In short, NFTs are inherently neither a scam nor a digital bubble, but scams and bubbles are sure to manifest.
A blank sheet of paper can be used to create a legal contract and it can be used to fake a legal contract. The piece of paper is not to be blamed — the malicious users are. In the same way, an NFT is a blank canvas waiting to be given a purpose.
NFTs can tokenize real art created by talented people, or NFTs can be used by scammers to sell art that isn’t theirs to begin with. It shouldn’t be too surprising that scams exist in such a new corner of the market with so much dumb money being thrown into it.
Another side effect of this dumb money avalanche is likely a bubble. Bubbles aren’t inherently bad either — in fact, they can be quite exciting until they pop! NFTs aren’t guaranteed to lead to a bubble nor a scam. But at some point, sooner or later, the prices of some of the most hyped NFT collections are likely to experience some downward volatility.
The NFT market appears to be here to stay — even after the bubble pops.
As the industry matures, steps need to be taken to prevent scammers from stealing art and money. And, bubbles will likely be needed to shake out the weakest use cases. Many years from now, NFTs may be used for more things than anyone today could imagine, but that growth will require some pain.
NFT scams and bubbles are everywhere today. You shouldn’t be surprised — you should be cautious. After all, the whole point of NFTs is the transparency of ownership and authenticity, so how are these bubbles and scams happening in the first place, and what can you do to avoid them?
Types of NFT Scams
The most common type of NFT scam today is impersonation. Frauds will copy artists’ and influencers’ profile photos and release similar-looking NFTs. Naive shoppers may not think to verify the profile before purchasing, especially for low-priced, high-quantity NFT collections.
Another NFT scam at large is stolen art. Many people have tokenized art that wasn’t theirs to begin with. This is obviously a huge issue, and it’s not one that can easily be solved. Verifying the ownership of an artist’s work is difficult for NFT creation platforms to do, and many artists are forced to watch scammers receive the paycheck for art they created.
How to Identify an NFT Scam
You can be sure not to purchase stolen or fake art with relative ease, as long as you know what to look for. On Rarible, one of the leading NFT exchanges, search results are accompanied by the creator’s profile picture.
Legit artists will have a yellow checkmark by their name, while the fakes will not. In the image below there are 2 fakes and 1 real. Can you tell the difference?
The real BitBoy NFT is the one on the very right. But, how can you tell? The verification checkmark must extend beyond the profile photo to be legitimate.
The leftmost NFT is being sold by an artist who has stolen BitBoy’s profile picture. This is easy to identify as a fraud because of the lack of a yellow verification checkmark.
The NFT in the middle is being sold by a scammer who is a little bit more sophisticated than the previous, but the middle scammer faked the verification mark, too. This is the most tricky scam to detect because it almost looks real until you zoom in.
Trusted Sellers to Buy NFTs
The issues of trusting any centralized group is the primary reason blockchain and NFTs exist to begin with. Without a centralized team verifying the art and the artists, scams are sure to flood the marketplace. If you’re going to trust anyone with your money, make sure to do your own research first.
Here’s a quick breakdown of the 3 biggest NFT platforms around today:
- Nifty Gateway: Nifty Gateway was created by the Winklevoss twins and powered by their Gemini cryptocurrency exchange. Nifty Gateway is home to the biggest names in the NFT space today. From Grimes to Kenny Beats, many artists choose to sell their NFTs on Nifty Gateway.
- OpenSea: OpenSea is the leading platform for NFT creation and also has its own exchange built-in. If you aren’t a super famous artist who can get a deal with Nifty Gateway but you still want to hop on the NFT train, OpenSea makes it really easy and affordable to do so.
- Rarible: Rarible is another platform for NFT creation and exchange. Rarible has its own governance token, RARI, which is awarded to regular users of the exchange. RARI is the first token in the NFT space and presents an opportunity for non-artist investors to gain exposure to the NFT landscape.
The NFT space is brand new, and trust is a strong word to associate with anything this young. These platforms are likely more trustworthy than their competitors, but this should all be taken with a grain of salt.
What is a Digital Bubble?
A digital bubble occurs when the price of an asset separates from its “fair value” by a significant amount. Bubbles are a characteristic of extremely volatile assets, and some investors specialize in profiting from them.
Bubbles aren’t inherently a good or bad thing. Just don’t tell that to anyone who paid $20,000 for Bitcoin in December 2017 and sold it before December 2020. Bubbles are inherently volatile, but this presents just as much opportunity for reward as it does risk.
A bubble has phases associated with human psychology, and market sentiment may be a halfway decent indicator of distance from its pop.
Playing with market bubbles is one of the riskiest investment strategies there is, so be careful with your money and be honest with your own psychology.
Consequences of an NFT Digital Bubble
An NFT bubble is arguable already here. The Beeple NFT sale of $69 million marks the beginning of serious media attention. If the psychological bubble cycle is correct, public enthusiasm and greed should be arriving soon.
As for a positive consequence of this NFT digital bubble, we are still really early on — there may be enough time for you to make some serious money before the bubble pops.
Pros and Cons of an NFT
There’s a reason NFTs are taking over the art industry right now, and it’s the blockchain. Blockchain is a publicly accessible database that can’t be reversed. This means that ownership history, sale prices and even authenticity can all be verified by anyone and hacked by no one.
The biggest hindrance to NFTs going fully mainstream is Ethereum’s scaling issues. Ethereum is the main blockchain used for NFTs and it’s under a lot of stress now. The Ethereum blockchain was created in 2013 capable of handling around 30 transactions per second. It has yet to complete its major system upgrade, Ethereum 2.0, which will allow it to scale to serve the massive demand for blockchain-based applications.
Currently because of the huge demand for space on Ethereum’s blockchain, creating 1 single NFT can cost upwards of $100 in Ethereum network fees depending on the time of day.
Ethereum looks to scale to 150,000 transactions per second with the 2.0 upgrade later this year. This will make NFTs dirt cheap to create, and a huge untapped market will flood the space.
NFTs and Intellectual Property Law
It would make sense if NFTs stored the property rights for the items they represent, but this is not the case today.
NBA TopShot is an NFT-based NBA highlight trading card game. But buying the NFT of your favorite clip does not buy you a monopoly on the rights to it; its only value is what someone else is willing to pay for it.
Future of NFTs?
NFTs are taking the art world by storm and stirring up quite a commotion in the finance sector simultaneously. As with any industry this young, scams and scammers are rife.
In the future, there is no limit to the potential of NFTs, especially when they become accessible for a tiny sliver of the current cost.
Frequently Asked Questions
Q. Are NFTs better than cryptocurrencies?
NFTs are inherently different from cryptocurrencies. It’s like comparing apples to oranges, or baseball cards to Euros. Which one is “better” depends on what you’re looking for.
Q. Are collectible NFTs a digital bubble?
Yes and no. Some collectible NFTs will be worthless in a few months, while others will increase 10 times in price. Just remember, NFTs are only worth what someone is willing to pay for it, and they’re highly illiquid. If you are going to purchase an NFT it should be a piece of art you really like.
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