Crypto Winter Tops NFT ‘Silly Bubble’

NFTs were one of the phenomena of 2021, to the point of being declared “word of the year” by the Collins dictionary. Based on cryptocurrency technology, these digital artifacts represent certificates of ownership of virtual goods that only exist online, whether they are images sold as works of art, collectibles or pieces of the metaverse.

Just one year ago, NFTs reached their height of popularity, with 1,250,000 transactions per day. Fashion hit hard and for a few months it seemed that no celebrity or marketing campaign could be left out of the new wave of digital art and its skyrocketing prices. “NFT is digital art that enters the new world of the metaverse,” explained Iker Jiménez, presenter of Cuarto Milenio, who couldn’t resist launching his own collection of alien-themed digital paintings.

“Is this going to become unique pieces? Well, that’s what NFT is, unique and non-transferable digital art. It’s like a painting, there may be 20,000 copies of a painting, but the original painting is one,” he continued. His collection is called MetamilenioNFT. “MetamilenioNFT is avant-garde digital art. Design, 3d, cosmic music and a lot of mystery. Works that will become cult objects,” explains his profile on the OpenSea platform, where they have not received a single offer.

Jiménez’s paintings arrived at a bad time. In February 2022, the NFT market, which was breaking records in 2021, was beginning a contraction that could last for years, the sector acknowledges. The bubble has burst.

According to data from Nonfungible.com, which publishes daily NFT market statistics, the exchanges of these virtual devices have fallen 85% from their maximum, registered in the summer of 2021. It is an even more pronounced collapse than the one suffered by the cryptocurrencies, with Bitcoin falling 70% from its peak and Ether (the second most important currency and in whose network NFTs are registered), 80%.

They have also deflated the value they reach in bids. An example of this is the famous collection of Bored Ape Yacht Club, the cartoons of monkeys making faces for which almost half a million dollars were paid. Its value has fallen 78% since April. The works that do not receive a single bid, as has happened to Iker Jiménez, have also become common. It has recently happened to Chevrolet with an NFT of its new supercar, and that came in a pack with the car.

OpenSea itself, the largest NFT trading platform, has not escaped the bursting of the bubble. It has just fired 20% of its staff, although it blames it on the contraction period that is sweeping cryptocurrency companies with playpens and bankruptcies. The industry calls it a “crypto winter.” “We’ve been through the winter before and built this company with crypto cyclicality in mind,” said CEO Devin Finzer.

“However, the reality is that we have entered an unprecedented combination of crypto winter and broad macroeconomic instability, and we need to prepare the company for the possibility of a prolonged downturn,” he acknowledged. The firm manages “several crypto winter scenarios,” Finzer reveals, one of which sees up to five years of low prices.

Even the crypto artists saw it coming. “I think it is a logical consequence of that overwhelming barbarity of projects and infinite collections that anyone made,” says Javier Arres, one of the Spaniards who accumulates the most sales of digital works. “Everyone started selling NFTs and an absurd bubble was generated. There was a saturation of meaningless projects, without any type of interest, utility or artistic value, which are the three things that give value to an NFT”, continues the crypto-artist, whose works have brought him more than a million euros.

“There were people who dedicated themselves to investing and suddenly became an artist. Those people have already retired and the market has remained in much more real terms. It continues to be sold, but at more normal, calmer prices,” he says in conversation with this medium.

Arres is on the SuperRare platform, another benchmark in the sector. Like OpenSea, it foresees that the crypto winter could last for years. “We have been told that the estimate is that at the latest the market can recover by 2024, that by then there may be a strong rise,” he reveals.

When the works sold as NFTs began to mark prices of up to 69 million dollars for artifacts that were nothing more than a digital image that anyone could download, or a million dollars for single pixel paintings, the criticism for being a market purely speculative fell on the sector. But if something has overshadowed this technology, it is the high environmental impact associated with it.

There is no official data on the carbon footprint of each NFT, although it is known that this digital minting process consumes enormous amounts of energy. One of the few studies carried out in this sense was carried out by a crypto artist who was accused of taking advantage of a very unsustainable trend. Memo Atken, engineer, data scientist and illustrator, then began an investigation that estimated that each of these artifacts is supposed to throw an average of 211 kilos of carbon dioxide into the atmosphere.

The NFTs are registered on the Ethereum network, thanks to the fact that it allows writing smart contracts (such as ownership of a digital good) and not just transactions, as occurs in Bitcoin. To free itself from the shadow of environmental impact, Ethereum is preparing a system change that can be a before and after for cryptocurrency technology in this field.

The explanation of the change is as complex as everything that surrounds cryptocurrencies. In practice, Ethereum will no longer require cryptominers, those responsible for adding new blocks of information to its blockchain through proofs of work that require enormous energy consumption and advanced technology, to work with “validators”.

“Validators do not need to use significant amounts of computing power, as they are being randomly selected and are not competing. They do not need to mine blocks, but only need to create blocks when they are chosen and validate proposed blocks when they are not.” they are,” says Ethereum. According to the calculations of this network, switching from one to the other should reduce energy consumption by 95%.

Ethereum has been working on this change for years and according to its co-founder, the plan is to carry it out on September 19.

While that is happening, the cryptocurrency price drop itself has given a respite to the atmosphere. With profit margins razor thin due to that contraction and rising energy prices, miners are unplugging their farms and have stopped dumping thousands of tons of CO2 into the atmosphere.

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