The hype around NFTs is going down but they are here to stay, attracting people through the concept of seemingly “easy money.”

In 2014, artist Kevin McCoy sold the world’s first NFT live, on stage. This GIF yielded him a mere four dollars, but last year, almost 7 years later, the same NFT was auctioned for almost one and a half million dollars.

And this is not an exception: memes, animal pictures, abstract art, music albums, and literal tweets are now sold as NFTs. The thing is – the majority still has no idea what exactly are NFTs.

What is NFT?

NFT stands for non-fungible token, which simply means non-exchangeable token.

It all starts with a blockchain – a system that records information in a way that’s impossible to hack, change, or cheat.

This is a system that powers cryptocurrencies like Bitcoin and NFTs as well, and this system is what makes the latter non-fungible. Every NFT is essentially an element of the blockchain, a unique token that just can’t be replicated in the same way.

But wait, what about that first NFT GIF? Or that one Kings of Leon album, isn’t it also an NFT? Or Jack Dorsey’s tweet that sold for 2.9 million dollars?

Yes, we have virtually thousands of different digital assets that we refer to as NFTs, but technically they are not what NFTs are.

A tweet is not an NFT by itself, it just represents the specific combination of digits on the blockchain, which is the NFT you are looking for.

That way, purchasing this tweet’s NFT often will not give you ownership of the tweet. It won’t even give you a digital copy of the tweet unless stated otherwise. Only with certain licensing, the limited rights to original art are transferred with an NFT.

But without a specific license, you will just have a receipt of the transaction associated with this tweet.

This is true for most NFTs and transactions made with them – they are nothing more than digits on the blockchain.

But that begs the question: why would NFTs become popular if they are simply numbers on the blockchain?

What makes NFTs desirable

Pictures of funny-looking animals, music albums, or even a celebrity’s tweet – all of this form a neat little package that makes NFTs more desirable. After all, nobody wants to buy literally nothing, but if we are talking art – there will be takers.

Even though this art is not unique. We’re on the 2022 internet, after all, anyone could right-click a digital picture and get a copy, right?

This is a very good question, but proponents of NFTs have a rebuttal.

After all, NFTs are just that – non-fungible, non-replaceable. Rare. Artificial scarcity is the name of the game and NFTs are crazy good at playing it.

Since each NFT is a unique string of digits, associated with a more or less unique image, it creates the feeling of it being one of a kind; desirable for collectors.

The kind of people that, for example, would form a Bored Ape Yacht Club – an exclusive community for ten thousand owners of a specific NFT lineup. The entrance fee for this club and the price for a single NFT is 0.08 ETH or about $150 at the time of writing.

The scarcity and desire to belong make NFTs valuable, to the point that a lot of people now want to know how to make NFTs. This popularity also allows NFTs to be sold for astronomical prices. But do not be confused, the value of NFT is collectively agreed on by the community, and isn’t tied to any stable parameter such as the quality of the art or the amount of energy required to mint an NFT.

While this allows NFT sellers to gain massive profits, it also means that if the public loses interest in NFTs that would be the end of them.

Hype about to die

To recall Dorsey’s NFT tweet, it was sold for almost 3 million dollars, and the buyer expected to resell it for 48 million. But the highest bid he received was $6000. Nobody was interested in it after the initial hype died down.

And it’s not an exception, the NFT market, which got inflated during quarantine times, is now rapidly deteriorating. Compared to September of last year, NFT sales have plummeted 92%.

Who’s at fault? There are many factors, such as Elon Musk openly joking about the fungibility of certain NFTs, but I think the big companies are also to blame.

All that crypto news about companies advertising NFT projects, or Nike brandishing their NFT sneakers… In their desire to profit from selling, well, air, they are contributing to the decline of NFTs.

But even without their input, NFTs look less and less desirable now. WIth lazy cash grab attempts, that give us these pearls of “uniqueness”, NFTs are just not as appealing as they once were.

But even with the trend going down, NFTs are not going anywhere. No way would anyone abandon such an easy way to make money. But should they?

NFTs used to launder money

In the second half of 2021 alone, cryptocurrencies tied to money laundering worth over 2.5 million dollars were used to buy NFTs. Besides that, a quarter of a million dollars used to purchase NFTs belonged to the wallets of people under international sanctions.

Scams are not rare when NFTs are concerned either. Yes, hacking the blockchain to steal people’s NFT is downright impossible, but if you remember our previous explainer – phishing attacks are on the rise.

Quite recently, two hundred and fifty-four NFTs were stolen from the OpenSea trading platform through phishing. Those attacks are not even rare, OpenSea was raided multiple times by scammers abusing outdated contacts and using poisoned tokens – malware disguised as NFTs.

Even more recently, Bored Ape Yacht Club’s Discordwas hacked, leading to a phishing attack. $360,000 worth of NFTs and $260,000 in Ethereum reported stolen by the attackers.

The worst part is that legally speaking, NFTs are still not properly defined, so victims of scams can’t quite regain the stolen property, as it is not their own anymore.

For example, actor and director Seth Green recently lost some of his NFTs in a phishing attack. An NFT that was supposed to be “starring” in his new show was then resold to an unsuspecting buyer, transferring the ownership to that person. And since each transaction is recorded and approved by the blockchain, the only way for him to get his NFT back is to buy it from a new owner.

However, besides being abused for profit, NFTs have a much larger influence on the world.

Bad for the environment

Currently, most NFTs are tied in with the Ethereum cryptocurrency, which uses a proof of work system. To put it simply, a certain amount of processing power is required to mine a piece of Ethereum and mint a single NFT.

Cryptominers are burning through tons of electricity and processing hardware every day. Some sources average out that a single NFT is taking about 48 kWh to mint, while the average household in the US consumes about 30 kWh per day.

This extra energy production will have negative consequences, especially in the climate crisis sphere, this much is a given.

However, there is a positive application of NFTs right now.

Recently, NFTs helped us to get information from people on lockdown in Shanghai, who communicated their struggles with food and medicine using NFTs.

In general, NFTs are not the worst application of blockchain. Tracking down the original creator of any piece of art could become very easy, as NFTs may contain this copyright information.

But there are way more things we could do with non-replaceable tokens. Their uniqueness can be used to ascertain the identity of people and even ensure fair and properly documented voting, without relying on, you know, letters.

Basically, whenever you need to ascertain the uniqueness of a thing, an NFT can be applied.

Currently, however, the future of NFTs is not the brightest. It’s impossible to produce enough NFTs for actually good applications without causing major ecological consequences. Besides, major companies seem more concerned with abusing NFTs as an easy cash grab, which is as understandable as it is disappointing.

What else is there to know?

If you decide to buy an NFT, remember that phishing and scams are still around, so look closely where to buy NFTs, stick to the proven platforms, and do a bit of research about how to buy NFT securely.

If you are interested in how to generate NFTs yourself, well, there are plenty of platforms that deal with that. Just keep in mind that not only will it take a lot of precious energy, but it will also cost you money. Some platforms take fees not only for minting an NFT but also for listings, transactions, and even take a commission for sales.

Overall, NFTs are complex, and with their current application, there are more negative nuances about them than positive. But who knows, an easy cash grab today may become a new opportunity tomorrow, so I will keep my eyes peeled and you, my friend, stay vigilant and safe.