NFTs – or non-fungible tokens – are a key cornerstone of the Web3 revolution. They’re beloved by celebrities and speculators alike, who are buying and selling them for vast sums of money. They’ve hurtled into the mainstream, promoted by household names, and touted as an option for people who want to invest cash and gain enormous returns.
Yet, although their widespread use is still new, they face a mortal reputational threat. Ask most people about their perception, and it’s largely negative. A recent survey of 40,000 people across the United States and the United Kingdom found 48% of Americans, and just 22% of Britons, thought NFTs was a “good and safe investment.”
The reason for people’s skepticism? The vast amount of illicit wash washing around the NFT market – and the risks of rug pulls.
A massive scam scheme
$44.2 billion worth of cryptocurrency was sent to NFT-related smart contracts last year, up from just $106 million in 2020, according to an analysis by Chainalysis, which monitors the blockchain. But that money is often seen as controversial and suspicious.
Nearly $2.5 million of cryptocurrency believed to be linked to money laundering was used to buy NFTs in the second half of 2021, according to Chainalysis, and more than a quarter of a million dollars was used to buy NFTs from wallets associated with people under international sanctions.
Regulators are beginning to notice. The FBI has launched a cryptocurrency investigations team, which will also have oversight of NFTs. “The bad actors are looking for the ways that are most likely for them not to be caught laundering money, and while that’s not to say that it is NFTs if they find an avenue that they can exploit, they will,” Chainalysis’s Jesse Spiro told Fortune Magazine. “They are always probing the fence and looking for the holes.”
Issues with legitimacy
That’s before getting into the projects that promise the world to potential investors and deliver nothing. A range of different NFT projects has been beset by major issues, including claims that they’re not legitimate or that they’re racist, homophobic, or derogatory.
It all adds up to the impression of a wild west market. And people like NFT thefts on Twitter are documenting the sheer volume of plagiarism and fraud involved in the market.
The latest example of the vast phishing campaign launched against NFT marketplace OpenSea saw nearly $2 million robbed from users’ wallets. It’s a high-profile example of why many people worry NFTs can’t necessarily be trusted at this stage of their development.
How to save the reputation of NFTs
The underlying technology behind NFTs, and the principle that guides their deployment, is a potentially useful one. Having a permanent record of an item on the blockchain that is in theory irreversible and trackable, can be utilized for any number of methods and purposes. But in order to get to that point of legitimacy, the success of the technology requires buy-in from users.
And at present, negative headlines are ruling the discourse around NFTs – and seem likely to for as long as the community turns its head to those looking to scam people for a quick buck.
Managing to wrestle back the reputation of NFTs and turn it into something for goodwill take a lot of hard work. But it’s also vital for the future success of the technology if it’s to stick around for the long run. At present, the future place of NFTs in the history books will be as an odd anomaly; a curious footnote about a technology that had enormous potential but didn’t realize it because of scams.
Whether that changes is up to the community and their appetite to speak out against the scams.