The Problem with NFTs

Taking a look in my crystal ball, I would hazard to speculate that NFTs are here to stay. They will be an integral part of Web3 and the overall movement towards online decentralization. In the future, they will still be used for art and design, but will also enable the ownership of other kinds of digital property and will be linked to physical assets too.

This is all good, but there are some problems for NFTs to overcome.

A Certain Type of Over-Saturation

This relates directly to art and design NFTs. The kinds of tokens that are famous right now, featuring a lot of pixel art, and 10,000 piece collections of animals all looking in the same direction but with different hats on.

It is not simply that there are too many of these collections. After all, nobody who is interested in painting complains that there are too many paintings and that what the art world really needs is fewer people producing art because most of it is awful.

But, they might in some spheres complain about inauthenticity, a lack of originality, and low-quality knock-offs, and it is those things that, like a slow-motion 8-bit avalanche, are rolling over the NFT space and filling up its nooks and crannies. Not that the NFT space has limited capacity, but it does become a trudge to navigate when it is rammed with junk.

I expect the market will take care of this, as the days when you can execute a cash grab with not much more than a landing page. Some animal pictures and a Discord channel must surely be numbered.

Gas Fees on the Biggest Platform

Ethereum’s transaction costs are absurdly high, and a gargantuan barrier to entry. There are solutions incoming, such as layer 2 protocols that work with and on top of Ethereum, but they add further complications when getting started.

It may be that we have to wait for Ethereum 2.0, which promises to solve scalability issues, before buying NFTs on Ethereum works well enough to be considered user-friendly. Admittedly, that might take some of the fun out of it as cryptic obscurity and operating on the technical outskirts have their appeals, but don’t worry when Web3 gets too mainstream, you can start working on Web4.

Having said all that, some might say the solutions to Etheruem’s problems already exist, as we’ll see in the next point.

No Interoperability

Even without layer 2 and Ethereum 2.0 solutions, there are other ways to proceed without the gas fees, namely, entire blockchains, such as Cardano, Solana and Tezos, which are all capable of supporting NFTs and are already doing so.

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However, this leads to a situation in which there are entirely separate and incompatible NFT ecosystems. It’s kind of like if paintings were separated according to their canvas, and then couldn’t be stored, traded or displayed in the same places. Or, perhaps, as if there were websites that were unable to be linked up with one another, and operated on, each within their own walled-off networks.

Whatever your analogy, it would be beneficial to have interoperability. I can imagine a possible future in which the specific blockchain on which an NFT is held will be inconsequential, and it will seem primitive and strange that we once had these separate warring protocols.

Misunderstandings around Utility

NFTs are not only about JPEGs. Well, not for long, anyway, as we will likely look back on the JPEG era with curiosity, and NFTs with utility will become core parts of the future operability of Web3. Secure and transferable digital ownership is going to be important, which means NFTs are going to be important.

By all means, criticize the artwork, or right-click-save your favourite artwork, but don’t make the mistake of assuming that NFTs have no utility beyond linking to a picture, or that you will be able to right-click-save that utility.

Scams and Fraud

I’ve left this one until last, because although it’s an issue that gets a lot of interest from people not involved in NFTs, it’s actually, in my humble opinion, not that big a deal.

Which is not to say that scams don’t happen or are not upsetting and inconsequential for those who get ripped off. They do, and yes, that is a bad thing. There are rug pulls, wash trading, market manipulation and just blunt deception as crooks try any trick they can to get their mitts on your goods.

When navigating the NFT sphere, does your scam radar need to be more highly tuned than usual, and always turned on? Yes, absolutely, so keep it operating and be very careful. The thing is, though, that you should be highly skeptical of every single NFT project, but you should not be skeptical about the NFT technology itself.

Corruption, trickery and fraud permeate both finance and art, so let’s not pretend everything was squeaky clean until blockchains came along. It’s a little wild out there, but it will become tamer in the years to come, so look forward to more tranquil times, or even better, relish this savage era while you can.