You have probably been following our articles about NFT for a while. We have explained many things from 0 to 100 about them that you can read on the Bored Hamster blog. From the beginning of the idea of NFT and its history, how to create NFT, buying and selling millions of dollars, huge profits from NFTs, and the exciting future that is taking shape on the wings of this new technology. You can read these items from our main article: What is NFT?
But in this article, we want to talk about things that maybe no one told you. Yes, exactly! There is no mention of the disadvantages of NFTs. Most have spoken of the benefits of NFTs.
The most fundamental disadvantages of NFTs
In this article, we discuss six of the most basic disadvantages of NFTs:
1. Damage to the environment
It takes a lot of energy to produce and mint each NFT. This energy is consumed in the form of electricity, which harms the environment and causes global warming. The tokenization and encryption of NFTs are done using giant mining systems. Systems that consume a lot of electricity to solve complex math problems.
But fortunately, this issue has been rectified mainly by changing the PoW (Proof of Work) algorithm to the PoS (Proof of Stake) in September 2022. So, the electricity consumption for each NFT transaction has decreased from the electricity consumption of a family for a month to approximately 20 minutes of watching TV. But the owners of blockchains are still trying to reduce this process of electricity consumption and damage to the environment to zero. Learn more about why NFT is bad for the environment.
2. Fraud through NFT
One of the controversial and repeated issues in the production and sale of NFT collections is fraudsters. Of course, it should be kept in mind that with every new technology that comes into being, along with the latest facilities and ways it creates for human comfort and progress, people also use it through incorrect methods, harming themselves and society. However, NFTs are not an exception to this rule.
Over $600 million worth of NFTs has been stolen so far. Some NFT projects that start and gather a large audience disappear overnight after selling NFTs. For this reason, some people believe that the NFT projects created in the NFT marketplaces have no authority to recognize their competence and authenticity. Therefore, they can easily attract the public’s attention in any way and finally commit fraud.
3. An opportunity for money laundering
With NFTs, you can quickly transfer millions of dollars of money. By buying Bored Hamster or Bored Ape NFTs, you can transfer several million dollars from one account to another in a few moments. Because there is still no legal foundation or limit for the prices of NFTs, an NFT is priced and traded only at a buyer’s bid price. This space has left the opportunity for money laundering.
At the same time, many countries like the United Arab Emirates are trying to legislate and create organizations to minimize these problems. For this reason, many NFT developers have shown interest in starting their NFT and Metaverse projects in Dubai. For example, the Bored Hamster and Metavers.AE NFT projects are in the UAE.
Each piece of art that is converted to NFT is tokenized using blockchain technology. Different blockchains have different standards for the cryptography of their NFTs. For example, the Ethereum blockchain NFT standard is ERC-721 and ERC-1155.
After the digital artwork is encrypted, a unique address is created. Through this address, you can follow the buy and sale history of the artwork and identify the real owner.
The real identity of an artwork can always be proven with this method, but on the other hand, this artwork can be downloaded for the public. This means that although the buyer’s ownership right is registered and safe, anyone can have a copy of this artwork for themselves or print it on different devices.
So far, the problem of fakeness and ownership of artworks has been solved, but the issue of copying still needs work, and more legislation is needed. This problem will probably be solved little by little with the spread of NFTs.
5. Intense competition
For the sale of physical artworks, there are usually intermediaries who have galleries and try to introduce and sell your works. But with the invention of NFT, middlemen have been removed to a large extent, and you can sell your artwork without intermediaries. Meanwhile, NFT marketplaces do the work of galleries, with the difference that they receive very little profit. In the end, you must introduce, market, and advertise your work and make it known to the market.
Before that, you can read about NFT marketplaces to know more about these markets and how they work.
By eliminating the intermediary and creating significant markets for the whole world, you are facing different interests and tastes. Therefore, these issues affect the pricing and competition between artists. So many works are uploaded from all over the world in NFT markets that if your work is not good and you don’t try to introduce yourself, you will be excluded from the competition cycle.
Over the past few months, based on analysis and reports, there have been more than hundreds of hacking reports from the NFT community, amounting to more than $22 million. Due to the prosperity and strong potential of the NFT market, many people have entered this market and invested in various NFT projects. But entering the NFT market also requires some cryptographic information and training. Users should adequately understand cryptocurrencies and wallets and how to transfer assets between wallets. This sudden influx of users into this lucrative market has caused some users to be easily exposed to phishing attacks and lose millions of NFT dollars without knowing.
In a general summary, this article discussed six main disadvantages of NFTs. We all know that, in general, every technology that enters the world has advantages and disadvantages, and the prosperous world of NFTs is no exception. But it seems that some of these disadvantages can be avoided by proper study and training. You can be more aware of these things by reading and following Bored Hamster blog posts.