Downfalls of NFTs

What are the downfalls of non-fungible tokens?

There are increasing concerns globally regarding the environmental impact of the platforms NFTs sit on, for instance, the Ethereum blockchain. Some believe that blockchain technology such as Ethereum’s is outdated and unable to adapt to the increasing volume adopting the medium. Blockchain’s such as Bitcoin and Ethereum engage in large amounts of energy consumption, with one single Ethereum transaction consuming as much electricity as an average U.S. household uses in a workweek and Bitcoin consuming 152 TWh per year, being 0.65% of the entire world’s electricity consumption, or as much energy as the entire country of Poland. With the NFT craze sweeping the world, they are becoming partially responsible for the millions of tons of carbon dioxide emissions being generated by blockchain technologies such as Bitcoin or Ethereum being used to buy and sell them. 

Another downfall to NFTs is the fact they can be stolen. NFTs have been known to be the target of hacks, with many exchanges still lacking strong security protocols to prevent security breaches. Like cryptocurrencies, a user’s assets can be hacked on an NFT in the exact way that cryptocurrency assets are stolen from exchanges and digital wallets. In the same sense, like cryptocurrencies, NFTs once stolen means that the individual will lose all control of the NFT and will remain very unlikely it will be recovered. Users can implement security measures such as 2FA to avoid this happening. Additionally, there has been growing concern that there is an association between NFTs and art theft, with some artists having their work stolen, then sold online in marketplaces as NFTs without their consent. The obvious issue here being, anyone can take a screenshot or JPG of an original piece of art then throw it up on a different marketplace, with a different token attached to it and sell it. Essentially, an NFT owner has the proof of ownership, but never complete power over the asset due to owning it. 

NFTs like all things cryptocurrency are open to a highly volatile, high-risk market. The stigma around NFTs is that they are potentially a passing fad, rather than a solid, long-term investment. Being a highly speculative market, most individuals find NFTs as assets very confusing, with some most people finding it very hard to comprehend the value in owning an asset you effectively don’t control. The future value of NFTs is in the hands of collectors, with the potential for investors and holders of NFTs to be left holding a digital asset that’s worth nothing.

What should I look out for prior to purchasing an NFT?

Before engaging in an NFT sale, an investor should always look out for a number of different things. Starting off with the website, an investor should identify the project’s roadmap and/or whitepaper to understand its short-term and long term goals, its utility and ultimately what its purpose is and whether that is achievable. This extends to a projects dev team, an investor should always double check whether a team is doxxed and any other projects they have done. Additionally, the community – are they engaging? Are there bots? What are announcements like? Lastly, an investor into NFTs should also take into consideration whether they personally like the art/project, and if they believe in it.

What wallets can I use when purchasing an NFT?

In terms of NFTs, Ethereum (ETH) based wallets are increasingly popular as Ethereum blockchain based NFTs are the most popular, with a majority of NFT platforms being produced on the Ethereum blockchain. 

There are also singular secondary marketplaces for Ethereum based NFTs, for instance, Opensea.io, the largest general marketplace for user-owned digital items, that supports numerous blockchains. This differs from Solana’s NFT marketplace, which has multiple secondaries, the most popular being Solsea, Solanart and Magic Eden