Credello: Planning to Ride the NFT Wave? Watch Out for These 3 Pitfalls
NEW YORK, November 30, 2021 (Newswire.com) - Non-fungible tokens (NFTs) have been taking the art world by storm for several years. For the uninitiated, an NFT can best be described as a digital creation with an encrypted deed of ownership that can be transferred from party to party. Unlike standard digital formats, like JPEG or MP3, NFTs cannot be duplicated. They are unique, which gives them value. Some people even borrow money to purchase them. That's not recommended.
Once viewed as a curiosity that wouldn't last, NFT sales in the first half of 2020 came in at $2.5 billion. Transactions are conducted using cryptocurrency, so Bitcoin and Ether have benefitted from their emergence. Even teens are getting into the act. Twelve-year-old Benjamin Ahmed from London has made $400,000 in ether from selling his "Nifty" digital art collection.
The DeFi crowd and meme stock traders are looking at NFT technology as the "next great digital revolution." They're dreaming of hanging NFTs on the walls of their Metaverse virtual homes. That might happen someday, but back here in the real world it's still a developing technology. Several experts have evaluated it and the following issues have been uncovered:
1. Hacker Exploited Security Loopholes
The cryptocurrency exchanges are secure, but the sites where artists store their NFT work may not be. Serbian artist Milos Rajkovic (Sholim) recently learned this the hard way when he discovered that NFT marketplace OpenSea was selling 122 of his pieces without his permission. Hackers stole them and put them up for sale. OpenSea didn't catch it.
2. Crypto Pyramid Schemes
NFT investors who also own large blocks of cryptocurrency often end up cashing in twice on transactions. Critics have argued that this makes NFT sales a "pyramid scheme" that should be regulated. Unfortunately, government regulators are years away from acknowledging this as a legitimate business. They don't even have a universal set of rules for crypto yet.
3. Ownership and Copyright Infringement
What happened to Milos Rajkovic could have been prevented if his NFTs were copyrighted. There's no current way to do that. Once the NFT and encryption code are lost, you cannot prove you ever owned it. The blockchain registers the illegal transaction as an immutable legitimate transfer of ownership. With a copyright, NFT owners could contest that.
The Bottom Line: Wait for the Next Iteration
Don't tell the Hollywood players who are dropping truckloads of cash on NFTs, but NFTs are not quite ready for primetime yet. Experienced financial professionals agree that the technology is a few iterations away from being foolproof. With the shift to virtual interaction, people should see it within the next five years. In the meantime, buy the physical artwork instead.
Flaws in technology are only exposed with user interaction, so hopefully, some folks will continue to buy and sell NFTs. The average investor, however, should stay away from them until the potential pitfalls mentioned above have been addressed.
Source:
Source: Credello
