starts to wind down, that point of view is not likely to be tenable any longer.)

What’s Next for NFTs?

I think during this bear market we’ll start to see more “out of the box” ways of thinking about NFTs -- which unfortunately got stuck in a certain mode of thinking due to all of money and hype of the last few years. As use-cases start to make themselves more apparent and DAOs become more mature and streamlined, I think we’ll start to see a lot more innovative ways to use the blockchain in ways never before seen. Overturning the bad habits of Web2 that have been going on for decades isn’t going to happen overnight, of course, but one day at a time, and we’ll start to see some really great things come out of the internet again.

Note: THIS IS NOT FINANCIAL ADVICE