Non-Fungible Tokens (NFTs) are unique cryptographic tokens that are part of a blockchain. They can’t be replicated, so they’re often used to represent real-world items, especially artwork. Tokenizing these tangible assets initially allowed them to be traded more efficiently.
However, the viability of NFTs is coming under increasing scrutiny, despite the eagerness of many stakeholders to embrace them. OpenSea, one of the largest online NFT marketplaces, announced in February 2022 that about 80 percent of the NFTs created on its platform were fraudulent. Other sources tell a similar story, indicating there may be more to these incidents than just a few bad actors.
Labeling all NFT projects as scams would be an overgeneralization, but their relatively new framework lends itself to fraudulent activity. Josh Gilbert, financial expert for the global investment platform eToro, reports that NFT scams tend to follow the same patterns familiar in traditional financial fraud. While these scams aren’t unique to NFTs, some people will always look for a way to apply them to emerging technologies. However, this trend doesn’t necessarily jeopardize all NFT projects because they are a transformative technology that will profoundly affect the creators, brands and collectors of unique content.
The basic premise of NFT scams is usually to take advantage of inexperienced investors. It’s therefore crucial to understand a project’s validity, which can be challenging since this determination isn’t always straightforward. Furthermore, newcomers to NFT are less inclined to delve into a project’s origins, making them easier to exploit. John Hawkins, lecturer at the Canberra School of Politics, Economics and Society, states that many NFT marketing ventures aren’t illegal by themselves, although they do share similarities with Ponzi schemes.
For example, cryptocurrency markets require existing investors to draw new buyers into the market in order to make a profit. The belief that a profit is automatically attached to digital assets is what makes NFT ventures potentially risky. These projects are increasingly subject to speculative bubbles that don’t have any fundamental value. NFTs don’t have any intrinsic worth, but speculators often buy them purely in the hopes that their price will continue to increase.
NFTs provide a collection of ideas that are vulnerable to exploitation for social value and financial gain. Renowned artists and self-promoters are both using innovative approaches that focus more on the economics of NFT’s than the intrinsic value of the tangible asset they represent.
For example, Damien Hirst, a master self-promoter, has created “The Currency” project, which involves him selling NFTs for 10,000 dot paintings that are nearly identical. One year after buyers purchase these NFTs, they must decide if they want the NFT or the artwork. If they choose the NFT, the artwork is destroyed.