All over the gaming, arts, and creative industries, a new term has taken over; NFTs.
Everyone seems to know what it means, but no one seems to be explaining it. Like a secret society that popped out of nowhere, everyone is desperate to be a part of this new type of money-making investment, but no one knows how to get in or what they are even trying to get into.
With something so new, it is not unexpected to find some confusion. But you need to know what is going on before you jump into what could be a money pit or a gold mine!
Before you start making investments into NFTs you need to know what you are dealing with. If you sign up for something that you don’t understand, then you will probably end up confused and in the red. Investments shouldn’t be a total gamble, so let's discuss all things NFT.
The first thing you need to know is what an NFT actually is!
What are NFTs?
There are two things you need to wrap your head around when it comes to NFTs. The first is that this is all online, the second is what NFT stands for, and the third is that these are a form of art.
Let's look at the online aspect first. NFTs, like bitcoin, are a form of cryptocurrency, meaning it is a digital form of money or trading. Unlike bitcoin, NFTs can’t be traded “like for like”.
For example, 5 bitcoins can be traded for a different collection of 5 bitcoin, and you wouldn’t have lost money. If anything that trade would be pointless. But, 5 NFTs are not worth the same as 5 different NFTs. This brings us to the second important thing, what NTF stands for.
Breaking down the acronym, NFT stands for Non-Fungible Token. The word “Fungible” means “replaceable by an identical item” or “mutually interchangeable”. So because NFTs are non-fungible, this means that they cannot be interchanged. Basically, one Non-Fungible Token is not the same as a different Non-Fungible Token.
This might make more sense when we look into the third most important thing you should be considering.
NFTs are a form of art. We already know they are online, and we know that they aren’t interchangeable, so it might be best to think about Non-Fungible Tokens as items at an online auction. The auction might be selling 5 pieces of art, but each one will be valued at a different price, so you cannot say that one piece of art is worth the same as a different piece.
For example, if a drawing of a stickman is not the same as the Mona Lisa.
When you buy a Non-Fungible Token, you won’t be receiving a painting that you can hang on your wall, instead, you will receive this art digitally, like a JPG file for example which is the format most pictures are in.
You might be thinking, “what stops the owner of an NFT from making a copy of the 65 million dollar investment and selling it to anyone and everyone?”, and the answer is in the NFT itself. When you buy an original piece of artwork, you receive a certificate of ownership stating that that piece of art is the original and you are the owner. It is proof that yours is a unique object and any others are copies.
When you have an NFT, you have the same certificate, meaning you can keep track of who actually owns the original piece and therefore the value that it contains.
Are NFTs Safe?
So now you know what an NFT is, we can start to look into how safe they are. The four topics of safety that we are looking at are the methods of tracking the NFTs, the possibility of stolen goods, the likelihood of fake NFTs, and the ability to confirm originals.
A lot of what we are going to dive into might seem bad, but remember all investments are risky to a degree, and this is a new type of investment. This means that there is a whole new realm of possibilities that can be unearthed with Non-Fungible Tokens, but as a community, we still need to iron out the kinks in the process.
Blockchain Technology
Non-Fungible Tokens use blockchain technology to keep track of who owns a digital set of art. It is also a way to stop people from making more NFTs from the original, otherwise known as creating counterfeit goods.
So how does it work? Without going into too much jargon, the system creates what is known as a hash value. Let's say the hash value is 45. Now let’s say that I told you that I added some numbers together to create the hash value of 45. Try and guess what numbers I added together to get that number?
It would be impossible for you to figure out which numbers I added together to get 45, as there are so many possibilities. Instead, you would have to know that I added together 1, 2, 3, 4, 5, 6, 7, 8, 9. My NFT code will then be those numbers and the hash value would be 45.
This is what blockchain technology does but on a more complicated level.
You cannot put in an incorrect line of data, as the blockchain will recognize that that information wasn’t part of the formula which was created. So if you tried to copy and paste the data from the JPG file you bought, the blockchain would recognize that a new piece of data had been created making the hash number incorrect.
For example, if you said that the data line should be 40 and 5, then the blockchain technology would recognize that something was wrong, despite the fact that you ended up creating the right hash value. Remember that this is a simplified version of how the blockchain works, but we have included it so you can see how complex and secure the blockchain is.
Just because you can’t copy and paste the NFT doesn’t mean your NFT is completely safe though. If you can’t create the perfect dollar bill, you might pickpocket someone on the street or rob a mainstream bank. This brings us to the first real security problem surrounding NFTs, and that is how to keep it safe once you have it.
Stolen NFTs
You can have the best safe in the world that no piece of machinery can saw into, but it’s no good if you keep that safe in the middle of your local park, out in the open.
The biggest problem around NFTs is knowing how to store them, and keep them safe. Just like any online space, hackers can worm their way into your accounts and steal thousands of dollars of money, items, and information.
Nifty Gateway has recently been under attack by these types of hackers and they are a company that is designed for NFTs.
It seems that Nifty didn’t have a secure set up, allowing hackers to enter user’s accounts even when the users had changed their passwords. However Nifty claimed that some NFTs were sold via less safe platforms like Discord and Twitter which Nifty didn’t recommend.
This tells us that if you think there aren’t enough security questions or systems in place on the platform that you are using, then make your cyber coffee shop more secure! We recommend that you never sell or buy NFTs from websites that have low security and sell your data.
If you’re a buyer those are the issues you need to keep in mind, but what if you are a seller?
Artist unaware that their art was turned into an NFT
A number of artists have fallen victim to a scary practice. Thieves have started taking art off the internet, and then creating a blockchain around that art piece, thereby securing the authenticity of an NFT without the inclusion or authorization of the artist themselves. This means that the thief gets the money and the artist gets nothing, as the irreversible blockchain has confirmed the NFT is legitimate.
An example of this type of amoral legality happened to a high profile artist called RJ Palmer who creates hyper realistic rendering of Pokemon and has worked as a concept artist on Detective Pikachu.
He discovered in 2018 that his art had been turned into NFTs through a company called “Tokenized Tweets”, which turn your favorite tweets into NFTs. RJ Palmer said, “Of course my stuff gets stolen all the time by T-shirt sites, etc., and in those cases, it’s not difficult to file a DMCA takedown”.
But as NFTs feature anonymous buyers, things are more complicated. RJ Palmer continues by saying “It’s very concerning from a rights standpoint.”
The way an artist can claim their rightful ownership of the NFT is by enforcing their intellectual property rights, but this will mean firing up a lawsuit costing money and time.
If someone is impersonating your work, the first thing you need to do is contact the platform on which the NFTs are hosted. These platforms may have systems in place to rectify the issue, but remember NFTs are a new way of investing, so there aren’t a lot of rules in place yet.
Platforms should be creating processes that make artists and buyers feel secure that the NFTs on sale are sold legitimately. The more clear lines there are, the less these types of gray mortal issues can continue.
The Original Files
The way in which NFTs are created is through blockchain technology, but also URLs. URL stands for Uniform Resource Locator, and it is the address for your resource. For example, www.google.com is a URL.
The problem with this is that the NFTs currently depend a lot on the URL despite the fact that addresses change hands, close down, or can get broken if the address gets too long.
When you search for something online, you would have seen the address bar become very complicated as it perfects your search. You will even see this on smaller websites that have a couple of pages for you to explore. It is easy for these addresses to become broken and need repair.
Normally when this happens, there isn’t a problem for the rest of the website. The website maintainers would need to update some buttons, edit some coding and it shouldn’t be that much of a hassle. You may notice this when the website says “Whoops something went wrong”, “This webpage has moved”, or something similar. Those types of pages are created when a URL is removed or edited.
Because NFTs use URLs very heavily in their verification process, there is an inevitability that if the URL breaks, then the NFT will vanish.
To make sure this doesn’t happen to you, you’ll need to make sure you buy from a website that looks secure and long lasting. A start up company will be more likely to fall into these issues than anyone else.
As well as this, you should be downloading your NFT, so that if the URL is removed, your NFT isn’t relying on it to host your art.
Are NFTs regulated?
Seeing all that we have laid out for you, it is clear that NFTs need some kind of regulation. So what regulation is already in place?
Currently, NFTs are seen as the wild west of cryptocurrency, but that doesn’t mean it is completely lawless. The answer to “are NFTs regulated” is a simple one. No. Other than Intellectual Property rights, there is no form of regulation to protect the buyers or sellers.
To make sure you are well looked after in your buying or selling, you should create an enforceable contract or legal document. For example, if you believe you are buying the rights to the art and the exclusive right of ownership, then make sure that the contract you sign has this written down in clearly defined terms.
If you’re not sure how to do this, then a lawyer can help you. This way you know that what you are buying has legal consequences if lied to.
Are NFTs a good investment?
As you have probably already guessed, NFTs are a high risk investment meaning that you can earn big bucks and you can lose big bucks. The most important thing to remember is that NFTs are relatively new so the investing game is rather unstable right now, and art (unlike money) is only worth how much someone is willing to pay.
If you buy an NFT of a current meme, it might not be worth as much a couple of years or even months later as the meme dies in popularity.
If you’re wondering when to invest in an NFT then this is your hint that now would be a great time, as people are flocking the NFT business. Beeple made a record-breaking $69.3 Million sale on their art, proving just how big of a money maker this can be!
When you get your hands on an NFT make sure you download it. If you don’t download the NFT, then the issue we talked about in The Original File can occur.
This is basically when a website host breaks the URL or drops the NFT altogether. If this happens and you didn’t download your NFT, then it would be lost forever and you would have lost the art as well as its value. You might be thinking that this is a storage issue and not an investment issue. To avoid this happening to you, store the NFT in your own safe cyberspace.
Are NFTs bad for the environment?
According to Digiconomist, one transaction of NFT consumes enough wattage to power a house from the United States of America for 2 and a half days! That's 70.32 kWh or 34Kg of carbon dioxide! For comparison, you would have to watch more than 5,700 hours of youtube to match that one transaction!
You might be wondering how one transaction on the internet can cost so much in CO2, this is due to the blockchain technology we discussed earlier. It takes so much energy for the technology to stay vigilant in the minting, bidding, selling, and transferring process.
To put it plainly, the technology eats up a lot of power, and the source needs to come from somewhere. Most NFT networks are located in regions which are heavily coal based when it comes to power. NFT is therefore fueled by coal.
