Non-fungible tokens have taken the crypto world by storm and many people are rushing to acquire them. While some talk about the best idea since the invention of toast, there is also the dark side of NFTs (Non-Fungible Tokens), because where there is light, there is dark. And it’s big. In this article, we talk about some of the problems associated with NFTs.
The market potential has already been recognized at the latest when scooter masterpieces, trading cards of football players or Star Trek digital products are sold digitally under the NFT name. So far market economy. And if a #Pixelart (CryptoPunk #7804) is worth $7.6 million, it’s up to the buyer to judge for themselves (spoiler: we’re talking about a low-quality pixel image of a Gameboy Color graphic ).
uniqueness of tokens
The underlying concept of NFTs is why NFTs are currently attracting a lot of attention. This is based on the uniqueness of the tokens or collectibles. As with a work of art, there is only one token – there is only a Mona Lisa, a Dante’s Inferno and a picture of me that I painted for mom in kindergarten. Collectibles contain a limited number of tokens and are best compared to a stamp collection. Tokens cannot be exchanged or replaced with other tokens like #cryptocurrencies or cash. So far, so complicated.
The market not only understood the principle, but also quickly recognized the potential and is now creating digital artworks in droves. Collectible cards, digital objects or photos of bored monkeys are auctioned off at insane prices. The NFT can’t help it, after all we want to protect the intellectual property of artists and if everyone becomes an artist now, the concept of the NFT can’t help it. But just as in reality cryptocurrencies have not enabled the unbanked to access cashless payment transactions, NFTs do not actually protect the intellectual property of artists in practice and on a large scale.
Unfortunately, NFTs are misinterpreted as an asset class and not as a technological method of declaring ownership, which an NFT is. An NFT is a smart contract that regulates something but has no intrinsic value. The token has the value.
Disadvantages of NFTs
Ownership of metadata is determined by the creator themselves, which means that authorship or rights to a digital asset does not have to be proven. Anyone can create an NFT with Bata Ilic’s Smash Hits, and it happens all the time.
Ethereum is by far the most prominent blockchain for the NFT market, known for using proof of work for consensus. Ah, there was something, because proof of work requires energy that – as we know – doesn’t grow on trees. Although Ethereum 2.0 is supposed to introduce power-saving proof-of-stake, it has now been announced and postponed as often as Duke Nukem Forever.
Ideally, a blockchain is completely replicated by as many participating nodes as possible, which is why data economy is on the agenda. There is simply no place for artwork in the form of digital images. Therefore, you save the z. B. on Google Drive or AWS. The best projects use distributed IPFS. This leads to technical issues, as only the URL of the referenced file is stored in the blockchain.
If you steal the key to an NFT wallet, you own the NFT inside. The difference with the Mona Lisa: you can steal the digital version from your home office.
Wallet gone, NFT gone. The phrase “it’s still early,” which is as popular as it is controversial for crypto advocates, definitely applies to the security of most wallets. As secure as online banking – 20 years ago.
For developers, they testify to a fruitful, even altruistic application of NFTs: games. Axie Infinity is a popular name on this train and players in the Philippines and Vietnam use it to feed their families. A closer look (paywall) reveals that average payouts to players have fallen below minimum wage, they take no pleasure in it and are in truth operating in dystopian capitalism. The fact that Axie Infinity was recently spectacularly hacked by North Korea for $650 million is almost irrelevant.
It’s well known, but we can’t stress it enough: blockchains are extremely slow. Especially with blockchains that use proof of work, the block size is a limiting element that repeatedly leads to huge transaction backlogs. If you want to see your NFT purchase confirmed quickly (i.e. blockchain quickly – around an hour), has to pay astronomical transaction fees
NFT – A Conclusion
The problem with this is that when a digital uniqueness is also equated with a work of art at the same time, it leads to absurd developments and a kind of misuse of the idea. Too often, NFTs are given a value that doesn’t exist, even if you want to believe it’s true. Anything gold doesn’t shine either, especially when it comes to NFTs. Just because you can put something on the blockchain doesn’t mean it has value.