“If you see this, you’re very early,” teased the Twitter account for Kapetta, a new “anime-inspired” NFT project. The line has become a familiar trope in the frothy market for non-fungible tokens, where blockchain-powered proof of ownership has created a hyper-speculative digital art market. Sure enough, within hours thousands of new followers hoping to get in on the ground floor sent Kapetta viral, based on nothing more than a sleek silhouette and a promise.

Being “early” in the unregulated world of NFTs can be highly lucrative. The first supporters of a new project are often rewarded with “whitelist” access before the token goes on sale to the general public. With enough hype, whitelisting can mean paying a few hundred dollars for an NFT that can be resold for thousands just hours later.

But in the increasingly desperate scramble to find the next Bored Ape Yacht Club — the iconic NFT series whose cartoonish works frequently sell for millions of dollars — the opportunities for due diligence are limited. Many NFT creators use pseudonyms, making it hard to verify their credentials.

The individual behind Kapetta, Roberto Nickson, soon revealed that his Twitter account was a hoax, designed to warn people against leaping too quickly after a spate of cash-grabs and rip-offs (known as “rug pulls” in NFT lingo). “Why are we normalising giving anonymous internet people money?” tweeted Nickson, who posts NFT news via @themetav3rse. “There is so much nonsense in this space right now.”

Amid all the hype and froth, it is easy to forget just how “very early” NFTs still are. It is less than a year since the first Bored Ape works were minted and just six months since NFT sales exploded last summer.

Yet already the company behind Bored Ape, Yuga Labs, is fundraising at a multibillion-dollar valuation. Twitter, Instagram and YouTube are all jumping on the NFT bandwagon. OpenSea, the biggest NFT marketplace, was valued at more than $13bn last month. Last weekend’s Super Bowl was dubbed the “Crypto Bowl”, with trading platforms such as Coinbase and FTX buying ads during American television’s most expensive airtime.

These eye-popping figures, combined with endorsements from celebrities and the apparent ease with which thousands can be won or lost by trading NFTs, have given crypto art a public profile that vastly outstrips the market’s actual size.

Measured in financial terms, it sure looks big: some $24bn worth of NFTs have been traded to date, according to market tracker Cryptoslam.io, including more than $4bn in January alone. OpenSea traded at least $100mn worth of ethereum (the cryptocurrency most commonly used to buy NFTs) every day last month, according to Dune.xyz, another blockchain data site.

Yet when you count users instead of dollars, the NFT world is tiny. According to analytics site DappRadar, OpenSea had around 500,000 active users over the past month. Even NFT optimists concede that, as of now, the total audience is in the low single-digit millions. While growth has been rapid, that is still a rounding error in a global internet population of around 5bn people.

The last time I can recall such disparity between the publicity around an online service and the number of people actually using it was Twitter in its early years. Like NFTs today, only a few people (mainly in Silicon Valley) used Twitter, but everyone had heard about it.

For the defenders of NFTs, this imbalance is a positive indicator: if just a few million people are responsible for billions in spending, just imagine how big the market could become when the masses join! Plenty of promising new technologies start out looking like toys. Besides, OpenSea is already making millions in fees every week. Contrast that with Twitter, which took several years to find a solid business model.

However, this analysis overlooks the billions of dollars estimated to be consumed by “wash trading”, a type of fraud that involves selling an NFT back and forth between the same (anonymous) users, in order to pump the price.

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Longer term, I can see the appeal of NFTs. Dressing up our digital identities makes sense as we spend ever more time online. Silicon Valley is seeing a rush of talent into start-ups focused on web3, the concept of a new iteration of the internet based on blockchain tech. The problems surrounding NFTs today may be fixable, especially when there is so much money sloshing around the industry. But right now, the NFT market remains very early. It might stay that way for a long time.

Tim Bradshaw is the FT’s global technology correspondent. Follow him on Twitter @tim

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