NFTs lose their hype being 'enormously risky'

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Over the last year, a wave of celebrity endorsements helped inflate a multi-billion dollar bubble surrounding digital tokens, but cryptocurrencies are tumbling, and some fear NFTs may follow.

NFTs are tokens that are tied to digital photos, "collectible" items, avatars in games or property, and objects in the metaverse, a developing virtual world.

Paris Hilton, Gwyneth Paltrow, and Serena Williams have all boasted about their ownership of NFTs, and many under-30s have been persuaded to risk in the hope of generating a rapid profit.

However, the entire industry is currently experiencing a rout, with all of the main cryptocurrencies losing value, and the signs for NFTs are mixed at best.

Read next: Bitcoin falls to lowest since July 2021

According to the analysis firm Non-Fungible, the number of NFTs traded in the first quarter of this year fell by about 50% compared to the previous quarter.

They estimated that the market was still digesting the massive volume of NFTs created last year, with the resale market only getting started.

CryptoSlam reported a sharp drop in May, with only $31 million spent on art and collectibles in the week ending May 15, the lowest total of the year.

The futile attempt to resell an NFT of Twitter founder Jack Dorsey's first tweet is a metaphor for the struggle.

Dorsey sold the NFT for about $3 million last year, but the current owner has yet to find anyone prepared to pay more than $20,000.

What caused the fall? 

Molly White, a famous critic of the cryptosphere, told AFP that the fall might be caused by a variety of factors.

"It could be a general decrease in the hype, it could be fear of scams after so many high-profile ones, or it could be people tightening their belts," she said.

For much of the year, the industry's reputation has taken a beating.

In January, OpenSea, the main exchange, stated that more than 80% of the NFTs made using its free tool were fraudulent, with many of them being copies of other NFTs or famous artworks replicated without permission.

"There's a bit of everything on OpenSea," said Olivier Lerner, co-author of the book "NFT Mine d'Or" (NFT Gold Mine).

"It's a huge site and it's not curated, so you have no idea what you're buying."

Read next: Cryptocurrency loses $200 billion in market value within 24 hours

LooksRare, an NFT exchange that surpassed OpenSea in terms of the number of sales this year, ran into similar issues as its competitor.

According to CryptoSlam, up to 95% of transactions on its platform were discovered to be fraudulent.

Users were selling NFTs to themselves since LooksRare offered tokens with every transaction – regardless of what you bought.

The amounts lost to scams this year have been eye-watering.