The Truth About NFTs Today — Facing The Good, The Bad, and the Ugly

I’ll be the first to admit that I have some mixed feelings about NFTs. So, this is not a “puff piece” that sings their praises.

I am the creator of several NFT projects. So, I obviously believe the advantages of NFTs outweigh the disadvantages. But I am also very aware of the many various problems that confront the industry. Hence the following discussion of the good, the bad, and the ugly of NFTs.

The Good

There are at least ten strong use cases for NFTs. Here are some of the top examples:

1. Art. Artists who sell their art as NFTs gain several advantages. They can verify the authenticity of their work by referencing the blockchain. Sales commissions on most NFT marketplaces are low. And here’s the big one: They can capture a part of the selling price whenever one of their works is resold in the future.
2. Music. Music NFTs threaten to break the stranglehold of big record companies and streaming services. These companies currently dominate the music industry. Musicians can now publish their work as NFTs. This allows them to retain and manage the ownership, copyrights, and trademarks of their work via the metadata of the NFTs. And, if they choose to sell these rights, they can enjoy a royalty stream whenever the NFT is resold in the future.
3. Collectables. These are the “apes”, “punks” and “kitties” of the NFT world. The advantages are the same as for the “Art” category above. Some people would say that speculation is the primary driver of this use case. But, it is currently a large and important segment of the NFT market.
4. Gaming. The availability of NFT technology has fueled the growth of the new category of “Play to Earn” games. In-game weapons, armor, decorations, pets, and character traits can be issued as NFTs. This gives users the ability to sell or trade these items, inside or outside the game, for profit. This NFT use case is likely to grow dramatically in the next few years.
5. Metaverse. Metaverse NFTs are similar to gaming and collectible NFTs. Metaverse NFTs are digital representations of virtual land in the metaverse. Expect to see this category expand to include physical traits for avatars. Also, virtual fashion, virtual “bling”, and other virtual possessions. As NFTs, these things will be tradeable both inside and outside the metaverse.
6. Social. NFT tokens can act as “membership cards” for various social groups and activities. These tokens can grant access to internet, metaverse, or real-world events, locations, and benefits. Because of their NFT form, these membership benefits can be sold or traded by their owners.
7. Merchandise. Counterfeit merchandise is a big problem for luxury and fashion brand manufacturers. NFT technology allows manufacturers to authenticate their merchandise. They can also keep a record of the rightful owner of every one of their products.
8. Identity. NFT technology also opens the door to securing and authenticating individual identity. This use case is in its infancy but holds a lot of promise. Imagine never again needing to worry about identity theft.
9. DeFi. Because NFTs exist as part of smart contracts on a blockchain, it becomes possible for NFT owners to pledge them as security for loans. This is like using Bitcoin (or another crypto) as security for a loan. Lenders feel secure because they know the collateral is unique, authentic, and accessible.
10. Ticketing. Ticket counterfeiting is a big problem for sports and entertainment promoters. Issuing event tickets as NFTs on a blockchain makes them easier to authenticate and more difficult to counterfeit.

These and other uses of NFTs make them valuable and attractive. And these real-world uses are the reason that NFTs have exploded into the public consciousness in the past two years.

The Bad

The NFT market today is a frontier. There are few laws and fewer sheriffs.

But there are a lot of outlaws.

The “collectibles” market in particular is awash with scammers, hackers, and con men.

Photo by Shuvro Mojumder on Unsplash

Here are some of the dangers to look out for:

1. Pump and Dumps. A group of outlaws can artificially pump up the price of an NFT. This is often done by collusion or “wash trading”. Wash trading occurs when the buyer and the seller of an asset are the same person. A group can also collude to buy and sell, back and forth, within the group. When people see the prices of a collection of NFTs going up, they think they are missing a good investment and buy the NFTs at inflated prices. Then, the pumpers “dump” their NFTs while the prices are high. This selling drives prices down and results in losses for the unsuspecting.
2. Rug Pulls. NFT promoters sometimes make grand promises about the game they are developing or their affiliation with a metaverse. Or they promise to make charitable donations. Or to create live events or new NFT art. These promises of future utility drive up interest in, and prices of, the NFTs. After the project has sold all the NFTs in the collection, the developers and promoters disappear with their profits. They “pull the rug” out from under the NFT buyers.
3. Plagiarism. Digital assets are easy to copy. So, it is not hard for a scammer to copy a popular collection of NFTs. They can then alter the image (such as “mirroring” the image) and sell it as a “new” collection. DeviantArt has created a tool to scan for this type of plagiarism. But, you should keep your eyes open for this type of scan, too.
4. Fake Influencers. Some NFT scams involve fake endorsements. Promoters can create fake quotes and use pirated images of celebrities to generate hype for their project. Or, they can actually pay an influencer or celebrities to endorse their project and then do a “rug pull”.
5. Vanishing Images. If the digital image of an NFT that you purchase is stored on a centralized website, that image could be changed or removed at a later date. Look for NFT projects that store all images on a distributed storage space such as InterPlanetary File System (IPFS). These images cannot be altered or removed.
6. Bidding Scams. After you own an NFT, you might want to list it for sale on a marketplace like OpenSea. If you do, beware of anyone trying to change the currency of the listing. Someone could offer you $20, instead of 20 ETH, for your NFT and hope that you don’t notice the difference. Be careful and don’t fall for it.
7. Phishing Scams. If you own any NFTs, beware of phishing scams. These can appear to be associated with an NFT project, exchange, or wallet. Such scams can attempt to get you to reveal your private wallet keys. Or they can ask you to input the 12-word security phrase for your wallet. If you fall for a phishing scam, your wallet will be drained of both NFTs and cryptocurrencies.
8. Support Scams. This is a variation on the phishing scam. If you frequent Discord, Telegram, or Reddit, you may get an unexpected direct message. It will claim to be from the support staff or an executive of some popular NFT project. Be very suspicious of these contacts. They are almost always scams. Giving them access to your wallet or other private information can leave you with a drained wallet.

Unfortunately, there are many variations of these outlaw tactics. And scammers are working day and night to come up with new ones. Do thorough research. Don’t let your guard down.

The Ugly

The thing to keep in mind here is that there is a difference between “art” NFTs and “collectible” NFTs.

Art NFTs are less common but more attractive and aesthetic.

Collectible NFTs are extremely common but may not rise to the same level of creativity and beauty.

Of course, “beauty is in the eye of the beholder”.

So, it’s up to you to decide whether you are looking for art or looking for a collectible.

Either way, be sure that the NFTs you buy are attractive to you and that they resonate with your concept of beauty.

GoblinTown #490 on Rarible

After all, who wants an NFT character with a face that only its creator could love?

Shameless Plug: AvatArt Studios has introduced three “cross-over” NFT collections that are both artistic and collectible. We think it is possible to have both in an NFT.

Please visit our website to see samples of our “artistic collectibles”.