Five Misconceptions about NFT

Non-Fungible Tokens (NFT) have gotten a lot of bad press since their rise in popularity. Skeptics of the new technology still believe that NFT lack real value. NFT have been criticized as everything from a Ponzi scheme to money laundering. So, let's take a closer look to see what are the issues surrounding NFT.

Counterfeit Screenshots 

The first and most common misconception about NFT is that one can simply screenshot or save a copy of the image and claim they own it too. For many, this is seen as proof that digital files cannot hold value. However, this happens in the physical world too and there are means of protection. 

The Mona Lisa is worth nearly a billion dollars and here is a copy of it for 8 bucks on Amazon. It is undeniable that the item for sale on Amazon is a duplicate, and not the original Mona Lisa. We can prove this in a number of ways simply by examining the artwork itself. An NFT is verified in the same manner. By examining the blockchain, we can easily identify which picture is the original by looking at the provenance. 

There are two situations that can occur a) the JPEG was not minted onto a blockchain after being copied which indicates that it is fake or b) the JPEG was minted to the blockchain and one would simply have to look at the timestamp of both NFT to know which came first. This can be done on Etherscan or another blockchain explorer depending on the NFT. While copies of art do exist, both legally and illegally, the fact that it can happen does not devalue an NFT. The Mona Lisa is still worth millions of dollars. 

Moreover, law firms such as International Blockchain Legal LLP are taking these matters seriously. Similar to the way you may own your favorite movie, the studio owns the rights to that film. It requires regulatory compliance and intellectual property laws for the rights of your movie to be copied and sold. As more money is invested into the different NFT services, a rule of law will begin to protect your NFT from counterfeiting. 

Environmental Concerns

Undoubtedly, climate change is a serious problem in the world today. Ecosystems are in danger and much of the criticism surrounding the heat generated by mining nodes is warranted. There has been a major generalization about the effects of blockchain mining that does not recognize the variety of different consensus mechanism options and how they can minimize the environmental impact. 

A consensus mechanism is how a coin is given its value. It is the function that agrees on the creation of a coin. The most common consensus mechanism is proof-of-work. By requiring complex algorithms to be hashed over and over, coins are impervious to counterfeiting. 

The businesses running bitcoin mining facilities employ hundreds of the most advanced computers on the market to mine blocks 24/7. CO2 emissions have been on the rise  because of the electricity needed to power these large operations. Bitcoin, which was pulled from Tesla's website for this very reason, is the most responsible for this, but other blockchains such as Ethereum are doing the same thing. However, Ethereum is moving away from Proof-of-Work.

The shift to Ethereum 2.0 will replace the consensus mechanism on the chain to a Proof-of-Stake protocol that is much kinder to the environment. When this update is finally released, nodes won’t be able to mine the Eth tokens anymore. Instead, validators will be used to verify an Eth token with staking. 

This protocol does not require complex algorithms and will slow the demand Ethereum has for electricity. Along with this, every layer 2 blockchain on the Ethereum network such as Polygon will also require less energy, helping crypto move closer to net zero. 

Bad for Artists 

There’s a lot of talk that problems for artists are only getting worse because of NFT. With copycats flooding the different blockchains, some professional artists are fearing that NFT will ruin their careers, but that is far from the truth. Many independent artists shifting their work to NFT are seeing great returns. 

Justin Aversano is a photographer with multiple collections minted on Ethereum. Based in Los Angeles, he has taken his career to new heights by storing his work as NFT collections. The Twin Flames Collection has been selling on marketplaces at high prices with the most recent tokens being sold between 80-100 ETH with 5% royalties. These figures are not easy for the average working artist to turn down. College degrees in fine art and photography are often stereotyped as poor choices for starting a career. With experience, jobs in the industry typically pay between $50,000 - $70,000 annually. 

In expensive locations such as Los Angeles and New York where the majority of artistic jobs are located, the cost of living added by the burden of high student loans makes any decision to move artwork onto a blockchain the better. Pudgy Penguins, a smaller NFT collection led by MrTubby, has also created wide success. The team is composed of a couple college students near graduation. Since their collection launched, the penguin cartoons have created a huge amount of trading volume.

Mike Winkelmann, better known as Beeple, is the best example of a professional artist who has achieved staggering rewards. When his collection Everydays: The First 5000 sold for 42,329 Eth at an auction in Singapore, Beeple instantly became one of the highest paid living artists in the world. With 5000 images gathering royalties and new collections still being listed on OpenSea, Beeple is a leading cause for the explosion in NFT popularity. His response to the moment was “holy fuck.” 

Criminal Use

In September 2021, OpenSea was accused of insider trading when an employee operating the featured tab was caught buying NFT before they were posted on the site’s influential front page. This was confirmed by a user on Twitter who noticed strange buying patterns with NFT in the featured section. In his accusation, he posts transactions from the Ethereum blockchain providing evidence of the insider trading being committed. In response, the employee was fired and OpenSea committed to providing better service.   

For a moment, it looked like doubters were getting their wish - NFT were getting exposed. With fiat that would have never happened; because the blockchain was able to provide clear documentation of what the OpenSea employee was doing, he ultimately got caught. There would be no record to examine if the crimes were committed offline allowing him to continue his illegal activities. Instead, he lost his job and will need to prepare for legal repercussions. 

In March 2022, President Joe Biden signed an Executive Order on digital assets which details how the U.S. will seek legislative measures to keep American businesses in order while using blockchains. These orders are being drafted to protect consumers using the capabilities of public ledgers which are transparent and linked to KYC accounts. 

Useless Art - With many NFT trading at immense prices, reactions have been intense calling them useless and ugly. The digital counterpart to physical artwork has been baffling to many, but the utility of these unique tokens is often overlooked. NFT are better compared to luxury watches than to expensive art. The difference being that NFT have utility to help establish value and the same can be said about watches which all tell the same time, but vary widely in design. 

The most common utility for an NFT is the ability to buy and sell it. This utility suits the needs of artists such as James Mollison who leads the JAPES project. The proceeds from his James and Other Apes collection go towards ape sanctuaries in Africa and came with a physical print given to original buyers. 

The Sandbox, a blockchain-based game, saw their SAND token skyrocket following the Metaverse announcement by Mark Zuckerberg in late 2021. Since then, The Sandbox Assets Collection on OpenSea has been quite active. With a low floor price and a high trading volume, it’s clear that Sandbox players are using these digital assets properly for the game. 

Bored Apes Yacht Club, the blue chip NFT collection, gives a number of utilities to members. They can draw on the bathroom wall and also have access to airdrops such as the new Apecoin which was given to all members of the club. Many utilities tie to the new Apecoin which will grow in the months to come.   

Altogether, there are many reasons to use blockchain technology, but as such a new and confusing concept, it is easy for some to overlook the benefits of NFT. The tokens are only stored online and without a tangible quality to them, their value can feel questionable. However, these non-fungible tokens have already led many to extreme success with a lot more potential to follow.