Why are people suspicious about NFT?

I believe there to be plenty of reasons people are afraid to deal with NFT, and some of them have a pretty weighty foundation. Here, I tried to outline the factors causing users’ and investors’ caution.

Ecological factor

In general, mining technology is not quite ecologically safe since the mining hardware consumes a sufficient amount of electricity, leading to the release of carbon dioxide into the atmosphere and an increase in the greenhouse effect.

For example, according to The Verge, the carbon footprint of the popular NFT-translated GIF animation Space Cat is approximately 340 kWh. Approximately the same amount of electricity is spent by an average resident of the European Union in two months, according to cryptoart.wtf.

Moreover, according to Digiconomist, on average, the Ethereum network consumes about 33.56 kWh, and the amount of energy required annually is comparable to the annual electricity consumption of the entire population of Nigeria.

However, NFT can be made on green blockchains. For example, the NBA Top Shot marketplace, where fans can buy game highlights in the form of NFTs, is powered by the Flow blockchain. It can be considered less decentralized compared to the same Ethereum, but it uses a more “green” PoS. Another alternative to PoW is Proof-of-Authority (PoA).

Lack of legal base

Nowadays, there is no even a hint that any player in this market at least tries to conduct a legally correct NFT transaction. What jurisdiction does an NFT digital asset sale agreement belong to, and what arbitration can be applied to it? Plenty of questions that can drive numerous legal companies mad.

As for now, a buyer spends his cryptocurrency he is not sure where and with no guarantees.

Multiple “what, if” emerge — what if an author changes one pixel and sells the result as a new piece of art?

Over time, digital collecting will augment a required legal base, platforms will appear where the treaties “sewn” in the blockchain will be offered. Any digitalization can simplify the processes of intellectual property proof. However, new digital instruments do not change the system foundations they belong to yet.

NFTs are not required to prove the authorship or belonging of a particular digital asset: any action can be identified on the Internet. How can ownership of a picture be changed if someone places a digital sign on its scan? The answer is: it can’t. And the system will not change until decentralized platforms become fully operational.

Question of authenticity

In the past century, philosopher Walter Benjamin studied the question of the liaison between the authenticity of art with its uniqueness, as well as the problem of disbalance caused by photography and mechanical reproduction of works.

I do not know what Benjamin would say about NFT, but this conflict between our love for authenticity and the incapacity of the virtual world to provide an alternative cannot be resolved by token use and can be taken as pretending.

Investment issues

Risky assets, hype, boost, the bubble will blow off unexpectedly. The current NFT passion can last for several years or, on the contrary, end by the end of this year.

One of the most essential things for any investor is clearly established game rules they play. The majority of investors do not understand what game they play, therefore, they play every game, though a little bit. They flip, hold, and actively use derivatives. Investors who deal with everything can have luck in the bull market, but, as a rule, long-term results disappoint.

Primarily task is to understand the difference between investment and speculation. Here I can draw a wonderful quote by Buffet (paraphrase):

If you are an investor, look at the asset conduct, if you are a speculator, look at the price conduct.

The difference between investment and speculation is the most important thing to understand for wise equity diversification. Here lie the majority of mistakes.

Conclusion

The NFT market should not be seen as something scary and dangerous, but rather as something young, immature, and imperfect. But it can be improved and will be. It requires time and effort.

In order to move in the right direction, you should be aware of particular problems existing. I have described the problems relevant to my view of the world. And, of course, this is not the complete list. Nevertheless, I showed you the vector you can take and discover more yourself.

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Pauline Volovik

Pauline Volovik

Business and marketing, no bullshiting