5 Issues With NFTs To Be Wary Of

5 Issues With NFTs To Be Wary Of

From Beeples’s $69.3m artwork to Jack Dorsey’s $3m tweet to random selfies and toilet paper, NFTs are selling like the most expensive collection of antiques. And why would it not when people all over the globe have welcomed the innovative NFT movement with their arms wide open.

The word NFT has been uttered so much in the recent past that even my grandmother seeks to know more about it. Although, frankly speaking, this doesn’t surprise me, what is rather more surprising is finding people who haven’t yet heard of NFTs. Particularly after considering the awareness and well-known use cases that came with it.

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Nevertheless, read along if you are one of those “what the heck is an NFT?” kind of person.

What is an NFT?

Any unique digital asset stored on the Blockchain is called an NFT or Non-Fungible Token.

Unlike fungible commodities like the U.S dollar, no two NFTs are similar. For context, a U.S dollar can be exchanged for another U.S dollar since every dollar is equivalent to each other(i.e., fungible). In contrast, no two NFTs can be exchanged or traded against each other; since all are unique, this confers rarity to NFTs, and hence the term Non-Fungible.

Why are NFTs important?

Beeple once said, “Without the NFTs there legitimately was no way to collect digital art”. Not just digital art but owning any digital object like avatars to even land in virtual worlds was impossible without the NFTs.

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NFTs made it possible to prove digital ownership, which is virtually impossible to manipulate.

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We live in a digital era where scarcity is notoriously difficult. It is extremely simple to share, distribute and replicate content across the internet. But how easy do you think it was to prove ownership of the distributed content? How often did you find that the actual creator of content was tagged?

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Questions such as this remained unanswered before the birth of NFTs. But NFTs came out to be the solution to such questions — giving the original creators a certificate of authenticity and ownership that can’t be forged otherwise.

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NFTs are truly a paradigm shift in how digital art and online media live. Now digital artists can effortlessly monetize their digital art pieces and engage in creative business opportunities that never even existed before.

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Indeed, NFTs have given a new lease of life to digital art, but as with all things new, there are some problems with the NFTs — some serious flaws — flaws serious enough to keep you at bay from investing in NFTs.

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5 NFT Flaws

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Dive right into the below flaws and choose whether you want to be an NFT owner or not.

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1. Highly Unpredictable Value

Even experts go-off-the track while predicting the value of an NFT; since values are based on pure speculation in the chaotic NFT market. As a result, there’s no place for fundamental analysis, and prices purely rely on what the other person is willing to pay.

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You must be as lucky as Kylie Jenner( sometimes even more) to win the NFT game. Luck is the most critical factor in the NFT world. Hence you must only consider dipping your toes into it if luck favors you all the time.

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2. Risk Of Fraud

As the NFT marketplaces continue to see, more funds coming within its systems, the likelihood of scams is also sharply increasing. Just 2 months ago, Bored Ape Yacht Club’s Instagram account was hacked, and about $3m worth of NFTs (according to Coindesk) was stolen from the users as the perpetrators redirected them to a fraudulent site.

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While there may be uncountable ways for fraudsters to steal your money in the NFT space, the most pervasive and that have plundered the most amount of money are listed below-

  • Rug Pulls
  • Pump and Dump schemes
  • Fake NFTs
  • Fake NFT marketplaces

I will be lying if I give you any tips to protect yourself from any one of these scams because there aren’t any. So the only way to stay protected is to stay on the sidelines, at least for now.

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3. Distatasteful Gas Fees

Imagine going out to buy a car with your family and getting asked by the car vendor to pay as much tax as you paid for the car. What would your reaction be like? I would certainly lose my senses.

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This phenomenon is very common in the NFT world, where gas fees could sometimes be even more than the value of the NFT itself. For example, in a not very distant incident Yuga Labs the creator of Bored Ape Yatch club, presented their latest NFT venture called Otherdeeds — the purchasers of which had to pay five times more gas fees than the price of the NFT itself.

Before hopping onto the NFT bandwagon, jot it down that you not only need money to buy an NFT but also to create and sell one.

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4. A Little Liquidity And Unimaginable Volatility

When trying to resell an NFT, a user might have to wait months or even years to sell his NFT. Since NFTs are all one-of-a-kind, it could be a daunting task to sell your NFT until you find a buyer.

In addition, NFTs are highly volatile — for instance, thousands of dollars’ worth of NFT could turn worthless in a few minutes and Vice-versa.

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Do you know the story of Malaysian Businessman Sina Estavi?

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He is the man who purchased Jack Dorsey’s first tweet, NFT, for $2.9m. Months after purchasing that poorly spelled NFT, Estavi’s attempt to resell it went aground. The NFT hardly fetched a bid of $7000, which seems to be galaxies away from his $48m sought price tag: as reported by Bloomberg.

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5. Environmental Impact

For most of you, this reason would be more like a piece of information than an actual problem. And I also know I can do nothing to stop you from thinking that way. But it is immensely pertinent that you at least know how NFTs harm the environment- maybe this could change your mind.

NFTs aren’t themselves a threat to the environment, but the underlying process involved in their production causes environmental damage.

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Minting NFTs is a highly energy-intensive task that uses heavy amounts of electricity. Any energy-intensive process is linked with exacerbating climate change by adding to the atmosphere’s CO2 emissions.

Conclusion

Though I walked you through some of the most critical NFT flaws, it would be a sin to dismiss the technology behind it as a short-term phenomenon. NFTs have transformed how digital assets are treated and brought about scarcity and authenticity among them.

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NFTs allow creators and owners to interact and sell their work directly to their customers without involving a third party to do the same for them.

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This article highlights flaws related to just investing in NFTs, but if you look at it from a non-investor perspective, there are more reasons to love NFTs than you can count.


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This article was first published here.

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