Non-fungible tokens have taken the crypto world by storm and quite a few people are rushing to acquire them. While some talk about the best idea since toast was invented, there is also the dark side of NFT (Non-Fungible Tokens), for where there is light, there is shadow. And it’s big. In this article, we talk about some of the issues associated with NFTs.
The market potential has already been recognized most recently when scooter masterpieces, football player cards or digital Star Trek items are sold digitally as NFT. So far market economy. And whether a #Pixelart (CryptoPunk # 7804) is worth $ 7.6 million is up to the buyer to judge (spoiler: we’re talking about a poor quality pixel image of a Gameboy Color graphic).
the uniqueness of tokens
The underlying concept of NFTs is the reason why NFTs are currently attracting a lot of attention. This is based on the uniqueness of 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 such as #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 works of art in bulk. Trading cards, digital items or bored monkey pictures are auctioned off at insane prices. NFT can not do anything about it, you want to protect artists’ intellectual property rights and if everyone now becomes artists, the NFT concept can not do anything about it. But just as cryptocurrencies have not, in fact, led to people without a bank having access to cashless payment transactions, NFTs do not in fact protect artists’ intellectual property in practice and on a large scale.
Unfortunately, NFTs are misinterpreted as an asset class and not a technological method of declaring ownership, which is what an NFT is. An NFT is a smart contract that regulates something but has no inherent value. The token has the value.
The disadvantage of NFTs
The ownership of the metadata is determined by the creator himself, which means that the authorship or the rights to a digital product do not have to be proven. Anyone can make an NFT with Bata Ilic’s Smash Hits, and that’s what happens all the time.
Ethereum is by far the most significant blockchain for the NFT market, known for using proof-of-work for consensus. Ah, there was something, because the proof of work requires energy that – as we know – does not grow on trees. Although Ethereum 2.0 is supposed to introduce energy-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 participant nodes as possible, which is why data economics is the order of the day. There is simply no room for works of art in the form of digital images. Therefore you save z. B. on Google Drive or AWS. The better projects use distributed IPFS. This causes technical problems because 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 to the Mona Lisa: you can steal the digital version from your home office.
Wallet away, NFTs away. The phrase “it’s still early days”, 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.
To supporters, they are proof of a fruitful, even altruistic use of NFTs: games. Axie Infinity is a popular name on this train and that players in the Philippines and Vietnam use this to feed their families. A closer look (paywall) reveals that the average payouts to the players have fallen below the minimum wage, they have no benefit from it and truly operate in a dystopian capitalism. The fact that Axie Infinity was recently spectacularly hacked by North Korea worth $ 650 million is almost irrelevant.
It is well known, but it can not be stressed enough: Blockchains are extremely slow. Especially with blockchains that use proof-of-work, block size is a limiting component that repeatedly leads to huge transaction backlogs. If you want to see your NFT purchase confirmed immediately (ie blockchain immediately – about an hour), must pay astronomical transaction fees
NFT – A conclusion
The problem with this is that when a digital uniqueness is simultaneously equated with a work of art, it leads to absurd developments and a kind of abuse of the idea. All too often, NFTs are assigned a value that does not exist, even though you would think it to be true. Not everything that is gold also glitters – especially when it comes to NFTs. Just because you can put something on the blockchain, does not mean it has value.