NFTs Explained – The Good and Bad
Alright so we have heard about these rock JPEGs selling for millions and with a headline like that, you can’t help but to wonder what in the world is happening! I can’t blame you either, I mean you’re telling me I can open photoshop, paste in a pic of a rock, turnaround and sell it as a NFT to become a millionaire?! You can. Likely? Probably not.
Here is one selling for a cool half a mil!
First of all, what exactly are NFTs?
NFTs, or nonfungible tokens, are unique assets that can’t be replaced with something else, and are verified and stored using blockchain technology. They can include music, website domains, and art. If it’s digital and any sort of asset it can be turned into a NFT.
The Dark Side
So how does a rock selling for half a million hurt anyone? It possibly doesn’t if it is truly a wealthy person throwing silly money (because they are filthy rich) at a jpeg just for laughs. I mean you hit the jackpot if you are the one selling memes in this scenario, but you have to be the one lucky enough to get picked. Honestly at this point, there are probably millions of rock pics now created as NFTs and they aren’t all going to sell for extremely high prices.
There can be ways NFTs are having a negative impact though.
Let’s say you do create digital art and you post something on Etsy or another website. What is stopping someone from copying that jpeg or screenshotting it and posting it online for people to download or sending it to their friends? Nothing really.
What is even worse is if you are the creator of artwork and someone takes it claiming as their own and selling it as a NFT. That is a double slap in the face. Someone stole your hard work and profiting off of it!
I honestly don’t see how this can be stopped as theft in the online world is all over the place. People posting others videos without changing anything, stealing jokes, stealing memes. It’s all about who can be the best marketer and get the attention of people. Until platforms that are responsible for showing content are able to figure out what is actually stolen this will continue to happen. I’m not smart enough to figure that out, but someone will right?!?
Here is one people love to scream out that all NFTs sales are a form of money laundering. How might someone go about using NFTs to turn dirty money into real money? Let’s go through an example.
Person A has made money online via an illegal way and they can’t just go convert that into fiat or be making big purchases with crypto to purchase things in real life because it will never have shown up on their income. The government may ask where this money is coming from to fund their life, and person A doesn’t want that to happen.
Instead person A creates a singular NFT or mints a whole collection and starts selling this digital art. Turns out that they sell out like hot cakes. Why did they sell so well? They are able to buy the art from themselves and hide who is buying these pieces of art by creating dummy wallets that can’t be traced back to them. They just turned dirty money into legitimate transactions.
They can pay taxes on this NFT income and spend the money as they please.
While I think some of this is going on, I doubt it is the entire market!
But it’s definitely happening to some degree 🙂
Pump and Dumps
As a creator of content online, I can tell you this one pisses me off the most. I know money laundering is bad, but pump and dumping usually involves taking money from those ill informed and filling the pockets of unethical scum (sorry I really don’t like these people).
Here’s how it works. Someone can come to a platform like Tik Tok and talk about how they bought a NFT for $100 and sold it for $100K. That is an insane return! Wow so smart! Well they also say “hey the rest of the collection is selling for cheap so you should probably get in on the action!”. This only works if people fall into the I can get rich quick mindset which of course has been around forever. So now hundreds of people get funneled to this NFT collection thinking they can get rich. They start buying these NFTs and bid them up to $1K a piece thinking they can also go to $100K. Let’s say there is 1000 mints of this collection.
Well behind the scenes, the one that sold the NFT for $100K was someone buying it from themselves. So they sent money to themselves basically and then 1000 other people bought $1 million worth of NFTs. Guess who is a direct owner or is getting a piece of the action of those sales? The guy that is promoting the get rich quick and how he turned $100 into $100K overnight. Boom the guy now has $1.1 million and those 1000 people have NFTs that are probably not worth much of anything.
Possible Example: https://www.tiktok.com/@holynft/video/7020492240090909957
Now this obviously is terrible and creators that have a legitimate following would probably not scam their own audience. But nowadays in social media, not all content is attached to someone’s identity. So people can scam people and just walk away as they have no connection with their digital footprint.
I have nothing against creators selling NFTs by the way. I think so as long as they are upfront it is their collection and they’ll be getting compensated that is as they say “A okay”!
The Light Side
While it is fun to poke fun of jpegs selling for millions or call out scammers, there is real utility in the invention of NFTs.
While as a society we like to look at memes and call out conspiracy theorys (because we love entertainment and drama), I believe NFTs are not a fad as I see real world use cases to solve problems that currently exist.
Creatives Getting Paid
The most obvious benefit is for artists (art, music, etc.) getting rewarded for their work. Instead of going through a middleman, an artist can sell directly to their fans and get paid instantly in cryptocurrency. They can also use NFTs as a way to crowd source startup costs for equipment or to fund an album. Artists could also go ahead and even reward those that invested in them early on by giving them a share of the rewards or royalties related to transactions of the NFT in the future.
Another use case I see for NFTs is that it can get rid of scammers selling fake items. With the blockchain you can prove ownership of a digital asset.
A really good example in my mind is for a band that is selling tickets. This one I actually have a story behind as there was a time when Twenty One Pilots was in Chicago and my friend said he found someone that would sell us tickets the day of the concert. He goes and buys the tickets, but when we go to the concert we find out the tickets are 100% fake. I don’t even blame my friend, those tickets looked legit!
If a band was to sell tickets as NFTs, then scammers couldn’t create fake digital tickets. The band could also set it so the tickets could only be sold for the face value (plus crypto transaction fees) to reduce scalpers from buying the tickets and selling to fans at a 100% markup.
That is one example, but the point is NFTs prove ownership and can lessen fraud.
Digitizing Assets into Fractional Shares
The other positive I was thinking of is being able to digitize ownership of physical assets like real estate or businesses. Think of a future where you could own your house and actually sell 1000 fractionalized pieces of that ownership to investors via a NFT.
Or think of owning a stock as a NFT and you can just use that as a payment instead of having to liquidate the stock in your portfolio, move it to a different account, then be able to spend it.
The options are endless and I’m sure smarter people than myself will discover how to cut out middlemen and digitize more assets for proof of ownership.
Another one would be for gaming. I have always been a gamer and the idea of in game rewards has always been ownership of the gaming company themselves.
Used to be a huge WOW nerd back in high school. If you had a piece of equipment or item for a digital character, that just stayed and existed only in the game. What happens if gamers were able to actually trade those digital assets and have ownership in the game.
This would allow gamers to get rewarded for spending their time gaming other than pure entertainment.
Gamers may be attracted to playing games made by companies that form this idea of decentralization and giving ownership to in game assets to players.
NFTs are by no means a fad. They have real utility in the real world. Will they be used sometime for bad activity? Sure, but that happens in the world with and without crypto or NFTs. I look forward to the expansion of use cases in the space moving forward!