If recent events are any indication, the already red-hot demand for Non-Fungible Tokens, or NFTs, could be on the verge of rocketing up to another level.
But for all the buzz and excitement generated by NFTs, there is a groundswell of criticism directed toward these blockchain-based assets, ranging from the exploitation of original digital content creators to their significant role in contributing to climate change through their carbon footprint.
Don’t get me wrong; I’m a big fan of NFTs. I’ve created NFTs, and I’ve collected NFTs. This article is all about the critics and what their gripe is. So, keep reading below to learn the 7 reasons why everyone seems to hate NFTs.
NFTs are Unregulated
One of the core attributes of NFTs is that, like cryptocurrencies, they are decentralized and unregulated. In the eyes of proof-of-work proponents, this ensures a level playing field for all involved parties as transactions are created and verified through a transparent, public ledger, such as Ethereum’s blockchain in the case of many NFTs.
But it is this decentralization and lack of regulation in the minting and transacting of NFTs that, in the eyes of critics, opens the door to rampant fraudulent activity. With a lack of a governing entity with meaningful policing powers, perpetrators of NFT scams can hide behind the very attributes that make these digital assets so unique.
Yet the whole point of web3 is decentralization without the interference of the tech overlords. It seems we are on the learning curve, and in time the fraud and other nasty kinks will get handled.
The NFT Bubble May Soon Burst
Even one of its biggest beneficiaries, the digital artist Beeple, whose NFT of his piece Everydays: The First 500 Days sold for $69 million, believes that this digital phenomenon is in the midst of a bubble. Art collecting insiders and cryptocurrency experts have also gone on record with their criticism of NFTs, likening them to “worthless magic bean[s]” and those who peddle in them as “crypto-grifters.”
The only question is, how big will the bubble get before it bursts?
A Word to the Wise – Buyer Beware
As the popularity of NFTs continues to skyrocket, so too do the risks of unsuspecting buyers being bamboozled. There are a number of NFT listing platforms and, while there are those that strive to maintain proper verification procedures, others fail to impose minimal security measures (such as owner validation), thus opening the door to fraud.
If you want to learn how to conduct your own NFT due diligence to figure out who created it and who owns it, you need to read this: How to Check the Ownership of an NFT (7 Methods).
It is also worth noting that even with valid transactions, the value of NFTs is not driven by the same economic fundamentals that influence other forms of investment, such as stocks. Rather, the resale price of an NFT is dictated by how much a subsequent buyer is willing to pay for it, which can often lead to a significant loss.
So yeah, there are plenty of worthless NFTs in the market.
NFTs are Environmentally Irresponsible
One of the biggest criticisms of NFTs, and one that has also been directed toward cryptocurrency, is that it contributes to causing planet-threatening environmental conditions like climate change. H re is a summary of the basis for this argument:
- NFTs, like many major cryptocurrencies (including Ethereum, which underpins most NFTs currently), rely on a verification system known as proof-of-work.
- Proof of work is a peer-driven system calling for independent “miners” to validate each and every transaction occurring on a particular digital platform.
- Transactions are verified by correctly answering incredibly complex problems requiring enormous computing power to solve.
- The computer hardware required to solve the validation algorithms that allow an NFT transaction to be added to the public ledger known as a blockchain consumes inordinate amounts of electricity.
- As the argument goes, the more electricity that is consumed, the more that must be produced to keep up with demand, and as a direct result, the more emissions that are created by power plants.
Therefore, it is not difficult to see the connection between the minting of new NFTs and the behind-the-scenes validation process that occurs with each transaction and the resulting impact that these digital assets have on the environment.
However, the Central American country El Salvador is doing things right by using geothermal energy to create energy for some of their Bitcoin mining operations. Perhaps the world should embrace more geothermal and nuclear power for the strains of the web3 Defi economy?
Original Creators are Getting Cheated
Contrary to the notion that NFTs benefit original creators by enabling them to monetize their creations themselves without the involvement of third-party platforms that usurp much of their earnings through fees and the like, there is an argument to be made that the unregulated nature of minting NFTs allows bad actors to tokenize other peoples’ creations without their permission.
There have been documented instances of NFTs being created off of what is essentially stolen work product, and all resulting revenue and profits are being diverted from their rightful beneficiaries.
Obviously, this is theft, fraud, and copyright infringement which is heavily discussed here: Is NFT Art Protected by Copyright Law? (How To Get Sued).
Most NFTs will Result in Losses
While, for some buyers of NFTs, the allure is simply being able to claim ownership of a digital asset, for others, NFTs are a means to turn a quick profit or achieve financial security. Unfortunately, the odds favor NFT transactions resulting in losses. Here are a few reasons why trading in NFTs is not a safe or viable investment opportunity:
- The most in-demand NFTs are far beyond the purchasing power of the majority of buyers.
- The overwhelming majority of NFTs will become worthless.
- The number of NFT sellers far exceeds the number of buyers, and values can plunge as much as 70% in a single day.
- NFT values are extremely volatile (similar to cryptocurrencies).
- Frenetic trading activity creates a highly risky market that will prey on inexperienced or insecure participants.
In a nutshell, given the highly unpredictable nature of NFT valuation, getting involved with NFTs should be reserved for those who can afford to lose their entire investment value.
The Hidden (and Substantial) Costs of Minting NFTs
One of the untold realities of getting involved with NFTs is the fees associated with each transaction. The fees charged by listing platforms for creating (also known as minting) NFTs can range from as low as $1 per token to over $1,000. De ending on the transaction value, these fees can be the difference between turning a profit or eating a loss.
Worst of all, many NFT exchanges lack transparency as to:
- The amounts of these transaction fees (also known as gas fees)
- When they are assessed
- Who is responsible for paying them (e.g., the buyer or the seller)
In some cases, the amount of the gas fees and other charges can exceed the purchase price, so it is essential to read the fine print – provided that there is any.
The cool thing is that I published these articles to better help future NFT creators not get schooled on minting costs. I put these in the “must-read” category:
- How To Sell NFTs Without Gas Fees (or less) | Complete Guide
- The 3 Cheapest Ways to Mint an NFT: Full Breakdown
- How To Mint an NFT for Free | Rarible Style
Generally speaking, the prevailing sentiment regarding NFTs seems to be one of caution and skepticism. Some creators are achieving overnight fame and life-changing wealth, but others are falling victim to fraudulent activities by bad actors.
The optics of the super-wealthy using NFTs as yet another means of flaunting their wealth and power is also seen as a negative consequence of the growing popularity of these digital assets.
Are NFTs here to stay? I think so, but there are plenty of reasons to hate them. Sti not sure…then check out “10 Reasons Why NFTs Will Change the World.”