Welcome to Breach Daily. It’s Thursday, and Thursdays are for getting Skeptic vs Optimist. This is our weekly series where we’ll look at crypto’s less pleasant characteristics. We’ll be speaking to people with years of crypto experience, and tackling tough questions, while honestly weighing the pros and cons of the crypto world. And, it won’t be boring jargon!
If you’ve ever thought about these questions then you’re in good company. In this episode, we’re exploring the biggest question many people are asking: are NFTs a scam or not?
My nemesis, we meet again. This time, I come bearing a lot of questions for you.
Haha, well hello there!
Before I start, how’s your “futuristic” crypto faring these days?
Lol. The crypto market is not going great as there’s a market dip at the moment. But like any phase, it will end soon and the market will rebound. You already know my thoughts from last week’s episode — we talked about it, remember?.
Okay okay, fine. Since we’re on the topic of futures, let’s talk about NFTs. The “supposed” groundbreaking technology.
Cool. Hit me.
First question: what is the simplest definition of an NFT?
NFT means non-fungible token. Let’s break it down. Firstly, a thing is fungible when it is replaceable or can be exchanged. An example is the money you spend (naira, dollar, pounds etc).
Let’s say you borrow $100 from a friend for a few weeks. You can repay the debt by returning another $100 note — either five $20 notes or four $25 dollar notes — without any problem.
This is because the dollar is fungible and you can replace or exchange one note with another as long as they have the same value.
You know what’s also fungible?
What?
The fuel in your car. The meal you had for breakfast is fungible — it probably tasted great. Remember, as long as it’s interchangeable or replaceable, it’s fungible.
Okay, so non-fungible?
That’s the opposite of fungible, obviously, and it means that an item is unique and irreplaceable.
Let’s say you lend your grandfather’s clock that was bought in 1925 to a friend for an art exhibition. Your friend will need to return the exact clock that they borrowed. This is because your grandfather’s clock is rare and cannot be replaced with another clock making it a non-fungible asset. Original works of art, like the Mona Lisa for example, are non-fungible, because everything else is a replica and doesn’t hold as much value as the original. You get the gist.
Back to NFTs; they are digital certificates that allow you to buy and sell the ownership of unique digital assets. What makes them unique is that they can represent almost anything from art to graphics to music or even videos and games.
Hmmm… How do they work? I keep hearing about some minting thing.
Yes, minting is an important part of NFTs, but let’s get to how they work. NFTs are similar to cryptocurrencies since they are built on a blockchain.
Think of blockchain as a spreadsheet that updates across several computers in the world. Unlike a regular spreadsheet, you can only add new rows and cannot delete existing ones. This factor is why NFTs are unique since transactions performed using these assets are transparent (since it is recorded on multiple computers) and cannot be deleted.
NFTs can be used as certificates to show proof of ownership because anyone can view the blockchain to verify that the information is true.
Let’s say you have a piece of art that you drew during a moment of inspiration. You can decide to create an NFT as proof that it belongs to you. This process is called minting.
During minting, NFT creators make unique copies of an NFT and in most cases, these copies are limited. The minting process takes less than 10 minutes and there are special platforms — called marketplaces — that allow you to mint NFTs.
An example of a popular NFT marketplace is OpenSea. OpenSea is like a regular shopify store where you can create an account, mint NFTs and also sell NFTs to other users.
You can take a quick peek at some of the best marketplaces in this special NFT guide.
Not to mince words but this sounds like a playing ground for scams.
As the popular saying goes “if it looks like a scam, it’s probably a scam”. However, NFTs don’t fall into this category. NFTs have a purpose and are used to represent real-world items like artwork and real estate.
Those who label NFTs a scam are people that are looking for a get-rich-quick scheme and get disappointed when they don’t make huge gains from NFTs. You should be aware that, unlike cryptocurrencies, most NFTs have limited use-cases at the moment.
One limitation is that most NFTs can’t be used outside of the platforms that issue them.
Also, in most cases, you cannot earn passive income from NFTs if they are not traded. Think of the NFT market as buying an expensive wristwatch. When a popular celebrity wears a similar watch the demand increases and the value goes up. While if there’s no demand the value drops.
When buying an NFT or multiple NFTs, you must be aware that its price can go up and down. This does not make NFTs a scam because they are simply affected by the volatile market just like Bitcoin or Ethereum.
But what makes an NFT (cryptoart) valuable? Why do I have to spend so much on a JPEG that I can download for free?
Haha! I was expecting this question. You are right by saying you can download a picture or video for free online. However, ask yourself this question: do you truly own the digital file that you copied?
NFTs are designed to give you something special: true ownership of an asset. There are thousands of copies of the Monalisa painting but the one true copy lies in a museum in France. This painting is worth over $900 million. Imagine you’re the owner and want to sell it for its true value. How do you convince prospective buyers that it is the original and not a fake painting? That’s where NFTs come in…
What’s special about that? A receipt can do the same.
Lol! We all know that receipts are easy to forge. However, NFTs are tamper-proof and they provide full details of ownership that can be publicly verified on the blockchain.
I still don’t believe you. Tell me what you consider the strongest argument for NFTs at the moment.
NFTs have the potential to transform how we think about value and trust in our everyday lives.
Thanks to its unique nature, several independent artists and creators have been able to display, promote and sell their art as NFTs from the comfort of their homes. You can read this fascinating story of an NFT artist that has made thousands of dollars from creating art.
You may have heard of the latest trends in crypto called play-to-earn and move-to-earn. All of these are made possible thanks to the technology powering NFTs. In the case of Play-to-earn, NFTs are used to represent in-game assets which you can own, lend or sell for money.
Apart from these trends, NFTs are increasingly used by land and property owners. Don’t be surprised to see many houses rented or sold as NFTs in the future. Think of it: you don’t need an agent, all you have to do is to purchase the NFT and get access to the property. Cool isn’t it?
Hmmm…And the weakest?
I must admit that NFTs are relatively new and there are several dangers that exist in this ecosystem. One of which is called rug pull, which refers to an NFT project that promises a lot of features but fails to deliver its promises after launching. There’s a sad story of two 20-year-olds who scammed $1.5 million from NFT holders through a rug pull. So this is an ugly reality that occurs in NFTs.
Here’s a good guide on how to detect rugpulls.
There are also cases of NFTs that are minted without any intent or use cases. Therefore it is very important to conduct thorough research on whatever project you intend to purchase. Here are some of the biggest mistakes that you can make as a crypto newbie and how to avoid them.
Also, NFTs consume a lot of energy and electricity during the minting process which can contribute to global warming and other bad environmental issues. This is a major area of controversy regarding the use of NFTs.
Aha, you see!
Now, I’m curious: what is the single most innovative use case of NFTs that you’ve seen?
I would say the use of NFTs to raise money for charity. An NGO group called World of Women (WOW) led an initiative to address issues of gender imbalance and discrimination against women. Interestingly, they decided to create a collection of 10,000 images of women. Each image represented the struggles of women in different works of life, from full-time housewives to workplace CEO’s.
These images were minted as NFTs and listed for sale. Within the space of a few days, the NFT collection sold out and the money generated was used to fund humanitarian projects.
Those that bought the NFTs were also given special benefits like free NFTs from selected artists and invitation to annual events held by the organization. This development displayed the potential of NFTs as a tool to drive social change and advocacy for a better society.
Hmmmm…I wasn’t expecting that.
Well, that’s the web 3.0 space for you. It’s full of surprises if you give it a chance.
Never!
