NFTs are perhaps this decade’s most fascinating new technological development. Although they are by no means “new,” they experienced rapid growth in 2020 and 2021, finally reaching a market value of several billion dollars. But as 2022 progressed, fewer people were interested in them, so now is the time to examine their ugly side.
Some dislike NFTs. Many people belong to such groups, and there are many reasons why they do so in addition to the fact that they are “going against the flow.” But why are NFTs so bad? What are the main objections raised against NFT?
1. They are not Environmentally Friendly
NFTs are frequently criticized for their carbon footprint, which is one of the main reasons. If you are unfamiliar with the situation, it could appear a little absurd.
At their foundation, NFTs are simply tokens that are kept on a blockchain. And while that might be any blockchain that supports them, the vast majority are kept on the Ethereum blockchain.
NFTs are frequently criticized for their carbon footprint, which is one of the main reasons. If you are unfamiliar with the situation, it could appear a little absurd.
Ethereum itself is in perfect working order. Behind all, Ether, the native cryptocurrency of the platform, is the second-largest cryptocurrency on the market after Bitcoin. But everything is wonderful till you consider how it will affect the environment.
Ethereum utilizes a proof-of-work consensus algorithm, just like Bitcoin. Mining is used by the decentralized network to process transactions. Miners assist the Ethereum blockchain in reaching a consensus on the blockchain status by solving challenging mathematical problems using computers and mining equipment while earning rewards for their work.
This maintains the blockchain’s strength, but at a high energy cost. Since Bitcoin is frequently compared to Argentina in terms of energy consumption, Ethereum uses about 112 TWh annually, making it equivalent to the Netherlands in terms of energy consumption. NFTs also contribute to this issue, which causes significant environmental harm.
To be fair to Ethereum, though, ETH 2.0 is bringing a tweak to proof-of-stake, which will significantly cut energy use and its carbon footprint. However, ETH 2.0 is also continuously delayed; as a result, 2023 is the current projection. Additional “carbon-neutral” blockchains, such as Solana and Polygon, also use NFTs. The environmental problem will persist until that side of things is resolved because the great majority of them still exist in the Ethereum blockchain.
2. The Market is Unregulated
The fact that NFTs are likewise driven by a decentralized model, which is the same model that underpins cryptocurrency, presents another problem with NFTs. And like any unregulated market, it provides a perfect environment for dishonest people to swindle others and do whatever they want.
We’ve observed a wide range of illegal activity in the NFT sector, including rug pulls, pump and dump scams, straightforward thefts, and everything in between. The only way to obtain aid if you lose your hard-earned money is to involve law enforcement and the courts if that’s what it takes. There is no controlling body of any type to prevent scams from happening. As an NFT investor, you must take a lot of factors into account before making an investment, or you run the danger of losing thousands of dollars to a fraudster.
As an NFT investor, you must take a lot of factors into account before making an investment, or you run the danger of losing thousands of dollars to a fraudster.
Furthermore, nothing can be done to improve the situation. Since both the crypto and NFT worlds are a part of the same ecosystem, the same laws that govern one also apply to the other. Bitcoin is still used in many scams, frequently leaving victims with no way to recover their money. Bitcoin was infamously used as a form of payment on the dark web marketplace Silk Road.
3. The Market is extremely Speculative
The market for NFTs is very speculative and is only fueled by hype, which is the third issue with them. When you consider that we’re talking about a digital object that doesn’t actually exist, several NFTs have hit selling prices of hundreds of thousands or millions of dollars, which is absurd.
The Bored Ape NFTs, introduced as a part of Yuga Lab’s Bored Ape Yacht Club project, serve as an excellent example. It gives NFT owners access to an exclusive club and experienced a significant increase in popularity as prominent figures like Justin Bieber, Snoop Dogg, and Eminem started purchasing their own Bored Apes. After that, speculation began, causing this initiative to enter a bubble where these digital goods started to trade for hundreds of thousands of dollars.
A market’s ability to maintain or even increase in value is what sets it apart from a worthwhile investment. With Bored Apes’ floor price falling below $100,000 in June 2022, NFTs appear to be losing value as demand in them continues to decline. Many people believed that these NFTs would make wonderful investments, and while a small number have held on during the bear market, many are understandably upset that the value of their investment has declined.
4. Intellectual Property Offenses are Prevalent
Although it is a continuation of the “it’s an unregulated market” clause, this is a noteworthy enough distinction to make. When utilized appropriately, NFTs do a good job of serving the goal for which they are typically promoted as the perfect option for artists to control the rights to something they have created. However, they do not discuss what occurs when art is stolen and marketed as an NFT.
It is nothing new for people to steal the artistic creations of others and profit from them, and even though online art markets like OpenSea give artists the tools they need to protect their intellectual property, many people still feel that they are not doing enough. So, if you buy an NFT, what do you actually own?
5. NFT Projects Generally Fail to Break Even
The fact that it’s so difficult to succeed as an NFT inventor is the biggest issue with NFTs. On the Ethereum blockchain, the cost to mint an NFT fluctuates greatly. A project will have to spend a fortune to create its NFTs if they try to mint them while the blockchain is busy.
If the NFT sells for less than the mint price, it will automatically be a loss. This implies that in order to make their NFTs valuable, NFT inventors must invest a significant amount of time, money, and effort into marketing and publicity. Additionally, it’s very usual for NFT initiatives to be unsuccessful and non-profitable, or at most break-even, resulting in no revenue for the project’s creator.
Additionally, it’s very usual for NFT initiatives to be unsuccessful and non-profitable, or at most break-even, resulting in no revenue for the project’s creator.
This issue can be mitigated by minting NFTs in other carbon-neutral blockchains, such as Polygon or Solana, or by using an NFT marketplace that provides low-cost or free NFT minting. However, the vast majority are hosted on Ethereum, and the high expenses are caused by the blockchain’s high transactional fees—something that will be remedied with Ethereum 2.0.
There is nothing wrong with liking NFTs. But before coming to any judgments, we must consider both sides of the issue. While NFTs have the potential to solve a variety of difficulties, they also bring about a number of new ones.
