Risks and challenges for NFTs in the world of cryptocurrency

What are the RISKS AND CHALLENGES FOR NFTS?

NFT (Non-Fungible Tokens) is a digital certificate of authenticity. Currently, NFTs are digital tokens involving digital art, digital assets, music, video and or other assets in the digital world created on blockchain technology. Classic works of art, antiques, vinyl, first edition books and other historical items are sold at auction. All items are certified to be authentic before being put up for auction.

In this digital environment, people can collect, sell, buy and or destroy NFTs. Blockchain technology keeps a transaction log and the price of that NFT so that it is visible to anyone on the internet. The role of NFTs in the future is uncertain, but the environmental impact of NFTs, mainly due to the energy used in mining to confirm the blockchain transaction, should be addressed.

NFTs are not environmentally friendly.

By 2025, the digital world’s global carbon emissions will represent 9% of greenhouse gases. The environmental impact of NFTs is unlikely to improve the situation. The problem lies in their high energy consumption and, more precisely, the energy the blockchain uses that allows them to exist.

Bitcoin and Ethereum networks are the most famous, and most digital art uses the Ethereum blockchain. Ethereum is one of the more energy-intensive forms of blockchain, and its impact on the environment is significant. This situation is flexible, and blockchain companies are taking steps to reduce emissions.

The widespread popularity of digital art is beginning to be offset by its carbon footprint, which is high. Despite the recent craze surrounding digital art, its negative environmental impact must be considered.

For example, the NFT GIF “Space Cat” (which shows a cat in a rocket soaring towards the moon) uses the same amount of energy as the average European citizen uses in two months. The problem is that this example is only one in a million, as reported in an analysis by digital artist Memo Atken, who calculated that a single Ethereum transaction is estimated to have an average carbon footprint of 35 kWh. That corresponds to an EU citizen’s four-day electricity consumption.

Challenges and risks related to NFTs

1) Cyber ​​hackers attacked

Non-fungible tokens provide huge revenue for their creators.

It significantly gives rise to the possibility of cyber attacks and cyber fraud. There are high chances of damage to digital assets and investors buying and selling NFTs. NFTs have enormous potential. However, there are certain risks that must be considered.

The risk for smart contracts and maintenance of NFT is a critical risk that currently prevails in the market. Cyberhackers attack a DeFi (Decentralized Finance) network in several scenarios and steal crypto.

Hackers attacked the most famous DeFi protocol, Poly Network, and $600 million was stolen in this NFT theft. The reason behind the theft was that the security was insufficient, and the hackers exploited the flaws in smart contracts to attack the Poly Network.

2) Evaluation challenges

A significant challenge in the NFT market is the determination of the price of NFT. The cost of any NFT will depend on creativity, uniqueness and scarcity. Fluctuations in the prices of NFTs are significant due to a non-fixed standard for any specific type of NFTs.

3) Legal challenges

NFT has no known legal definition. Countries such as the UK, Japan and the EU are in strategic discussion with different approaches to classifying NFTs.

4) Risks of online fraud

As the popularity of NFTs increases, so do the chances of cyber threats to the NFT market. Numerous cases show copies of the original NFT stores on the internet.

Because of the original logo and content, these stores look authentic. However, these fake NFT stores are a huge risk because they can sell NFTs that are not digitally represented. Furthermore, there are chances of fake NFTs being sold in a fake NFT shop.

A further risk is when someone pretends to be a well-known NFT artist and sells fake NFTs. The online fraud risk is significant due to copyright theft, fake airdrops, fake NFT distributions and duplication of NFTs.

5) Intellectual property rights

The ownership of any NFT is another important topic under consideration. When you buy an NFT from the market, find out if the seller owns that NFT. There are occasions where people pose as sellers selling copies. Here, the right to use that NFT, but not the intellectual property rights, is implied.

The challenge of NFTs as securities

Buying NFTs as securities is a consideration for some people. The SEC (Securities and Exchange Commission) states that most NFTs in the market are sold as securities.

The future environmental impact of NFTs and digital art

This shift from PoW to PoS has been hailed by cryptocurrency fans and those working in the digital art world. However, the crypto-art industry still faces significant challenges in terms of environmental conservation. Since the digital world is relatively new, a central concern about its ecological impact needs to be considered, and rules and regulations need to be created to mitigate its harmful effects.

An overview of risks and challenges and their effects on NFTs can help to create possible solutions. It is important to have a unified regulatory framework, focused standards and secure platforms for creating and trading NFTs.

It is important to carry out thorough investigations. When it comes to non-fungible tokens, it is much better to first understand all the risks and challenges. It will even make it easy to buy and sell NFTs in the market by eliminating the risk.

NFTs should not be treated as a quick way to make money. Blockchain in financial services can add a lot of value to the systems in place. However, investors should know how much money they can make from NFTs or they are likely to lose it all in minutes.

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COMTEX_432276212/2824/2023-05-10T09:28:27