NFT: A newfangled trend or also a newly discovered treasure?

First, a quick primer: non-fungible tokens, or NFTs, are unique tokens stored on a blockchain, which is a form of digital ledger, and they cannot be changed or replaced with another token. NFTs are unique, like a unique trading card, and are traded between users on a public blockchain. Common types of NFTs include digital files such as artwork and video or audio recordings, but they can represent much more.

How do NFTs work?

Traditional works of art such as paintings are valuable precisely because they are unique, while digital files can be easily and endlessly duplicated. While this doesn’t really change with NFTs (they just provide proof of ownership), artwork with NFTs can be “tokenized” to create a digital certificate of ownership that can then be bought and sold.

A GIF, for example, can then go for hundreds of thousands of dollars with the right marketing. Most NFTs will be sold for pennies, but some can go for extremely high amounts. The most expensive NFT so far is a digital collage of images that sold for nearly $70 million last year.

However, you may not want to get too excited just yet, as such riches are by no means guaranteed. In fact, it is usually the founders of the platforms used who are the real winners. Marketplaces like OpenSea (which is like the eBay of the NFT world) have exploded in popularity, and despite the seemingly waning interest in NFTs as digital collectibles, many believe the market will continue to grow exponentially over the next decade.

What is the risk?

In the online world, cybercrime is an ever-present risk to be aware of. One thing cybercriminals are good at is adapting quickly to a new technology or trend, before the public is fully educated on what they are getting involved in. As NFT sales take place virtually, they are subject to zero regulation and all marketing takes place via social media. media, it is easy to be scammed or at least to see scammers trying to take advantage. Popular NFT communities usually employ influencers and celebrities to promote the assets, making it difficult to know which ones are fake.

If you fancy buying NFTs, you’ll need a cryptocurrency wallet or an account with an exchange like Binance or Coinbase – most marketplaces currently use the Ethereum blockchain to power their transactions. Once you’re ready, all you do is select the marketplace you want to buy NFT from and browse through it to pick an item you like. Most marketplaces have an auction system set up where you have to bid on the NFT you want, but sometimes there will be a buy it now price – again, similar to eBay.

Many NFTs are actually bought for fun, but many are bought with other good intentions or as an investment. The NFT market is a speculative market driven by scarcity and the fear of missing out (FOMO) which often drives up demand, but this can have a spiraling effect when things go wrong and make people lose. Bored Ape Yacht Club has made NFTs quite a strange commodity, and its heyday also largely coincided with the rise of NFTs as such.

However, the future looks potentially very interesting, as NFTs could be a framework for a new digital economy, at least according to NFT advocates. Smart contracts, which power NFTs, are hard-coded on the blockchain, meaning people can have confidence when they buy one. Think digital art. In the near future, artists may have better control over their own artwork and be able to sell their art in digital form, which will make it super easy for them to control and sell their work at a price they think is right.

On the other hand, the fees in the NFT space can often outweigh the returns, so my first tip would be to look at the fees in great depth, which are often difficult to understand or even misleading. You will be charged to buy your first cryptocurrency (if you don’t already own any), exchange coins, list your NFT and then also be charged to buy one.

All this fuss – how easy is it to do?

Due to the hype over the last year surrounding NFTs, I thought there is no better way to fully understand it than by making my own. NFTs can be anything from a short media file, a PNG, a GIF, or even a tweet, and are sold for whatever someone is willing to pay for it. As a dad and a lover of bad dancing, I thought what better than to make an animated GIF of my dad’s dance moves and try to sell it for millions!

Figure 1. My father dance moves

With my GIF now ready, I created an account on OpenSea and got straight to it where I could sell my NFT. I decided to sell my NFT without a limit in a timed auction starting at $2, hoping for millions of bids to roll in.

Fees

The fees for simply placing an NFT online will likely outweigh the potential profit, which must be carefully considered. Fees apply each time you exchange your money, and this must be done at least twice. These fees hit when you switch from your currency to a digital currency, but then it has to be converted to ETH. To place your NFT in an auction you have to pay for this, but you have to pay miner fees to cover this exchange. However, I placed my GIF online and took the plunge hoping it would be a success, but I wanted to test the procedure rather than make money.

The interesting part of the experiment is that I actually managed to sell my NFT. When I received the email that it had been sold, I was excited to see what I had sold it for. In my mind I was already in the process of buying a yacht, but it crashed when I only sold it for $2. It hurt even more when I realized that I had spent over $20, including fees, to set up this experiment – ​​this was still significantly less than the miner fee OpenSea originally wanted to charge me (Figure 2).

Figure 2. Before it dropped to a much lower level, the miner fee was far higher than I was willing to accept

Fraud

Unfortunately, cybercriminals follow trends and are never too far behind new technology and looking for a chance to rip people off. Here are two of the most common NFT scams:

Phishing

Phishing can happen via e-mail or in Twitter messages, so you need to be smart and be on the side of caution at all times.

When you set up a cryptocurrency wallet, you should receive a seed phrase. Your seed phrase is a list of words (usually from 12-24 words) that can be used to restore access to your cryptocurrency wallet should you forget your password. As a rule of thumb, you only need the seed phrase when you make a hardware backup of your cryptocurrency wallet or when you restore your wallet, but scammers can try to phish this from you, often via email or social media messages, and take you to fraud sites.

Figure 3. Example of a fake OpenSea website

Therefore, always go directly to the verified website for cryptocurrency transactions and never use unverified links, pop-ups or your email to enter your information. When you first receive your seed set, write it down on paper, keep it in a very safe place, like a safety deposit box, and never give it out to anyone – don’t even save a picture of it on your phone.

Pump and dump schemes

Pump and dump schemes are becoming somewhat predictable in the cryptocurrency and NFT world. The term refers to when a group of people buy a lot of NFTs or currency and artificially increase demand (like eBay users increase demand). Once successful, the scammers cash out when prices are high, leaving those who didn’t participate with worthless assets.

Protects your NFTs

Here are five general tips to keep you safe:

• Make sure your private keys or seeds to access cryptoassets remain truly private – never share them with anyone.
• If you ever receive a direct message from someone claiming to be a founder, celebrity, or influencer, don’t reply to it or click on any links. Unfortunately, this is how many scams start.
• Should you still wish to purchase an NFT, I recommend that you do your research to ensure that you are purchasing the item from a verified account. It’s not a bad idea to look for the blue verification tick next to the artist’s profile on the NFT Marketplace, although it’s by no means a guarantee of the account’s legitimacy.
• If you purchase an NFT, also try to take possession of the physical or digital asset (in the form of a JPEG, MP3 or PDF file) directly. This is not always possible, but it helps with confidence that what you are buying is genuine. New scams are always storming the NFT scene, which is why you can’t do it alone.
• The best way to avoid new and existing NFT scams is to stay informed and do your research.

So what’s the good news?

Advocates and early investors claim that NFT marketplaces mark the framework for a new digital economy, and there are many people getting excited about the future of this technology. The FOMO that some feel is wild, and this is obvious when low-res comic images of monkeys, memes, or even NFTs for “countries” in the metaverse can go for thousands of dollars.

We are potentially in an evolution, and there is always money to be made in a true evolution. But NFTs are speculation, or even just a guess without real evidence. The journey is nevertheless interesting, and I look forward to seeing where it goes – if only because it shines a spotlight on technological innovation and progress as such. Just remember to be careful and stay protected!