Frontal reportage – are NFTs pure scams?

NFTs were the hype in 2021, with users sending at least $44.2 billion worth of NFTs on the Ethereum blockchain alone. In the current year the numbers flattened out a bit, despite all this the sales are still several billions. A report just published by the public broadcaster Frontal deals with the question of whether it is still worth entering the market. The title alone: ​​”NFT: The hype is over and you’re still not rich – with Aya Jaff I frontal” is beyond creepy and calls into question the objectivity of public service broadcasting. 4 reasons should confirm the thesis and 2 experts will be interviewed. We present the arguments and respond constructively to them.

The task for the public television company Frontal

First, the task of public service broadcasting, which includes the broadcaster Frontal, must be considered. This consists in reporting as diversely and objectively as possible on political and social issues. In principle, public media should help citizens form their own opinions on a wide range of subjects. The television companies thus provide a basic information supply to the population and remain politically and financially independent. The following shows whether the task is always fulfilled.

Accusation 1 – Before you serve, others serve first

Frontal came to this decision for two reasons. Because it costs money to offer your NFTs on most NFT marketplaces such as OpenSea. The question is whether it is objectionable. Most online marketplaces charge a fee to list items. The principle is therefore present in almost all industries, and the NFT market cannot be criticized negatively.

Furthermore, expert Henryk Plötz makes the claim that it is less likely to make money from an NFT than playing the lottery. All you need to do is look at relevant figures from the market report. Buyers lost nearly $1.2 billion trading NFTs in the first quarter of 2022. This was offset by a gain on sales of $3.3 billion. He does not explain how expert Henryk Plötz calculates a winning probability of less than 1:140 million.

But that’s not even his criticism. In the interview he says the following: “It’s not even a zero-sum game, but a negative-sum game, for every action, really every action I do with it, there are transaction fees. These can range from $60 per campaign […]. It is [das Prinzip], the bank always wins. The bank is the people who run the blockchain.”

This accusation is wrong in several respects. In part, transaction fees are incurred when purchasing, but these do not always have to correspond to the mentioned high amount. It depends on which blockchain you bought the NFT on. Should the NFT be traded on the Ethereum blockchain, the transaction fees may actually be the said amount. On the other hand, if you buy an NFT on the Solana or Polygon blockchain, the transaction fees are close to zero.

The statement that the bank is a blockchain operator is particularly fatal. Because the transaction fees primarily serve to ensure that miners are reimbursed for expenses. If you think about his statement, NFT trading can increase the price of the respective coin. This is where the owners of the respective coins would profit. Unless they own any coins, the blockchain operators profit neither from the transaction fees incurred nor from the price increases.

Accusation 2 – Only the fraudster gets rich by fraud

In this claim, Frontal addresses an absolutely important issue. Because with the booming success of NFTs, many scammers have also entered the market. This is how methods such as laundry trading, bid fraud and carpet pulling arose. In addition, Frontal criticizes the lax handling of the exchanges FTX and with the scams. So you only see visionary commercials, but no information about the risks.

We certainly agree. With the responsibility of being able to offer a financial product, the risks should also be explained. Especially in the NFT market, where by now there are many scammers, beginners must be brought closer to these topics.

How to get the problem of fraudsters under control is still unclear. The solution could be a tutorial that everyone must watch before they can buy an NFT. This allows beginners to learn the basics in a short time. It can also prevent FOMO purchases.

Accusation 3 – According to Frontal, NFTs do not provide a secure legal basis

Since the crypto sector is largely unregulated, the legal situation is mostly unclear. Therefore, Frontal’s claim is understandable. What you acquire with an NFT is not yet clear. You must understand that you are not acquiring a JPEG file, but only a link that is stored on the blockchain.

Therefore, buying an NFT is still associated with a risk. Until there are clear copyright laws, you are in a gray area. However, the case of Yuga Labs could provide an initial trend. The Los Angeles court is currently deciding the case of Ryder Ripps, who copied the Bored Ape yacht collection “from satire” and sold it for almost $1.5 million under the name RR/BAYC.

Should Yuga Labs win the case, it should be a victory for the industry. On the other hand, losing the case could throw the NFT industry into chaos. Thus, until now, buying an NFT is always a risk.

Accusation 4 – Frontal claims that energy consumption harms the market

Here, reference is made to the first claim. As always, it depends on the blockchain being used. The cryptocurrency Ethereum, which currently still uses the proof-of-work mechanism, currently consumes a lot of electricity. Therefore, the merger switches to the more environmentally friendly consensus mechanism Proof-of-Stake. Solana and Polygon, which are also used for trading NFTs, already use this. The energy consumption used is therefore highly dependent on blockchains and cannot be generalized.

In addition, it is questionable whether a proof-of-work consensus mechanism is always environmentally harmful. Bitcoin already uses more than 50% of sustainable energy and is helping to drive the shift to sustainable energy. We explain the topic in this post.

Conclusion from Frontal – NFT is nothing but a scam

The final section looks at the future of NFTs. Here, Frontal asks expert Henryk Plötz whether NFTs can develop use cases in any industry. He replies: “For every application you can think of, there’s an easier way to do it and it’s already being done. There’s no use but criminal fraud.”

This statement is just pure hoax. One can certainly criticize and question the utility of PFP-NFTs, but calling the entire future a scam is wrong. How else could a billion dollar market have arisen based entirely on fraud? Why would people invest over 12 billion in the market when it’s all a scam? These two questions alone should be enough to invalidate the expert’s opinion.

NFTs already offer a variety of use cases, be it as a means of crowdfunding for a soccer club, to monetize computer games, or to create digital objects for the Metaverse.

Did Frontal report objectively on the subject?

The question that remains open at the end of the report is whether Frontal has reported objectively on the subject. You can answer with a yes. Because some claims are certainly understandable and justified. Unfortunately, reporting is marred by inaccurate information and dubious experts. So statements like “The bank is the blockchain operator” are simply not defensible at the reporting level. Furthermore, a credible expert who is supposed to be familiar with this area cannot claim that there are no use cases for NFTs.

If this were the case, no one would invest in the area. But evaluating new technologies is never easy. It can be said that NFTs still have a long way to go. First and foremost is the issue of copyright. Because then the circumstances are better clarified and the market can continue to grow. In addition, as a result, the number of fraudsters decreases and the market becomes more sustainable. In conclusion, it can be said that NFTs are still in their infancy and not all NFT trends are to be approved. Nevertheless, the potential for NFTs is there and it will be interesting to see how NFTs will develop in the future.

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