NFTs have been the talk of the digital town with huge backlash toward influencers who have jumped on the hype train. This new medium for buying and selling digital assets, including art and videos, has its pros and cons. This article exists to address concerns, clear up misconceptions and educate about potential benefits and harms observed in the NFT space.

What are NFTs?

NFTs, otherwise known as “non-fungible tokens,” are unique tokens that represent a digital deed of ownership linking back to an asset. When NFTs are “minted” they are stored onto a blockchain and metadata coded into these NFTs allows others to verify ownership of the asset. Smart contracts coded into NFTs dictate how they mint, transfer and track transactions. These NFTs can be bought and sold on various marketplaces for different cryptocurrencies.

The potential utilities of NFTs

Establishing royalties

Smaller artists are often victims of profit-motivated art theft.  As a digital deed of ownership, NFTs allow artists to profit off their own work and establish royalties. This could expand into music, videos and other digital mediums.

Tracking assets

Smart contracts embedded in NFTs allow brand owners to track the sale of an asset. For example, NFTs minted as QR codes on price tags with apparel provides consumers with authentic details of creation and ownership.

Identity verification

NFTs contain smart contracts with unique information that can be used to verify documents like degrees, licenses, passports, birth certificates and even death certificates. This ability to verify and condense important information into one place has the potential to innovate resume construction and reference authentication.

Collectibles

NFTs can be used to ensure a smooth transaction of digital collectibles. For example, on the trading site NBA Top Shots, clipped highlights from NBA games are tradable. NFTs allow traders to verify the ownership and originality of the clip, thanks to its digital ledger. Verification of originality facilitates safer transactions for digital collectibles. This practice is also expanding into gaming.

Ticketing

American rock band Kings of Leon recently partnered with Yellowheart to mint unique VIP tickets as NFTs. This is one of many examples of how NFTs have expanded to better protect consumers. In this case, concertgoers are protected from buying fraudulent tickets online since the code can be verified as authentic by event organizers.

Misconceptions about NFTs

Right-clicking

Saving or screenshotting an NFT does not represent digital ownership or mean you can claim royalties. For example, taking a photo of the ‘Mona Lisa’ doesn’t make you the owner of the original. Ownership is authenticated via a blockchain ledger which lists the original creator and verifies its unique value.

NFTs harm the environment

This criticism is partially true. Most NFTs right now exist on the Ethereum blockchain. According to the website Digiconomist, a single NFT transaction using this blockchain is equivalent to the power consumption of one U.S. household over 8.25 days.

Ethereum is not the only blockchain used to facilitate NFT transactions. Alternative blockchains like Hive and Tezos use a more eco-friendly transaction/minting mechanism. According to Ethereum creator Vitalik Buterin, Ethereum is now being optimized reduce carbon emissions by 99%.

NFTs are a form of copyright

NFTs simply give a unique token on the blockchain with a record of transaction and a hyperlink to the asset attained. Currently, most NFT marketplaces like OpenSea and Rarible lack a legal framework to punish fraud or infringement. Since NFTs don’t have special protections, pursuing legal action for theft is relatively fruitless. “Never trust, always verify” is a common saying in the decentralized and unmoderated NFT community. This is because assets minted by someone who isn’t the owner can be difficult to verify.

NFTs are a cryptocurrency

As mentioned before, NFTs are minted onto blockchains which digitally record transactions.  Unlike cryptocurrency, you cannot exchange one NFT for another. Their value is based on their underlying assets that will be traded for different cryptocurrency.

NFTs are worthless

A great deal of people think NFTs are a novelty with no inherent value, but this disregards the practical applications of NFTs. Traditional artist Lana Denina used NFTs to sell her paintings and generate collections of variations.  This is just one of the many tangible examples of content creators  benefiting from their NFTs.

The dark side of NFTs

NFTs are affected by link rot

The underlying asset of an NFT is not stored on a blockchain but rather connected to the asset via hyperlink. An NFTs metadata cannot be modified and lives on the blockchain forever. However, if the host link goes down, the NFT becomes worthless. This is especially problematic when there are individuals minting famous tweets, YouTube videos and music — content which could be removed at any time.

Lost royalties

Unless the NFT you’ve created is sold on the same platform, like OpenSea or Rarible, there’s a chance the smart contract may not execute properly. This can occur if you’ve minted an NFT on OpenSea and try to sell it on Rarible. According to Law Firm White & Case, U.S. law doesn’t recognize the resale rights of creative works, providing little financial recourse when this happens.

Data protection laws

White & Case states NFTs could potentially violate data protection laws in certain countries if they contain personal or inaccurate information. Since NFTs are permanent, the sale of such to individuals in certain countries could prove to be legally problematic.

Art theft runs rampant

NFT trading platforms don’t have a thorough vetting process, which leads to stolen digital assets being minted as NFTs. Many creators have had to combat theft on these platforms. For example, DC Comics artist Liam Sharp found his art was being minted as NFTs and his reports to OpenSea, the site hosting the stolen art, were consistently ignored.

NFT projects are insecure

The sale of an NFT created by Mike Winkelmann, known as Beeple, revealed a crucial flaw in NFTs. Sleepminting is a practice of  impersonating an author and minting an NFT in their name. A hacker named “Monsieur Personne” took advantage of this and minted an NFT in Beeples’ name.” His goal was to expose the insecurity of NFT projects and show the possibility of impersonating established NFT artists. It’s up to the platforms where NFTs are sold to ensure legitimate transactions.

Conclusion

Whether or not an NFT is a net positive or negative largely depends on how they evolve as time goes on. Keep in mind, this space is relatively unstable, decentralized and subject to shady activities. There’s always a lot of hype about the next big thing. It’s your responsibility to be mindful when navigating these spaces.

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