These days, non-fungible tokens (NFTs) are everywhere. You can read about them in books, hear about them in markets, and even play games. These are one-of-a-kind digital items with subjective prices that collectors want to buy. And also something that criminals wish to? Possible. NFTs have a wrong side, and it turns out.
Of course, pollution is probably the most talked-about problem. But this is just the tip of the iceberg, and it’s surprising how easy it is to fix (theoretically). Like most tools in the world, NFTs can be used to do bad things.
One bad thing: NFT fraud
The analytics page says that Over $2.1 billion was spent selling non-fungible tokens (NFTs). This is the perfect figure for con artists of every kind to use. They have already come up with three main ways to steal user funds and NFTs:
- Pretending to be support services.
- Giving away fake gifts.
- Even making and promoting their counterfeit projects.
Let’s start with the team that helps people. Users of different NFT trading platforms can contact their support team when they need help. And most of the time, they do this on Discord, which has become the hub of the cryptocurrency world. Both honest people and scammers are looking for people to take advantage of on these platforms.
The scammers then send them private messages that make them think they are helping. Until they ask to see the victim’s screen to get the private keys from the MetaMask QR code, they have used this method to empty many wallets, including NFTs.
Because of this, marketplaces like OpenSea have added an SOS button. Users can now lock their account if they think it has been hacked. MetaMask also did something by turning off the mobile QR code sync feature for now (used by scammers).
Aside from these, a community fundraiser for the victims and a couple of “rescue bots” make automatic low offers to the scammers to get the items back to the original owners.
More empty words.
For them, fake gifts are all the rage right now. Scammers from the dark side of NFT will only give away the prize if the people who want it send them “small amounts” first. They never give anything back. Fraudulent NFT projects take more work because they are often whole websites or even brand new ideas. Scammers can make their jobs easier by copying marketplaces already up and running, like OpenSea or Rarible. They will steal people’s private keys this way.
But you have another choice. They can also say they will make new NFTs or a DeFi game or platform that will never be released. For example, we’ve already talked about the fake Marvel NFT Marketplace that showed up in June. They said they would make an NFT with a Marvel theme, so they started a campaign to raise money for it. The website doesn’t exist anymore, and the investors’ money hasn’t been returned.
With the Evolved Apes project, the same thing happened. The developer, who went by the name “Evil Ape,” said he would add to the game “a collection of 10,000 unique NFTs locked away in a lawless land.” Soon after that, they left with more than $2 million from investors. At least the community worked together to make “Fight Back Apes,” which is a legitimate project based on the old one.
It is hard to tell the difference between real projects and scams in this situation. Most legitimate projects in the cryptocurrency world are done by people who don’t want to be known (for example, Satoshi Nakamoto himself). So, it’s essential to research each project carefully before putting money into it, and you should never bet more than you can afford to lose.
The second bad thing is that NFTs can be used to launder money.
We’ve already talked about the NFT that sold for the most money ever. You already know that each one sells for millions of dollars. After all, art is about personal taste. Most people who buy these digital art pieces probably do know how much they are worth. But we can’t say this about all of them. When NFTs are bought at very high prices, sometimes the only reason is to hide money.
US accounting firm EisenAmper’s AJ Woloszynski explains it well:
“Someone who wanted to ‘clean’ dirty money could theoretically create (or buy) an anonymous NFT, put it up for sale on the blockchain, buy it from themselves with illegal funds from an anonymous, unregulated digital wallet, and then use the money from the sale of the work of art as if it were legal money.
At the very least, this trick will bring in 20 percent in capital gains taxes in the United States. People in this country who buy NFTs with cryptocurrency will still have to pay taxes. NFTs offer another way to avoid taxes, though. According to CryptoWhale:
“NFT tax evasion is just as easy as physical art tax evasion: make eleven NFTs, sell one to a friend for $10,000, and give away the other ten for a $100,000 loss. “It’s easy!”
So, countries like Panama are already making plans for their own NFT rules. Popular marketplaces like OpenSea, Rarible, Foundation, and Nifty Gateway are likely to start using the same verification methods (KYC/AML) as crypto exchanges in the future.
Third Downside: Possible NFT Contamination
The pollution that these works of art can cause is a topic of much debate these days. Some people think that NFTs have a dark side because they are bad for the environment, but this is very far from the truth. But they are not perfect either. The main argument against NFTs (and some cryptocurrencies) is that they use a lot of electricity to issue and validate.
Proof-of-Work (PoW) systems for mining cryptocurrencies use a lot of electricity to solve complex math problems before making new coins. This makes blockchain networks even more secure. But again, the problem is that it takes a lot of energy. If this energy comes from fossil fuels, it will pollute the air and make the Earth warmer.
At the moment, most NFTs are issued by systems based on Ethereum, which is a Proof-of-Work (PoW) blockchain. (more). Digiconomist says that Ethereum uses 80.3 TWh of electricity each year and has a carbon footprint of 38.18 Mt of CO2, “about the same as Slovakia.” But wait, comparisons are more than that.
About 639 TWh of energy is used each year by the banking industry. Since 1 kWh makes about 1 pound of carbon dioxide (CO2), this industry will put about 319.5 million tons of CO2 into the air. About 138.9 TWh of energy is used each year to mine gold, the same as 69.4 million tons of CO2. [Carbon Disclosure Project] says that people who make fossil fuels make at least 923 billion tons of CO2. Only 100 of these companies are responsible for 70% of all CO2 emissions worldwide.
Also, NFTs are not used in all transactions on Ethereum. They are still small compared to them. Not only that, but this blockchain wants to switch to a system called Proof-of-Stake (PoS), which doesn’t need energy. Also, there are (literally) hundreds of other NFT marketplaces that use Point of Sale (PoS) systems like CleanNFT.
Is it true that NFTs are so bad?
In a word, no. NFT is a tool that anyone can use in the world, just like all cryptocurrencies (and traditional money). They can be used to do bad things or good things. First, NFT is a handy tool for artists.
Before them, it was, at best tough to sell digital art. The NFT has given people from all over the world a chance to show their skills. This technology also offers creators something extra: royalties. The owner may have an NFT, but they do not own the work itself. So, in some cases, when an artist’s work is sold, a certain amount of money goes straight into the artist’s pocket.
Yes, they were used for good as well. In August, Art Blocks, a platform for programming art that runs on Ethereum, raised $23.5 million for charity. Their artists are willing to give between 10% and 25% of what they make. Not only that, though. Artists and investors can use NFT to help others through programs like NFT for Good on Binance Smart Chain (BSC).
NFTs have a terrible side, but that’s not all they have to offer. Most of the time, it’s a valuable tool that’s opened up a whole new world of opportunities.