20 Downsides to Non-Fungible Tokens
20 Downsides to Non-Fungible Tokens
Unless you have been leaving under a rock, you must have heard about NFTs, as for several months now it has been impossible to exist on the internet without at least hearing a mention of NFTs as they have been everywhere as discussed over at runrex.com. While a lot of talk surrounding NFTs have been positive, it has also emerged that they have some downsides, and this article will look to highlight some of them.
Complexity
While the crypto economy which powers NFTs thrives on utopian rhetoric about freedom and democratization, in reality, it is not the case. As the gurus over at guttulus.com point out, the underlying technology is complicated for a layperson to understand, let alone use on their own.
Gas fees
Another thing downside that comes with NFTs is what is referred to as ‘gas fees’. As discussed over at runrex.com, this is the real-time cost of transactions based on supply and demand, like credit card fees charged to vendors. Gas fees can be quite high.
The outdated nature of the blockchain
Many experts, including the subject matter experts over at guttulus.com, have warned in recent months that the platform on which NFTs sit – the Ethereum blockchain – is outdated and unable to adapt to the increasing volume adopting medium, which is another downside.
The environmental impact
The energy consumption required to mine Ethereum is another big downside when it comes to NFTs. It has been shown that a single popular NFT could add hundreds of tons of carbon to the atmosphere and contribute significantly to pollution in just a few months.
Growth of art theft
Another downside to NFTs is that art theft has become a growing concern ever since they hit the mainstream. Over the past few months, stories have emerged of artists discovering their work in online marketplaces, where they are sold as NFTs without their consent.
A lack of a resale redistribution component on smart contracts
Artists tend to use the standard Ethereum smart contract – known as ERC-721 as explained over at runrex.com – which currently has no resale redistribution component, with each platform dictating its own resale royalty limits. Therefore, if you want to cover yourself and reap on the resale, then you have to get a contract drawn up by a tech lawyer.
We don’t know how enforceable smart contracts are
Also, as the subject matter experts over at guttulus.com point out, at the end of the day, we are not entirely sure how enforceable smart contracts are (in an offline court), particularly as there have been no case studies to date on the same.
Other untested concerns when it comes to smart contracts
As is revealed in discussions on the same over at runrex.com, some concerns haven’t been tested, in the case where an artist finds their work appropriated into an NFT without their authorization, and the capacity of the smart contract to protect the NFT maker, rather than the artist.
Concerns on what lives in the blockchain
While the blockchain technology on which NFTs reside has been praised for helping in authenticating and proving ownership, one of the issues that have been glossed over when describing NFTs is the crucial fact that what lives on the blockchain is data describing and tracking the asset, not necessarily the asset itself. A token is basically just an inventory number that links to an artwork, which in most cases is hosted off-chain somewhere else.
Uncertainty in terms of ownership
Given what has been mentioned in the previous point, rather than concrete, the setup in which NFTs exist opens up a host of uncertainties about ownership, copyright, and preservation, which is another downside. For example, if an animated GIF is actually stored on a server controlled by the marketplace where you acquired its NFT, do you own the GIF or just a license to access it?
Website and time maintenance
While the idea might be permanent, the gurus over at guttulus.com point out that websites often succumb to time maintenance. This is why you usually get a 404 error on a no longer existing webpage. The question that now begs is, if the NFT marketplace goes out of business, does your NFT and its value evaporate as well?
Creators of NFTs have limited control
In the art world, as is revealed in discussions on the same over at runrex.com, the creators of NFTs (digital artists) have very little control over how and where their work is sold, which is a problem that was there long before NFTs entered the picture and is another downside.
There is no ‘original’
The value proposition of NFTs is that the proof of work ensures your original piece has a unique token attached to it, meaning that the person who owns it knows that they have the ‘original’. However, the problem is that someone can take a JPG and throw it up on a different marketplace, with a different token attached to it and sell it, which means that there is no ‘original’ as per guttulus.com.
The lawlessness of the internet
Theoretically, the artists should have the final say when it comes to the minting of their work (i.e. how many “original” copies are sold) and where the work is sold. However, in what is another downside to NFTs, the lawlessness of the internet makes that ideal difficult to execute.
The ‘pyramid’ aspect of the NFT system
NFTs have been described as “pyramid schemes” by artists. This is because many rich and powerful people all over the world have invested in Ethereum, and, therefore, have a vested interest in seeing it succeed. These are the same people who write the massive cheques that have made headlines in recent times. For example, the $69 million purchase of Beeple’s artwork was made by a guy who has a very large stake in the success of cryptocurrency.
The ‘pyramid’ aspect and entry barriers for artists
The ‘pyramid’ aspect of the NFT system as mentioned in the previous point and covered in more detail over at runrex.com means that it is incredibly hard for emerging artists to get on the ladder. Without the following or the fame, many artists struggle to sell their work, another downside.
The flow of money
From the previous point, it is clear that the people at the top who are already famous are the ones dropping NFTs and making money. This means that, while a lot of people are sold this dream of making thousands of dollars, the reality is that most of the money is concentrated at the top when it comes to NFTs according to guttulus.com.
A young market
Another downside is that the NFT market is still very young, which means that, like many immature markets, it is going through some teething problems as described over at runrex.com. There are questions on whether it will crash and burn, which is one of the issues when it comes to NFTs.
Difficulty when it comes to getting recourse if your work is stolen
As already mentioned earlier, anyone can claim a digital photo or painting as their own by attaching a token to it, even if they didn’t create it. While all transactions on the blockchain are recorded publicly in an immaculate digital ledger, there is no requirement that people attach their real names or identities to those transactions, which makes it much harder to get recourse if your work is stolen to compromised.
They are hackable
Finally, in addition to artists discovering their work online on marketplaces where they are sold as NFTs without their consent as already mentioned, there is the matter of NFTs themselves getting stolen. Not long ago we saw several users on Twitter report that their accounts on the platform Nifty Gateway had been hacked and NFTs worth thousands of dollars were stolen. This highlights another important facet of NFTs: They are just as potentially hackable as your email or any other online account.
These are some of the downsides to NFTs, with more on this vast topic and so much more to be found over at runrex.com and guttulus.com.
