The Public Sentiment Towards NFTs Is Turning Sour

Written by Janhoi McGregor

Edited by King Williams

Key points

  • Artists are thinking twice about diving into NFTs because of a new anti-NFT feeling in the creative community.
  • Several high-profile scams and regulatory body interventions may be behind that change in attitude.
  • The average price of NFTs has fallen.
  • However, some bullish artists say they’re preparing for the long haul.

“I remember reading comments like ‘if you mint NFTs, you are either uneducated or stupid’ - that’s not the best place to start for a conversation.” French artist Julien Schleiffer has been shying away from the NFT space he explained to The Plug. He isn’t alone. A new hyper-vocal wave of anti-NFT sentiment is sweeping through the art and tech community, forcing some artists into the shadows.

2022 started optimistically for NFTs. The global market peaked at $41 billion at the end of 2021, with the expensive jpegs undoubtedly crossing over into the conventional world. Jimmy Fallon holding up a printout of Paris Hilton’s Bored Ape NFT on The Tonight Show - to a slightly baffled audience - is about as mainstream as it gets.

One artist's double down on NFT's leads to a pivot

Away from celebs, NFTs had altered the lives of regular people too. One artist in South London, UK, Hassan Nur, had already quit his retail job, which he’d held for 10 years by resolutely refusing to sacrifice job security for flash-in-the-pan opportunities. Then NFTs came along and changed his mind. The plan? To finally dive fully into his cyberpunk, robot-themed art using NFTs as the vehicle that will drive him towards financial and artistic freedom.

But three months on from that decision, the NFT landscape has dramatically changed and so has Nur’s plan: he’s now hunting for an office job in a 3D modeling studio. “Everyone’s calling it a scam, etc. [Artists] are really shaky about going into it [NFTs]” Nur explained.

That backlash is having an effect on the ground too, Vector Meldrew (not his real name), who has roots in the UK Grime scene and has worked with Tinie Tempah on NFT art, had been invited to guest lecture at his old university (Bristol UWE, UK) about NFTs. But according to Meldrew a petition by students got the event canceled. It has now been rescheduled as a debate, which the university confirmed to The Plug. Meldrew shared on Twitter parts of an email he claims to have received from the university describing him as a “scam artist” and that NFTs “resemble pyramid schemes”. Meldrew told The Plug “ [it] was quite hateful actually”.

The University says that those statements came from one student as part of feedback for why the event was postponed. Feedback from other students was positive. In a statement, the university said “the session was postponed due to student feedback, which was both positive and negative. We value the opinions of our students and we appreciate the importance of NFTs to them and the potential funding opportunities they offer. It was clear the response garnered from the students presented an excellent opportunity to offer the subject its appropriate time and format. As such, we’re exploring holding a debate/symposium on NFTs in the future, which we plan to open up to other UWE Bristol departments.”

There’s some important context to note here. Some recent high-profile scams maybe people’s only exposure to NFTs and that might be fueling some of the mainstream resentment. In the last two months lawsuits have been leveled at platforms for failing to protect users from NFT theft.

NFT thefts are harming the marketplace

In a February lawsuit against Opensea (a major platform for buying and selling NFTs), former Bored Ape #3475 owner Timothy McKimmy alleges that his NFT was stolen through an Opensea vulnerability. This happened by McKimmy’s ape being listed and sold for a fraction of the price without his knowledge, the NFT was immediately resold for 99Eth ($256,678 today) by the thief. McKimmy alleges that Opensea “ignored” him and that it “failed to reverse the transaction” according to court filings.

Another case filed in February, Armijo v. Ozone Networks, Inc., details how Robert Armijo’s two Bored Ape Yacht Club NFTs were stolen through a phishing attack and ultimately sold on LooksRare (another NFT marketplace) after trading for them was frozen on Opensea. The suit describes Armijo’s efforts to retrieve his NFTs while trying to get platforms to act, ultimately arguing that there is “heightened risk for NFT consumers” and that LooksRare and Opensea have “utterly failed to protect consumers or do anything to disincentivize or stop the thefts.”

That lack of consumer protection, the kind people expect in any other mainstream financial transaction, is an ongoing issue in the NFT world that crypto critics repeatedly hammer home. This has led to major regulatory institutions stepping in. The IRS has described NFTs and cryptocurrencies as riddled with “mountains and mountains of fraud” and in the UK Her Majesty’s Revenue and Customs (HMRC) seized an NFT for the first time last month. The seizure was part of a £1.4 million fraud case, although the three captured NFTs haven’t yet been valued.

High profile face offs between big companies and individuals aren't just relegated to court cases. Gaming companies have also been repeatedly tried in the court of public opinion for trying to quietly strafe into NFTs in the last couple of months. Major gaming studios like EA, Ubisoft, and Square Enix have dived into gaming-related NFTs, or expressed interest in moving towards them, and received swift and aggressive backlash from gamers. EA is now downplaying the company’s future relationship with NFTs and Ubisoft’s VP of Strategic Innovations said gamers “don’t get” the potential benefits. Major names in the industry, like Troy Baker, who has voiced iconic video game characters in Uncharted and The Last of US, have u-turned on NFT projects and issued mea culpas.

Meldrew is frustrated by this. “The gaming crowd basically hate NFTs because they have PTSD from the history of trad [traditional] gaming companies sucking money out of them with in-game purchases. They don't understand the nature of play-to-earn eco-systems, crypto, defi [decentralized finance] etc.”

For casual observers - the exact type of people the Web3 community wants to attract - these negative stories are likely a significant part of their NFT media diet. Regulatory bodies cracking down, scams, court cases, major multi-million dollar gaming companies issuing NFT-inspired apologies. In between all of that: a confusing concept about people paying thousands of dollars for jpegs.

The anti-NFT sentiment is growing

If one wanted to put a marker down of when public sentiment turned sour, though, Dan Oslo’s marathon documentary titled “The Line Goes Up” is as good a place as any. The video entitled Line Goes Up – The Problem With NFTs essay painstakingly details why crypto and NFTs are riddled with scams and fake price inflation. This is in addition to why [the film posits] crypto is fundamentally broken, sharing some similarities to a pyramid scheme. When the video landed on January 21st it not only went viral, it caused a major stir in both pro and anti NFT circles. What’s telling about the impact of this video essay is that it’s over two hours long. A two hour long YouTube video being this popular is rare. It may well be remembered as a pivotal moment in the history of NFTs.

Oslo’s fake price inflation claim is supported by some new research from blockchain analysis company Chainalysis, which has detected almost $9 million in profits from 262 NFT wash traders (people selling NFTs to themselves for high amounts to create the illusion of value). The company also detected at least $1.4 million worth of potential money laundering involving NFTs in 2021. But Chainalysis points out this is a drop in the ocean compared to the $8.6 billion worth of cryptocurrency laundered in 2021.

That distinction between NFTs and crypto might be important. Artists have spoken about delinking crypto currency, which some believe is already tarnished, from NFTs, which is just a file format. Meldrew thinks that “we need to work to separate crypto art from NFTs” and that “the NFT name got tarnished, NFTs is just a file format.”

It’s not just Dan Olson’s documentary, there has been a broad rise in anti-crypto influencers in the last few months. People such as Stephen Diehl and Molly White have made a name for themselves pointing out the problems with NFTs. The blog Web3 Is Going Great, run by Molly White, started in January, gained 39,000 Twitter followers in three months, and does a good job summarizing the worst excesses of Web3.

Teething problems or fundamental flaws?

Amongst all of this, the price of NFTs is dropping. Analysts Non-Fungible (via the Financial Times) found that the average sale price of an NFT has dropped to $2500, down 48% from a peak in November. The amount of accounts buying and selling NFTs has dipped from a high of 380,000 to 194,000 since last November. But it’s not clear if that drop off is foretelling a dramatic shift in opinion towards NFTs, or just part of the ebb and flow of the crypto world. An Ether price crash last May, just as the NFT market was heating up, panicked artists who saw the value of the money wiped out overnight. Ether recovered, NFTs may do so too.

Despite Nur and Schleiffer’s hesitance, other artists say the backlash isn’t a backlash at all, rather a refinement of the NFT space. “What backlash? What’s happened is people are being onboarded without any care by companies that want to sell you something. So people buy something worthless, or have a negative experience. They then go and tell their friends and family, multiply that by a few thousand times and you have your negative sentiment.” Kane Mayfield, a rapper based in New York who is currently releasing a charity NFT to help fight child labor, told The Plug.

“For anyone really in the space, who loves art, there is no problem. This isn’t investment, it’s about art. People who are part of the culture have no problems, it’s the people entering the space to make money who are complaining” Mayfield continued.

Artists remain confident about the future of NFTs. Meldrew says that he’s earning well, as are other creators in his circle, because “more opportunities are coming around for Web3 native artists now that it's more mainstream.“ But perhaps the most astute analysis is Nur’s assertion that the genie can’t be put back in the bottle when it comes to digital art. The blueprint for selling jpegs - and therefore a route to financial freedom - is established, so artists will find a way regardless of how NFTs are perceived.

-Janhoi

Janhoi is a UK based journalist who specializes in tech. He is a recovering founder and his name is pronounced jan-eye.

This is the first entry in a new series of original reporting from The Next Web. If you liked this entry, have questions, or have other things you'd like to see covered by The Plug, please let us know!