NFTs can be just incredible, but not now

News about million-dollar NFTs convince us that this is mainstream. Perhaps, but this cannot be said about real trading. So far, there are three types of people buying NFT:

1. Speculators are smart people, insiders who make money.
2. Show-offs are those who want to show that they are rich and can afford a “bored monkey” for a bunch of zeros.
3. Those who come late and try to convince you to buy their NFT because they don’t want to lose the opportunity to get easy money.

However, everything will change when the metaverse comes to life and NFTs become really useful.

Traditional Gold Rush

On Coinmarketrate.com The NFT boom is described as a hype in 2021, like a traditional gold rush, but it is different from the hype around the ICO in 2017, when many scammers collected funds from consumers, driven by fear of missing the moment (FOMO). Although, of course, there are many scams with NFT, but the time will come when we will see that they will eventually offer real utility, speculation and extreme prices will probably disappear for the vast majority of tokens simply because NFTs will become ubiquitous.

One of the positive aspects in the hype around them is that for the first time digital artists can receive money for their work and contribution to the development of society. However, this does not mean that there are no problems in NFT. In fact, there are many of them, and if you are interested in mining or trading NFT, it is important to know about them.

Problems with NFT

It seems that NFTs solve the problem of digital ownership, but so far most of them do not take into account copyright, actual legal ownership, piracy, theft and other human problems.

1. Who owns the underlying asset?

NFTs prove that you own something that is hosted somewhere. But this does not mean that the underlying asset is really yours. NFTs show that you have made a transaction with a certain digital asset, so it is a verifiable token that indicates that you own the asset.

Actual NFTs (like real digital works of art) are ideally stored in a decentralized file sharing system such as IPFS, FileCoin or Storj, but they can also be stored on a central server such as AWS, since decentralized storage of large JPG, GIF, Video or MP3 is often too expensive. Instead, the blockchain often stores only the web address of the place where the work of art is stored. If the items are hosted on a centralized server, then the organization that manages that server can simply delete the item, even if you paid millions of dollars for it.

A token is a smart contract indicating the location of a web address on the blockchain (indicates the server where your asset is stored), which is stored in a digital wallet. Since the web address is on the blockchain, it cannot be changed, but someone can delete the asset from the server, as a result of which your unchanged and expensive web address will give the message “404 not found”.

Unless your expensive work of art is stored in a decentralized storage system, you can be the owner of a “receipt” for a certain asset, but not own it. But the owner of the server where it is stored actually controls it, and can delete it if he wants.

2. Centralization in a decentralized ecosystem

Therefore, it is most reasonable to use one of the well-known trading platforms, such as OpenSea, but even this is not a guarantee of success. Although OpenSea uses IPFS because it is a centralized exchange, they also control the keys like any centralized cryptocurrency exchange. If OpenSea decides to delete or freeze a digital asset due to copyright infringement or for any other reason, your NFT will become useless, and this has happened more than once.

For example, at the end of 2021, OpenSea intervened to block the sale of stolen expensive NFTs from collector Todd Kramer, a well-known art gallery owner, which were reportedly worth $2.2 million. With the help of a phishing attack, NFTs were stolen from his “hot” wallet – a wallet connected to the Internet. While it may be nice for Todd that a thief can’t resell his NFTs, it raises important questions about the decentralization of these NFTs.

3. Hacked Wallets and Blockchain Security Issues

If the NFT is stored in a decentralized repository, only the user who owns it should be able to access and control it. To make matters worse, most NFTs are stored on a centralized exchange, which is similar to how your cryptocurrency is stored on a centralized exchange, and this means that if the exchange is hacked, you may lose your valuable NFTs.

If the NFT is on your decentralized wallet, or is on a hot wallet connected to the Internet, you are responsible for security yourself. If you get hacked because of a phishing scam, you can still lose your NFT.

NFTs are stored on the blockchain. It can be Ethereum, Solana, EOS or any other of several dozen blockchains that allow the use of NFT. The security of these blockchains is provided by decentralized miners or validators, administrators, and the more administrators there are, the more secure the blockchain becomes, as it becomes more difficult to carry out the so-called 51% attack.

This is an attack in which a group of miners owns more than 50% of the network hashing. Since they control the majority, they can cancel transactions that were executed while the group controlled them. This means that they can spend tokens twice, which is their goal.

A blockchain that has fallen victim to a 51% attack probably won’t live long, and if your NFTs are stored on such a blockchain, your tokens may become completely useless. Of course, most of them are stored on Ethereum, which has a wide distribution and is truly decentralized due to its age. However, there is a price to pay for this, since the Ethereum gas fee is the price that must be paid for recording a transaction. And it has grown to the skies, which makes the network prone to inequality, which many organizations tried to prevent in Web 2.0.

There are other networks for NFT that will be cheaper to use, but they may be more centralized and therefore have weaker security. All this means that for the mass introduction of non-interchangeable tokens, it is necessary to reduce transaction costs, ideally to zero or close to zero, and decentralization should grow to ensure that the NFT purchased today for $ 10,000 will retain its value in the future.

4. The “Fat Finger” error

And if you were lucky, you bought an expensive NFT, but you got through a lot of trouble with the fact that your wallet was hacked, or the security of the blockchain storing NFT was violated, or the centralized database storing your real works of art may have been hacked, and the criminal was able to delete the real asset, in which case you are all also keep an NFT pointing only to the web address on the server. But since there is nothing on this server, you don’t own anything.

If this does not happen, then you are still responsible for not selling your “Bored Monkey” at the wrong price, as happened with the owner of NFT Max, who accidentally sold his monkey for 0.75 ETH (about $ 3,000) instead of 75 ETH (about $ 300,000). Before the owner had time to correct his mistake, the bot managed to snatch a unique collector’s item, sending a transaction with 8 ETH (about $34,000) of gas fees to ensure its instant processing.

Such so-called “fat finger” errors have happened before. While this annoys the original owner, it is also indicative of a more serious problem that has been causing a lot of controversy around the world in recent years.: net neutrality. The goal of net neutrality has always been to provide everyone with equal access to the Internet, and Internet service providers (ISPs) should treat all Internet communications equally. Obviously, due to gas fees, this is no longer applied in the blockchain world, which could pose a threat to the future, further increasing the digital divide and inequality.

5. Fraud and Copyright infringement

Unfortunately, this is not all, there are also many scams and copyright violations, and some sweetly call it satire or art, on famous and expensive collectibles. Take, for example, the Phunky Ape Yacht Club (or PAYC), which simply turned the right-sided Bored Apes to the left side and resold them, earning about $1.8 million.

Since then, PAYC has been banned from centralized markets such as OpenSea, Raible and Mintable, which once again shows the power that these centralized markets have, creating an “unhindered” trading experience for the masses.

Let’s say you’re lucky (hallelujah) and everything works fine. In this case, your adventures in the style of “Wrong Turn” are not over. It may well turn out that the NFT you bought does not have the corresponding IP or copyright. Accordingly, this will potentially prevent you from monetizing it. Well, except that, as a beautiful image to view in your wallet or virtual home, which everyone else can do, and for free.

In fact, most of the NFTs sold in 2021 don’t come with copyrights or IP, which means you can’t monetize the NFT, which is an essential component for a dynamic economy. The collection of Phunky Ape Yacht Club “Bored Monkey” is one of them. All this leads to the growth of an active community and high prices. Most collectibles don’t even do that. All you eventually have after acquiring an NFT is a pointer to an item that is stored somewhere, which is not a sustainable solution if tokens are intended for mass adoption.

In conclusion

All of the above indicates that it is important to always conduct your own research before diving into the market, as is the case with cryptocurrency trading. Of course, it all seems very depressing, and it is, but it’s not the end of the world. After all, it’s just getting started.

As the legal system gains momentum and the blockchain ecosystem continues to evolve and improve, that is, truly decentralized storage of your digital assets, compatible blockchains and minimal or zero transaction fees will become possible, all of the above problems are likely to disappear.

Despite these problems, NFTs are still a much better system than the current centralized approach, in which a company can simply delete years of your work at the touch of a button. Tokens offering utility are amazing and they will define the economy of the metaverse and possibly the real world, but first we need to solve these five NFT problems.

The best proof of this is the DecimalChain blockchain, which the help of which users can issue their own coin in just two minutes.
Besides, you can design your own NFT. For doing this, you need ti download the file and set some characteristics. The initial price is set depending on the base platform token. Here is an example of one artist’s work.