Dark side of NFT

NFT technology has attracted widespread interest relatively recently, but has been around for about three years. The basic idea behind the non-exchangeable tokens was to help artists monetise their work. Also it was planned that this resource would replace many popular donation services for artists.

The situation was warmed up by the case of Beeple, who received a record $69 million for his collage of 5 thousand images. And although the resource attracts many creators, art lovers and just inquisitive minds, its further development has many questions. The reason for this is that NFT has revealed numerous downsides. Recently, the NFT phenomenon has been increasingly compared to the dot-com bubble (the oversupply of internet companies in the financial market of the early 2000s).

Many large and well-known companies have already been burned by trying to implement NFT in their products. For example, Discord and ArtStation, Ubisoft and GSC Game World, and others. Most of the attempts ended in scandals, court summons and mass user dissatisfaction. Discord, ArtStation and GSC have all rejected tokens, and Quentin Tarantino was subpoenaed by the Miramax distributor because of NFT on Pulp Fiction.

NFT in brief

NFT (Non Fungible Token) is an individual digital signature that is attached to any file (picture, video, mp3, GIF animation) so that the user can buy digital content and prove ownership.

With tokens, anyone can easily secure the rights to a unique digital object – a picture, video or object in a game. In other words, NFT allows you to buy not the product itself, but the ownership of it by attaching a token with the data about the owner to the file. This possibility immediately appealed to collectors, because tokens are often advertised as a scarce commodity and sold through auctions.

Is a token just a certificate?

Yes, a token is a certificate with a link to any unique digital item that is sold for money. 

Artists Antsstyle and Erika-Xero point out that the token itself is original and non-interchangeable, but you can link it to any file and as many times as you like. Attackers can do the same, and no one forbids the use of images and videos already linked to other tokens.

For example, if you remove your work or it is deleted by the platform due to copyright infringement, the token will remain with the owner – and it can be reused (it will simply be marked as such). If the buyer and the artist have not signed a transfer of copyright agreement, the token will remain with the creator of the work, whatever price the collector asks for the NFT.

Essentially the token is an original digital signature (certificate) with a link that leads to a jpeg file (i.e. no file in it). NFT will not let you copy the blockchain within which it operates, but the venues do not forbid copying and reloading the file.

Key shortcomings of the NFT

A great deal of dissatisfaction and complaints came from artists in particular. The NFT technology was primarily intended for them. After analyzing most of the known cases, a number of significant disadvantages are highlighted below.

  • No authorship verification: Anyone can link an NFT token to any picture without verifying true authorization. This is perhaps the biggest problem with the technology. When posting content for sale, there is no verification of the authenticity of the work and no establishment of copyright. Thus, absolutely anyone can make a selection of pictures from the internet and put them up for sale. Very often illustrators are completely unaware that their work is for sale. And some scammers go even further and create fake profiles of famous artists!
  • Inaction of the platforms in case of complaints: There have been repeated cases of fraudsters stealing artists’ work and putting it on the OpenSea platform. The platform does not charge for creating tokens and does not verify the identity or copyright of the user. That’s exactly what the attackers took advantage of.
  • The author can appeal against the posting of the stolen content by sending a message to a separate email. But the review can be very time-consuming, as OpenSea receives hundreds of complaints every day. In the meantime, collectors can acquire tokens. And if removed, the NFT will simply disappear from the wallet with no refund.
  • Bots for NFT tweets: The particularly crafty have created bots that generate NFTs from tweets without the author’s permission. For example, @tokenizedtweets is a bot that can link tweets to NFT tokens and put them up for sale without the authors’ knowledge. More precisely, the bot binds tokens not even to the post itself, but to its URL. At first, such bots look like regular art pages promoting the work of various artists. Any user can mention a bot in the comments of any post and it will turn the tweet into a piece of blockchain in a short time. In this case, in case of sale, the author of the publication will not get any money.
  • Low profitability and low quality work: Only popular artists “with a name” can count on large sums in NFT. Buyers only buy their tokens because of the artist’s fame, but the artistic value remains in the background. In addition, on NFT-platforms, many authors work on quantity, displaying collections of 2,000 or more images with minimal differences.
  • Fraudulent schemes: Individual profiles put up huge collections under the pretext of creating a computer game and sometimes a meta-universe, using someone else’s work. And after raising funds, they would delete accounts, websites, social media pages, and withdraw funds to third-party accounts. Notable examples include the Evolved Apes collection by Evil Ape, Solana Towers, Cheesy Dizzy, and Interstellar Bots.
Money laundering: Increasingly, NFT is being used as a convenient method to launder money. As this market today is not legally regulated and transactions, even of very large amounts, are not taxed. For this reason, many create a simple image with an exorbitant price tag to transfer money from one wallet to another.