Why NFTs Are a Laughingstock Now
This May, someone sold a Bored Ape NFT for a staggering 556 ETH loss. For many, this amount of ETH is life-changing money. However, the seller found that amount just enough to sell for as he saw the value of his “precious” non-fungible token plummet.
Although many questioned the legitimacy of the wallet selling this particular NFT, it can be said without much stress that the initial hype surrounding NFTs has worn off.
A Quick Definition
So, what are these NFTs that the “tech gurus” of the targeted social media ads are so enthusiastic to teach?
NFT is the virtual ownership of something that you buy using cryptocurrency. You are given a token as proof of your ownership.
Non-fungible means these tokens are unique and not-interchangeable. Meaning, you can’t exchange an NFT with another — as you can with a one-dollar bill. A one-dollar bill can be exchanged with another one-dollar bill as the monetary value of both notes is the same.
You are owning a piece of digital history by owning an NFT. But what can you actually do with it? It is one of the key reasons why I termed them as a laughingstock.
1. No exclusive rights
The NFT of the first-ever tweet of Jack Dorsey sold for five million dollars. The buyer, however, can’t delete the tweet, can’t stop the retweets, can’t prevent others from liking it, et cetera.
He/she just owns the virtual ownership of the tweet that can only be sold for money. The actual ownership and rights to alter with the tweet are still in the hands of Dorsey.
In other words, owning an NFT is not the same as having copyright. Moreover, there are no special laws that protect NFTs. So, there is no exclusivity for the owner.
2. Wide Potential for Scams
It is fairly easy to tokenize something and put it up for sale as an NFT. There was, in fact, a Twitter account in the earlier days that would tokenize any NFTs for free (it got suspended).
Many artists fell prone to this as they saw the digital ownership of their artworks being traded without them being involved in it.
A multitude of other popular scam tactics like — wash trading, phishing, artificial scarcity, etc. has been on the rise. These are all the downsides of an unregulated market.
3. Volatility
The term volatility has become almost synonymous with anything associated with cryptocurrency. As NFTs are intangible goods, there is no real way to measure their value. Any type of hype, marketing campaign, mass hysteria, et cetera. is enough to send the market into a frenzy.
As there are still no mechanisms that will help people to determine the value of the assets, the market remains volatile. Throughout 2021, the value of some of the most popular types of NFTs spiked by around 21,000%, L’Atelier’s report found. The polar opposite, i.e., drastically losing value; has also happened.
4. Uncertainty Over Long Term Ownership
The storage system needs to be kept on going long enough for NFTs to have any long-term value.
Suppose, you have bought an NFT from a certain website. Since you are given a token, you have its ownership. But the actual digital asset is hosted in the website’s server. And for your claim to be valid, that server needs to remain active.
If anything happens and the servers are shut down, your precious NFTs will bid farewell as well.
How silly is that!
5. Not Decentralized
However bizarre that sounds, it is true for almost 80% of the NFTs. When the fundamental aspect of cryptocurrency is to remove any third parties from a transaction, NFTs indicate something else.
The Ethereum network; which is the largest network for NFTs, is often congested by other sectors such as DeFi, which eat up the majority of the bandwidth and exponentially raise the prices for minting and transacting NFTs.
Christie’s took a 6 million dollars cut from the largest NFT auction to be ever held back in 2021.
If someone wants to buy an NFT of a digital art piece with the noble intention of fully and only compensating the artist, it is almost certain that will not happen.
“An NFT is merely the very costly, environmentally disastrous, tech bro equivalent of peeing on a hydrant.” — this hilarious scornful statement is from Mashable’s Amanda Yeo.
I won’t go that far; but unless someone derives a hedonic pleasure from buying NFTs; investing in them with any serious financial motives is indeed a dunderheaded act.
