Opinion Science & Technology

NFTs are one of the most ridiculous things to come out of 2021

This digital token is leading to elaborate scams, an economic bubble, and the acceleration of climate change.

The promise of easy riches has lured many into believing NFTs, a cryptographic token, are lucrative investments. 

Although NFTs have existed since 2017, a sudden buying surge starting in 2021 has brought them to attention. NFTs have little potential in the current market, whether in art or in other digital property. Their prices are being raised to absurd levels, opening opportunities for immoral people to exploit the overconfidence of investors. These are the prime signals of an economic bubble. Even if you have never heard of NFTs before, their environmental impacts on the climate are affecting all of us. As far as events in 2021 goes, the rise of NFTs may just be the most entertaining and ridiculous one. 

NFT stands for Non-Fungible Token, a type of digital token stored on the blockchain that is non-fungible which means that it is nonexchangeable. Contrary to cryptocurrencies such as Bitcoin and Ethereum, each token is unique. If you switch one Bitcoin for another Bitcoin, you still have one Bitcoin. If you exchange one NFT for another NFT, what I have now is not the same. If I switch my house with my neighbour’s house, I get a different house. NFTs are one of a kind. An NFT has no intrinsic value, and acts merely a certificate of ownership. Therefore, their value comes from the digital item they represent.  

The utility that NFTs provide is niche, risky, and ineffective.  

One of the most prominent roles of NFTs is in the certification and storage of valuable digital art. Digital art is extremely prone to art theft. Exact copies of digital goods are created and distributed unbelievably easily in immense amounts daily. Due to the large size of most artworks, NFTs usually link to the artwork stored on a webpage rather than storing it on the blockchain. This means that anyone with an internet connection can simply screenshot or save the art piece off the internet. You pay for the certificate, not the product.  

Additionally, purchasing an NFT of the art does not give you intellectual ownership of the art or copyright of the art. Its only utility is as a virtual status symbol. However, I would argue that it is one of the worst status symbols you could purchase. Physical status symbols such as rare materials, historical objects, or high-quality products provide a tangible sense of ownership and power to the viewer. However, each NFT is nothing more than a few lines of code with no aesthetic, utility, or historical importance.  

Another drawback to NFTs is the responsibility that buyers require to hold them. The blockchain provides financial independency from a commercial banking system. However, this is a double-edged sword. The expensive NFT is not placed in a trusted financial institution with numerous safeguards to prevent fraud, but instead is stored in the owner’s cryptocurrency wallet for them to safeguard themself. This gives hackers opportunities to trick users with social engineering. Worse yet, cryptocurrency transactions are irreversible. In an interview with The Verge, an NFT purchaser who had just lost hundreds of thousands of dollars to an elaborate ploy said, “It takes focus to be like, ‘I am my own bank, and I am the custodian of my own money.’” NFTs are a dangerous place to store large sums of money. 

Many are foolishly purchasing NFTs for the sole purpose of reselling them for a profit. Digital art pieces that may have been commissioned for much less are now costing hundreds of thousands or even millions of dollars through the purchase of their associated NFTs. Art NFTs are being bought and auctioned off every day on huge markets such as OpenSea. The irrational hype is further accelerated by advertising campaigns run by pump and dump scam artists on social media platforms such as TikTok and Twitter.  

Worse yet, the anonymous nature of cryptocurrency means scammers often get off scot-free. An anonymous developer of an NFT project called Evolved Apes was able to con investors out of 2.7 million dollars in Ethereum. In an interview with Vice, an investor said, “There were multiple red flags, but 99% of us were just blinded by the art and the promises and the potential profits we assumed would come.”   

NFTs have given the opportunity for immoral influencers to exploit inexperienced investors. The naïve are being hooked into a risky and impulsive proposition. This mirrors past events, where people have lost hundreds of thousands of dollars to cryptocurrency schemes. These gullible investors will discover that this dangerous buying craze has led NFTs to become extremely overvalued.  

NFTs are barely able to serve their original purpose, let alone become a profitable investment.  

In addition to negatively impacting the lives of investors, NFT transactions rely on one of the most energy inefficient cryptocurrencies on the market, Ethereum. Cryptocurrencies require large computers called servers to process and verify transactions on the blockchain. This means that cryptocurrencies use a huge amount of electricity. A single Ethereum transaction to purchase an NFT uses as much electricity as an entire household does in a week. This is more than 100 000 times as much as a Visa transaction. Electricity is mostly generated from fossil fuels, so NFTs have a huge carbon footprint. Since the start of the buying craze in January 2021, the power consumption of Ethereum has skyrocketed and is on track to have the same carbon footprint as the country of Bulgaria. A comparatively meagre number of financial transactions are causing a massive release of carbon dioxide exacerbating climate change. Is this energy waste worth the purchase of a virtual certificate for cat gifs and randomly generated art? 

As cryptocurrency continues to take over modern commerce, it is important during this upheaval to not get caught up in the hype surrounding NFTs. It is essential to view this new technology in a level-headed manner, understand its limited utility, and approach it with caution.  

One of the most prolific investors in history, Warren Buffet, has stated that “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” 

Cover Image: CryptoPunks (LarvaLabs/Divulgação)

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