The NFT craze: buy, mint, or stay away from it?
Have you minted your first NFT yet? Lately, it might seem like many people are either minting or at least buying non-fungible tokens. And while they provide bread for some artists, NFTs also come with weighty problems of copyright infringement and potential theft.
Simply put, NFTs are like rare collectible baseball cards or action figures that leverage digital scarcity, ledger technology, and exciting new advances in security to give value to what traditionally have been non-physical items.
NFTs, according to the CEO of Multihouse, Michael Tessler, can be a risky investment at the moment. Yet, early adapters may very well see gains similar to those who were early miners or collectors of crypto.
“Those looking to invest should take their time and try to understand the technology. Not every NFT asset will have value. Look for uses of the technology that are sustainable,” he told CyberNews.
The hype around NFTs, unsurprisingly, attracted crypto-grifters and scammers. So, alongside some doubts about whether a certain NFT is worth buying comes the fear of purchasing the faked piece of art. In the physical world, the analogy would be buying a replica instead of the original painting. It may provide the same visual experience for some, but it might not just be worth the money you paid for it.
“I want to speak to your manager”
Ali C., a white mom in her 30’s from Ohio, is minting what she calls CryptoKarens. These are fon-fungible tokens (NFTs), picturing Karens - obnoxious white women who are usually making demands and behaving beyond the scope of normal. With her NFT collection, Ali. C is mostly making fun of such lifelike Karens, but also of herself.
There is already CryptoKaren, who is filming you. Another Karen, naturally, wants to speak to the manager. Karen #15 wants to know whether this is gluten-free. Karen #24 just got a medical marijuana card for “her anxiety”, and Karen #87 has a vegan dog. In total, Ali C. is committed to minting 1000 Karens.
An artist, who has an art degree but is working in marketing, says everybody can do NFTs. Lately, it seems like a lot of people have come to the same conclusion. To mint NFTs, you don’t have to be a programmer. Karen, like many others, uses the Open Sea to turn her images of Karens into tokens.
“Last time I looked, I had 66 different owners who have bought around 110 out of around 150 released. Each one sells for 0.1 Ethereum. I occasionally do giveaways and run quick sales to keep things exciting. Overall, the amount traded is over ten Ethereum, so at 2000 dollars per Ethereum, it is 20 000 dollars. It is pretty cool,” Ali C. told CyberNews.
She is positive about NFTs because it funds artists and enables them to continue their work.
“A starving artist is just what you expect to be. And that is what is so cool about NFTs. People can buy art directly from the artist, and the artist can afford to live while making this kind of art,” Ali C. told CyberNews.
What is more, NFTs feed not only artists but art collectors, as well.
“People who buy it from you are the ones that make the biggest profit because if that collection gets trending and the value goes up exponentially, their investment in you can pay off. It has already paid off. 0.1 Ethereum is what all of my Karens go for. Someone has already resold one for .5 ethereum, so they made their investment five times over. Just from reselling it,” she said.
Can it be stolen?
What if I just bought an expensive NFT (like a Beeple artwork for $69M), and it got stolen? Can it be stolen just like any physical painting?
It is a weighty discussion right now in the NFT marketplace, Paige Mason, Managing Director at Guidepost Solutions, told CyberNews. The answer is that it depends on what happens after the NFT is stolen and whether you are using a platform like Nifty Gateway to purchase, display, or sell NFTs.
“At a fundamental level, like cryptocurrency, the transfer of an NFT is noted on the blockchain and can’t be automatically reversed (or rewritten) in the same way as other types of financial transactions,” Mason said.
However, NFTs are different from cryptocurrencies like bitcoin because they are not equally tradable or substitutable for another NFT.
Nifty Gateway, a marketplace for NFTs, users recently reported hacking of their accounts and subsequent theft of NFTs already controlled by the user or purchased without users’ permission.
“Most people following this topic closely have concluded that at least some users were able to recover the stolen NFTs because the hackers did not take the step of moving those NFTs out of Nifty Gateway-controlled wallets,” she said.
If you have a Nifty Gateway account, the platform requires you to create a crypto wallet through the platform, and Nifty Gateway will have a record of the private key controlling access to that wallet.
“If you bought an NFT through a peer-to-peer transaction, or the thief moved the NFT out of the platform’s created wallets, the return of your NFT would be difficult to effectuate,” Mason explained.
When you are considering buying NFT, you should do at least two things. Firstly, purchase it through a reputable platform or dealer, committed to performing due diligence on the artists and digital artwork. Secondly, you should research the artist and digital art that you are interested in.
“Regarding the first point, many participants in the art market around the world are now subject to anti-money laundering compliance requirements (much like a bank) that require them to know their customers (KYC), report suspicious transactions, etc. Regarding the latter suggestion, there are many reports of artists having their digital work photocopied without their permission and minted as NFTs by someone else. It is different, of course, from the recent news about a blockchain company legally buying and then burning a Banksy piece as part of turning this into digital artwork minted as an NFT,” Mason explained.
Intellectual property concerns
There are clear copyright and other intellectual property concerns, Sam Miller, a partner at Rimon PC and founder of theFineArtLedger, told CyberNews. There’s inherent value in owning, for example, a digital edition or a Murakami Flowers, recently minted on OpenSea.
“Ownership of a unique digital edition does not, however, entitle you to duplicate it or use it for commercial purposes, etc. The duplication or other use or enjoyment of the underlying intellectual property rights are not implicit or included in owning an NFT. One wonders what ultimate utility value certain NFTs (like music NFTs) would have, where the use or “ownership” of a track would be limited absent purchase or license of the underlying IP. There is also the specter of a creator’s work being used by an unauthorized person to mint an NFT. It could involve clear IP infringement and goes to the heart of what exactly is being made unique in the NFT mint,” he explained.
Blockchain simply authenticates what is given to it. It means that if a person appropriates an image created by another person and stamps it into the blockchain as owned by the appropriator, then the blockchain will produce a record to that effect, regardless of the underlying truth of that assertion.
“In this way, there is the ability, conceivably, to appropriate the information or assets of others,” Miller explained.
So what is stopping unauthorized persons from minting works that are not their own? Not many people realize that the image itself does not sit on the blockchain but is connected as metadata to the token, Miller argued
“The metadata can sit on a centralized or decentralized server and can include only a low-resolution image of the work. So it is possible that while you think you may have bought an original, unique image, there may only be a very low-resolution image attached to the token, with the original high-resolution image not being part of the deal. So it is important to understand what you are buying when it comes to NFTs”, he said.
It becomes very important when there is an underlying physical artwork, as buying the digital image NFT is not the same as an NFT of the underlying physical asset.
“Besides, while blockchain infrastructure is generally secure, how the metadata links are maintained or hosted may not be. There may be hacking opportunities or simple expiration of the links to the metadata, which may serve to sever the link between the token and the underlying metadata,” Miller explained.
What does the future of NFTs hold?
In many cases, NFTs are simply a signature of the artist because the digital art itself is hosted on a web server and the token, embedded in the blockchain, points to that web server.
“It is useful to contrast NFTs with traditional, physical artworks. With traditional art, it has always been the case that originals are worth more than replicas. Even though an original and a replica provide the same viewing experience, originals sell for more, suggesting some inherent value to owning the original signature of the artist. Should that web server no longer function, the pointer embedded in the blockchain would no longer be valid, but the signature would remain,” Ariel Zetlin-Jones, Associate Professor of Economics at Carnegie Mellon University's Tepper School of Business, told CyberNews.
He suspects that, much like trading cards, the NFT market will ebb and flow depending on the collector's tastes.
“One argument about the value of NFTs relative to the traditional collectibles market is that artists can require collectors to make payments to the artist any time the collector re-sells the collectible using smart contracts on Ethereum blockchain. I do not see this argument likely to create value for NFTs in the future. First, knowing future trades will involve an additional payment to the artist, collectors may include a discount in the price they are willing to pay upfront for the collectible. Second, should these re-trade costs be severe, I could envision a collector simply selling their private key to another collector and not trading the NFT on the blockchain. Such a trade would obfuscate the transfer from the blockchain (and the artist), which would prevent the artist from collecting the proceeds from the re-sale,” he explained.
Is the future non-fungible? Yes, Sam Miller reckons, but not in the way we see it now. One side effect of digital art NFT hype now has been the obscuring of the real potential for blockchain as a means of owning and controlling real-world assets.
“ Digital assets are only the beginning, we feel here, and the potential that blockchain has for how we own, manage, buy, sell, and promote real-world assets is only just beginning,” he said.
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