Dangers of an NFT (Non-Fungible Token)

Gio Son (G7)

Economics

Published Issue 5 2021-2022

Cryptocurrencies and NFTs, ongoing problems, and questions from investors and people, in general, trying to get into a new wave of money. (NFT = non-fungible token)

In recent years, there has been a large wave of cryptocurrencies and NFTs growing. There have been many problems that have occurred including scams and people creating NFTs to farm money rather than stealing the profit that was once said to stay inside the project or copying another project. The problem here is that since NFTs are non-fungible, the value lies inside the community, so if it becomes a scam, the price falls drastically which is bad for investors. Cryptocurrencies are also in the new market of investing and many people are still wondering what to do with them, first starting in 2009. For you to understand the problem, let’s first see what cryptocurrency is.

You probably heard of Bitcoin, being the most popular cryptocurrency in the world. It was created in 2009 by Satoshi Nakamoto and was the first-ever cryptocurrency. Some people are living their lives off the profits they’ve earned from Bitcoin as it has been growing like a beast for the past 5 years. (https://www.chartoasis.com/btc-usd-forex-chart-5-years-cop0/ check this link out for the bitcoin increase graph)

Now since you know the general idea of it, what makes it a problem in the first place? Well, cryptocurrencies are bought by something called a blockchain. A blockchain is several blocks together that act like a chain to create a history of blocks. The bigger the block size, the faster transactions can happen. The block inside of a Bitcoin is one megabyte in size and records all the transaction data that occurs when a person buys it. Think of a blockchain this way. When you purchase a bag of chips, you give your debit card to the cashier, and they will swipe it. The card then sends a message to the banking account to see if there is enough money, and if there is, then a transaction will occur and the money will be taken out of your account. But for blocks, it basically eliminates the middleman, also known as the bank/account. This means that the money that you’re spending on a cryptocurrency is actually available to everyone on the internet. Your wallet public ID, private ID along with your transaction details. So basically the next time you buy a cryptocurrency, remember that you’re trusting the public to not take your money. But luckily, all of this is encrypted and protected by another chunk of a block called a hash.

A hash is one part of a block of a blockchain that basically acts like a password protector for a block that secures all the information of your crypto-wallet and transaction details. Phew, this is better. But remember that blocks of a blockchain are available for everyone, especially Bitcoin blockchains. This is why you may have heard of something called a blockchain attack, which is basically when hackers send thousands of computers full of code to try to crack the code of a block to get all the details of the transaction details. This severely damages the share price of cryptos as the price of cryptocurrencies are purely based on the consumer. This means that whenever hackers want to try to hack into blocks, things are in danger.

Seeing how there is a dangerous side to this, there must be some sort of good side! Cryptocurrencies are purely based on the consumer, so basically if someone buys crypto it goes up if a person sells it goes down. This means that sources can affect how much someone is buying crypto. So if you bought crypto early, you can also retire early!

Now recap: Cryptocurrencies are very dangerous because of their unsecured blockchain technologies which are all available to the whole internet, even though it is still secured with hashes. So attacks can happen. But also you can earn a lot if you get on early and have some luck with your investments.

Since you know how dangerous crypto is, NFTs also have a massive problem. An NFT is a non-fungible token meaning that it is an asset that can’t be replaced. To give an easy example of what an NFT is, have you ever played a video game? If you did, have you ever bought something from its store? If yes, then you just bought an NFT. NFTs used to be physical, but now it’s digital. Many people can take photos of a painting and print it out and say they have the painting, but it's obvious which one’s real and fake. But if you bought an online NFT, it is impossible to tell the difference between the original and a copy as digital things can always be replaced.

Some of the other aspects of NFTs are that their price can fluctuate immensely. If you invested one Ethereum into a crypto punk, it could go to zero, or it could flip. The potentials are literally to lose all or win double, even triple. These NFTs are like stock being traded for a higher value than what it was bought for.

A final problem that I’m going to talk about is that they’re a poor value of exchange. Take money seeing how it is a type of exchange and currency. However, this is not the case with NFTs. NFTs can be bought with cryptocurrencies such as Ethereum and Decentraland, making cryptocurrencies a good exchange. This is the opposite for NFTs as it isn’t a good value for exchange meaning that you have to turn an NFT into crypto, then money to actually get the money you have invested. (list of cryptocurrencies: https://coinmarketcap.com/all/views/all/)

In conclusion, it will be a good idea to be wary of what you invest in and do lots of research on. If you don't it could lead to serious problems.