NFTs- their potential use cases and pitfalls

NFTs: their potential use cases & pitfalls

It has taken more than a decade for cryptocurrency to become relatively mainstream, though it still has a long way to go until 100% acceptance (if that is possible at all). Today, NFTs are the new buzzword, but they seem to be taking off much faster than cryptocurrency.

NFTs are something you either “get” or you don’t. Since they are entering the Zeitgeist full bore it is worth explaining what they are. For some, a better understanding may move them from the sidelines as spectators to becoming active buyers. Non-fungible tokens, are perhaps even more cryptic than cryptocurrency. Cryptocurrency works in numerical amounts, so you buy and trade x amount for y. Non-fungible tokens are items that cannot be replaced by or traded for anything else. Today, NFTs mostly consist of digital art, including images, videos, animated stickers, and more.

Like traditional art pieces, NFT artwork can be copied. But the person who buys has the glory of ownership. In some cases, as with baseball cards, there are several of the same NFTs, which is valid. Even though they look the same, each comprises a different, unique unit of data stored on the blockchain.

Like cryptocurrencies, NFTs can be sold on marketplaces like OpenSea, Nifty Gateway, Rarible, and more. They are part of the Ethereum blockchain.

NFTs for business

Aside from collectables and the market for them, there are practical applications for NFTs in helping create a more transparent way of doing business. While NFTs started in the art world, other assets which can be digitized, including real estate and asset ownership rights, are at the nascent stage of being used in business.  

NEWSBTC, the Bitcoin and crypto site explains that “because NFTs exist on the blockchain, they cannot be deleted, and their existence is publicly verifiable. This makes NFTs ideal for ownership rights management and securely storing important records.” Smart contracts play a central role in how NFTs are sold. These contracts are software used to ensure digital agreements are enforced on decentralized networks such as Ethereum.

NFTs are still new and there is not yet enough trust in their value, but that will change as more people learn about them. The popular finance site Motley Fool notes that “like a deed, an individual NFT refers to an individual thing, even if that thing is one of a series, or parts of a whole. But it doesn’t have to be a virtual thing; it can be a real thing, too.”

Also, “real estate law hasn’t quite caught up to the new technology that makes NFTs a thing, so we still have physical deeds and recorder’s offices, and all of that.” Basically, we will have to wait and see how widely they are adopted, but keep your eyes on NFTs as more people come to believe in their value.   

Security challenges with NFTs

There are a number of challenges regarding the safety of NFTs, and we are likely in the early stages where fraud in this space can proliferate as more money goes towards these digital assets. Many think that cryptocurrency and NFTs, both based on blockchain technology, are safe from hackers, but this couldn’t be further than the truth. According to NBC, scammers stole $14 billion in cryptocurrency in 2021, a 79% increase from 2020.

Marketplaces where people can buy and sell these assets are also at risk, according to an article in the Verge: “Earlier this year, several accounts were compromised in Nifty Gateway and the attacker was able to access purchased NFTs, exchange them for other NFTs and sell them for a profit. While money was returned to affected investors, the NFTs were not recovered.” 

There are also other challenges like Smart Contract vulnerabilities and scams which are similar takes on what scammers have been using for years; phishing and using fake personas. As CoinDesk notes on the danger of scams: “there are also fake malicious pop-ups operating via Discord, Telegram, and other public forums that link to normal-looking login pages, such as MetaMask or other popular websites” and that “if a bad actor gets a hold of your private information through a phishing attempt, they can drain all of the crypto in your digital wallet.”

As NFTs become more mainstream there will be more fraud, but there will also be increased pressure to make sure such transactions are safe. Without a safe channel to buy and sell these assets, this hot trend will not be able to last long.