Non-fungible tokens, or NFTs are highly controversial for a wide range of reasons, but before we delve into all these controversies, we must first understand what NFTs actually are. An NFT is a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership. The ownership of an NFT is recorded in the blockchain, and can be transferred by the owner, allowing NFTs to be sold and traded. NFTs can be created by anybody and require little to no coding skills to create. NFTs typically contain references to digital files such as photos, videos, and audio.
NFTs are tied to cryptocurrency and the blockchain, which are both probably worthy of their own stories down the line. For now, know that the blockchain is an unchangeable digital ledger that is securely linked together using cryptography. That might not make much sense, but know that the blockchain allows for decentralized cryptocurrencies to exist, and these currencies, primarily Ethereum, are used to purchase NFTs, among other things. The bottom-line thing you need to know is that the blockchain theoretically allows for transactions to take place without the intervention of outside governments or private corporations.
Most NFTs that you see today are references to digital files, such as photos, videos, and audio files. I know I already said that, but you must focus on the word reference in that sentence. When someone buys an NFT, they are not buying the photo, video, whatever the NFT is referencing. The only thing they are buying is that specific link to those things. For that reason, I can show you all these different pictures from the infamous bored ape yacht club and have no legal repercussions, because even though many of these NFTs sold for hundreds or even thousands of dollars, those people do not own these jpeg files. There are some exceptions to this, as agreements that involve the purchase of NFTs can include a transfer of copyright, but this is entirely separate from the purchase of the NFT itself. While it’s not uncommon for people to purchase art without the copyright, with NFTs, you aren’t even buying the art, you’re only buying a link.
NFTs have been butting up against copyright law since their inception. To this day, many individuals who do not own the copyright to a given piece of media have successfully created aka minted an NFT of said media. The NFT market is beyond underregulated, a fact that is unsurprising considering how one of the main draws of the crypto/NFT markets is a lack of oversight. What this leads to is a situation lacking any kind of consumer protections, meaning that anyone with financial assets tied to these markets have no protection if anything happens to their account. For instance, if you lose your debit card, or if someone else steals your credit card number, you can call your bank and they will freeze your assets, preventing you from losing any money. If your cryptocurrency wallet’s password is stolen, there is no authority who can prevent the thief from transferring all those digital assets.
The idea of online ownership is not entirely without merit. There is a plethora of digital artists who were initially exciting by the idea of selling their art for profit, but they were very quickly dissuaded by the reality of NFTs. The sad fact of the matter is that NFTs do not exist to benefit artists; they exist to benefit the programmers who created them. Someone who likes an artist’s work online is most likely to either support them via services like DeviantArt or Patreon or buy prints directly from the artist. These things cost a reasonable amount of money, and the fan usually receives something tangible from the purchase. NFTs are prohibitively expensive for those who have not already bought in (and they’re also a scam, more on that later), so any individual is unlikely to enter the space just for their favorite artist’s few NFTs. In addition, the price of minting an NFT is relatively expensive, so in most scenarios, artists only stand to lose money by minting their art.
In the absence of popular, talented artists minting their own artwork, NFT marketplaces are flooded with stolen works from other creators and cheap, computer-generated artworks. Basically, people with significant stakes in the NFT market commission artists to create what amounts to a cheap character customization feature you might see in a mobile video game. Then they generate all the possible variations for that customization and sell them off as NFTs. Art is subjective, but I do not believe it is necessarily controversial to believe that these NFTs, generally speaking, are not good works of art. What’s more, since these creations are computer generated, and there was a relevant copyright court case several years ago that established only human can create copyrightable works, NFTs like all these that we have shown in this article, cannot be copywritten at all.
Given that NFTs have become primarily unpopular for artists, due to the aforementioned art theft and lack of value, you may be wondering; who are NFTs for? Primarily, just the earliest adopters. Those who aspire the virtues of NFTs and cryptocurrencies often boast about how they are not tied to governments or corporations, so their currencies offer a freedom and collectivism that something like the traditional dollar cannot. NFTs and cryptocurrencies, like the dollar, have no intrinsic value; they have value, because people agree that they have value. Except unlike currencies like the US dollar and the Euro, who are backed by nations with broad power and international respect, NFTs are backed by people with enough disposable income to blow ten million dollars on a profile picture. These factors taken together create a system incredibly ripe for all kinds of fraud.
Pump and dump schemes are the most common and pervasive in the space, due to how absurdly easy they are to execute, and the lack of consequences upon being caught. If you are unaware, a pump and dump is when a person or group of people convinces even more people to buy into a cryptocurrency or NFT project or other form of speculative investment with the intention of selling off as soon as the price peaks. These have become so common in the NFT space that instructional guides regularly appear in their respective blockchains; they do not even try to hide it. Since these schemes are not technically illegal (yet), the only thing these individuals have to lose is their account. If they are caught and banned, they will just make another account right afterwards.
These pump and dump schemes are truly indicative of the NFT/crypto industry as a whole; the entire thing is a scam. The issue at play, is that the only way for people in these industries to make a profit is by having more people buy in later at a higher price. This has been known as a Ponzi scheme or more broadly a bigger fool scheme. Every individual in this business right now, bought in hoping that others would follow and make them rich. Eventually, once you run out of people to scam, the entire industry collapses. We are seeing the beginnings of this now, but do not be so naïve as to think that we have seen the last of the NFT industry. Too many people with too much power and money see this as an opportunity to make a quick buck. And here in America, that’s all you need for an idea to endure. Honestly, I have only scratched the surface of the issues surrounding NFTs and crypto, so if you’d like to know more, I personally highly recommend this video by Dan Olson. He goes into much more detail than I ever could in a single blog post.
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