Are NFTs a scam?

man looking at artwork

Photo by Igor Miske on Unsplash

NFTs have been gaining popularity, and some started to associate them with a scam. Are NFTs a scam and you should avoid it? Or they are harmless?

There are mixed feelings about NFTs on social media, and several controversies about it everywhere, this can generate a lot of confusion, as bystanders are lost in the sea of discussions.

What is an NFT?

As you may know by now, NFT means Non-fungible token.

Fungible is an adjective, of someone or something that can be replaced by something identical to it.

If you only have one key to your house and decide to make a copy, it is possible because the key to your house is fungible, it is replaceable so it will work as the original one does, you can unlock your door with either.

Non-fungible is the quality of something that is not fungible (duh), so it cannot be replaced by something identical.

So an NFT can be used to guarantee ownership and uniqueness.

How NFT is related to Bitcoin, Ethereum, and so on?

NFTs use a technology that cryptocurrencies also use in some way or another.

There is something called a Blockchain, this technology gives transparency to transactions and allows everything to be decentralized.

There is no big company that owns the blockchain, its data is available for everyone to see and verify, and it has every transaction (or anything you may wish to store) recorded in blocks.

But you cannot just add or remove blocks as you want — allowing people to change transactions without restriction —, a way to verify the transactions must be in place, so we can trust the data present on the blockchain.

Mining the blockchain is how the transactions are verified before they can be added. There are different ways on how that can be implemented, with proof of work being widely used.

Proof of work requires computational effort to prove that something happened, a high amount of computational effort is used to prove something, and less to verify it.

So the blockchain will consume resources when you want to add new records, to make sure this addition is legit, and less computation effort to read the records on it.

Different standards of blockchains will work in different ways, the Tezos for example, uses proof of stake instead of proof of work, which is known for using less computational power.

I will skip technical details about the blockchain, there is a wide amount of resources available on these topics, and it can be an extensive read.

Cryptocurrencies use a blockchain, but there are other applications, like smart contracts, healthcare, NFTs, and others.

How NFTs uses the blockchain

NFTs are added to the blockchain through a process called minting.

Minting will verify the information before adding it to the blockchain, along with some metadata and a unique address, so no other equal token can be added.

Due to different standards, the process of adding it to the blockchain may be different.

As minting uses computational power, it is not something free to do, so when dealing with third parties that manage NFTs there will often be a fee for minting.

So are NFTs a scam?

Let's consider that a scam is everything that is dishonest, some dictionaries will define it as a dishonest scheme, so it's a good base.

The entire process of creating an NFT, and having a blockchain available for everyone is not a scam, there is nothing dishonest about it, you can understand all the process as it is.

But not everything is black and white.

Although you can say that there is nothing dishonest about the technology, it doesn't mean that it cannot be used dishonestly, especially combined with the fact that a transaction is often involved.

NFTs can be used for digital art, in games, and with any kind of asset, and although the blockchain is decentralized, the average user will always deal with a middleman, a platform used to manage the NFTs.

The platforms often can restrict who can join to sell NFTs and get control over a great part of the process.

Small artists have recently reported NFTs being made of stolen artworks, where the original author is unable to join a specific platform due to its restrictions, so NFTs are created with their artwork without their approval.

What can be misleading about NFTs

As NFTs use certain technologies that aren't crystal clear without some deep research, some aspects can be confusing, and give wrong ideas about what they do.

You get to know that NFTs are unique, and cannot be replaced, as it is true, but that's valid within the blockchain.

NFTs, unless explicit otherwise on the platform where you are trading them, do not grant any copyright over the asset.

The blockchain will hold data to where you can find the asset, often a link pointing to a website where you can find the resource, like an image URL for digital art.

So the blockchain does not hold the actual image data, or the asset data that represents it, it's just a link to somewhere or any hint on where the data is.

The NFT is unique and unreplaceable proof that you own that asset, within the constraints of the blockchain.

Copyright is what will give you ownership over the rights of that asset, legally, beyond the constraints of a blockchain, and will give you support when your rights are violated.

For NFTs, you have no guarantee that the artwork's creator is the one who originally minted it.

Imagine that two kids are playing a game, the rules of the game are the following:

  • You can point at anything with your finger, and say: I own it! And you will magically own that thing, whatever it is
  • The first one to say it, and "own" something, is the one who can trade and do whatever with it, and nobody else can own that

So on the kids' fiction, they own the things they point at, in this fantasy game.

But legally they do not own whatever they are pointing at, it's just within their game, and who is playing it with them.

That's a silly example, but it's important to separate the NFT ownership from copyright, as they are not always tied together. Intellectual property and copyright are quite complicated and vary by country.

I hope this article was useful for these wondering about NFTs, several platforms deal with them, but the concept will be nearly the same, and they have several uses.

I highly recommend doing your research on the topic, and deeply understanding the platform you pretend to partake, which cryptocurrency is being used to trade them, and more about blockchains, and not jumping on them without knowledge.

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