Non-fungible tokens (NFTs) are the new buzzword in the online market. After cryptocurrency, they are the second favourite choice of young investors. However, signs indicate that they will turn out to be the next big scam of the decade.
What are NFTs?
NFTs are basically digital records of an entity stored on a blockchain. They are fundamentally non-reproducible tokens. If you have bought an NFT, you cannot interchange it with anyone else. It’s you who will exercise full authority over it. If you have sold your NFT to someone then he/she becomes the owner of that very NFT.
Moreover, the ownership of an NFT can be tracked by anyone as it is a piece of publicly available information on a digital ledger. A wide variety of products can be sold through NFTs. These include photos, videos, GIFs, movies, drawings, audios etc.
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Fundamental idea behind NFTs
When you download a video, photo etc from the Internet, you do not know who the original owner of that piece of art is. Just like you, millions of others have downloaded it. When it gets such massive publicity, it’s tough to trace down the original creator and give him/her their desired praise or price.
NFTs solve this problem. After creating a video, gif, photo, meme or any other digital art, the creator stamps it as the original piece. After creating the art, the artist waits for it to go viral. Once it is viral, people are willing to pay millions for the original piece of art.
However, there is another side of NFTs as well, which is often ignored by traders and investors. These downsides are expected to become bête noire of NFTs.
NFTs as a status symbol
The main currency of NFTs is their status symbol. Rich people often boast about having an original copy of a particular product. However, unlike the original copy of the real-world product, NFTs are different in terms of ownership.
If you buy an original painting, you are certain that now you are the owner of that product and it’s next to impossible for the artist to create the same painting again.
That’s not the case with NFTs. They are easier to make. Moreover, in the majority of the cases, if you buy an NFT, you will only get a certification of original ownership. You do not own the copyright. Now, after selling that particular NFT to you, the same artist can create another product with the exact same particulars and sell it to others.
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Just think about whether you are the only owner of that particular piece of art. The answer is no. And this is where NFTs fail their customers.
Availability will lead to a decay in price
The era of real-world pieces of art was different. At the best, one could create a photocopy of the art and circulate it in the market. It was still easy to decipher the difference between the two. In the case of NFTs, things are not the same.
Suppose you have an original piece of art, and you show it to someone. Now, a copy of NFT is available with millions of others like you. Moreover, the original creator can still create the same art that he/she sold to you for millions of dollars. When various other such pieces are sold in the market, the original will become cheaper.
Now, if you find that the NFT which you acquired for millions is being sold for a price less than yours, you will feel cheated. Add to that pain of loss if you try to sell that ownership to someone else.
Volatility of platform on which NFTs are available
NFTs are virtual world entities. They exist on a blockchain. Blockchains are known for providing transparency. However, there is a cost to it. The energy required for providing proof of originality is abnormally high. They consume a large amount of electricity, which becomes one of the key reasons for an inflation in price.
Downsides of Virtual platform
Most of the time, the creator of the original artwork is unknown. The virtual world does not require your national identity to sign up, which allows anyone to create a specific id by changing names. This has led to various issues of plagiarism and fraud.
After the death of artist Qing Han in 2020, a fraud had hacked her social media profile. The hacker then pitched her artwork as NFTs, claiming that Qing is herself selling it. Similarly, there is a process called sleepminting. This allows a fraudster to mint an NFT in an artist’s wallet and transfer it back to their own account without the artist becoming aware.
Various other concerns like insider trading and stealing of original art are rampant in NFTs, which makes the market volatile and unsustainable in the long run.
To sum it all, NFTs exist with various uncontrollable variables attached to them. Their only currency is that they are being sold and bought by elites. Once masses hop on to the bandwagon, NFTs will just become a passing fad.