What to Tell People Who Think NFTs Are a Scam

Whether they support non-fungible tokens (NFTs) or not, investors, brands and businesses cannot ignore this new technology. In 2021, NFTs absolutely exploded and this trend continued into the first half of 2022, with celebrity support from the likes of Snoop Dog, Mark Cuban and Stephen Curry. However, despite the industry's rapid growth, many critics of the space voice concern. Some say that all NFTs are a scam others just think they should be worthless. By the end of this article, you will not only have a profound understanding of the value behind NFTs, but be well prepared to respond to those who believe NFTs are scams.

What to Tell People Who Think NFTs Are a Scam

Many view NFTs as overpriced JPEG files (digital images essentially) at best and downright scams at worst. The problem is, they aren't entirely wrong. Plenty of NFTs are pointless pictures or scams. What’s missing is an appreciation and understanding of the diverse utilities NFTs have to offer. As a result, the best way to respond to people who think NFTs are a scam is to explain the value proposition of NFTs through a holistic, blockchain-first approach. 

It is important to understand that NFTs are inherently neither a digital bubble nor a scam. When you are dealing with someone who generalizes all NFTs as scams, you need to make a clear distinction between the concept itself and the malicious individuals who orchestrate scams. 

To elaborate on this concept, an understanding of decentralization is needed. Like many cryptocurrencies, NFTs are based on blockchain technology. Blockchain technology allows for decentralized databases, implying that the network is not controlled by a governing authority. Essentially, a decentralized network transfers responsibility from intermediaries to users. Assuming the infrastructure is free of issues, if you lose your funds by mistake it is your fault. With freedom comes a lot of responsibility; however, many users are not used to not having a safety net. 

Example:

• John: You should never purchase an NFT, Sarah; virtually all are NFTs scams.  Did you hear about the NFT project called Evolved Apes? In September 2021, a week after the official launch of the NFTs, the project developer rug pulled 798 ETH from the project — that’s about $2.7 million. That’s ridiculous!

• Sarah: John, there are malicious people in all walks of life. Take a piece of paper for example. A piece of paper can be used to create a legal contract, and it can also be used to fake a legal contract. If a piece of paper is used to create a fake legal contract, the paper is not to be blamed — the malicious users are. In the same way, an NFT is a unique asset waiting to be given a purpose. The NFT isn’t to be blamed if people fail to identify safe and unsafe projects. A digital artist hopes to make money from their creation. Digital artwork is just as beautiful as a painting. We can’t generalize in life.

Another tip is to steer the conversation away from cherry-picked examples of NFT projects. Instead, elaborate on the diverse set of utilities offered by NFTs. On one hand, you can provide real-world examples of the current utilities of NFTs and the benefits associated with each of them. Alternatively, you can acknowledge that NFTs are in their early stages of development and discuss the future use-cases of NFTs.

Example: 

• John: NFTs are the biggest waste of money! How crazy would someone have to be to purchase a JPEG file for thousands, if not hundreds of thousands of dollars? They are all so overpriced!

• Sarah: John, as is the case for most assets, there will come a time when the prices of some of the most hyped NFT collections will be far overvalued for secondary sales. However, I don’t believe that all NFTs are overpriced. The value of NFTs can not be generalized as each NFT has a unique utility. For example, in The Sandbox metaverse, individuals can purchase a plot of virtual land in the form of an NFT.  Even companies like Gucci and Atari are buying these NFTs so they can monetize their experiences in an environment filled with potential consumers. The market for NFTs isn’t inherently wasteful. As with all investments, you must choose wisely. Just as you would wish to see a certificate of ownership when buying a painting, you can do the same with non-fungible tokens.

Why Do People Think NFTs Are Bad?

Many investors have valid reasons to be wary of NFTs. Some of these reasons include:

• NFT generation is relatively energy intensive: Most NFTs are currently supported by the Ethereum blockchain, which uses an energy-intensive operating protocol called proof-of-work. However, this is set to change when Ethereum implements its "Merge" update in September. Ethereum's energy use is predicted to drop by more than 99% as soon as this update is complete, thus completely removing this issue with NFTs (and everything else on Ethereum like DeFi).
• NFTs can be used to perpetuate fraud: While the integrity of a blockchain is undisputed, NFTs can perpetuate fraud. For example, a number of artists have recently discovered their work for sale as NFTs on online marketplaces without their consent. 
• NFTs are illiquid and volatile: Inherently, illiquidity and extreme volatility isn’t bad or good; however, many individuals purchase NFTs without understanding the implications of illiquidity and risk money they cannot afford to lose. 

What Are NFTs, Actually?

NFTs are a type of cryptographic token that represents a unique asset. NFTs function as verifiable proofs of authenticity and ownership within a blockchain. NFTs can represent real-world items such as artwork, real estate, property rights and individual's identities. Because they are based on the blockchain, NFTs can remove intermediaries, create new markets and simplify transactions. 

Fungibility refers to the property of an asset whose individual units are interchangeable and virtually indistinguishable from each other. For example, cryptocurrency and all fiat currencies are fungible. Nonetheless, as implied by the term non-fungible, NFTs cannot be traded or exchanged at equivalency with each other, so they introduce scarcity to the digital world. You can think of the art NFTs, right now the most popular use case for the tech, as a fantastic new way of making collectibles like trading cards. This doesn't mean every NFT is collectible or worth anything. Not every baseball card is collectible either.

Are Some NFTs Scams?

Yes, some NFTs are scams. However, if you are very careful with your cryptocurrency wallet, you shouldn't have any issues. Hardware wallets are the safest way to store your cryptos and NFTs and Ledger has 2 fantastic models starting at $59.

Here are a few examples of NFT scams:

1. Fake NFT websites: Skilled scammers can replicate a popular NFT website and trick users into compromising their account information. 
2. Fake NFT offers: NFT scammers send phishing emails to get you to follow an embedded link to a fake NFT website, compromising your account information
3. Social media impersonation: Cybercriminals create fake online profiles to convince people of their credibility to sell them fake NFT artworks or bait them into using phishing links. 

Future Use Cases of NFTs

While it is true that the majority of NFTs today will lose their value in the long run, massive untapped potential exists within the NFT market. While Web 2.0 introduced the participatory web, it allowed a handful of tech giants to control and monetize personal data. NFTs extend Web3, and have the ability to drive value by redistributing the power of ownership to creators and the community. A few interesting examples include:

• Medical records and identity verification: NFT ledgers can store an individual’s medical records without compromising confidentiality.
• Intellectual property and patents: NFT tokens allow users to prove their ownership of a piece of content.
• Gaming industry: NFTs can be integrated into the gaming world by allowing NFT cross-platform playability. Without intermediaries, gamers will be incentivized to keep playing if they own their characters and items within it — games like Axie Infinity are already implementing these principles.

Are NFTs a Good Investment?

Bottom line, investing into an asset just because it is tokenized as an NFT is not a great idea. NFTs themselves are not investments. As an investor, you need to understand the value of the underlying asset that NFT represents before purchasing. 

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