5 Common NFT Myths Debunked
With NFTs' popularity, there’s been a lot of misconceptions and myths surrounding the entire industry. The main reason is simply the complexity of the subject. So let's share some light on it.
Naturally, when there’s so much hype and discussion around something, sooner or later, various myths start to come to the surface.
NFTs are no exception. While the NFT market surpassed $40 billion in 2021, 75% of Americans still don’t really know what NFTs are. With the lack of knowledge comes uncertainty, and just like this, false narratives are created.
In light of this, we would like to look at some of the most common misconceptions more closely and help you understand what’s real and what's not.
5 NFT Misconceptions Debunked
Let’s be honest. The NFT industry is pretty complex, and therefore not everyone has the time to really dig into it to grasp what non-fungible tokens really are.
So to help you know for sure what’s what, here are the five most common NFT myths.
1. NFTs are just digital images
NFTs are often believed to be simply just jpg. files, and it can be hard to comprehend why anyone would spend money to own a file that anyone could easily screenshot and call their own.
As digital art is one of the most popular examples of NFT use cases, it’s natural that this is where the misconception comes from.
Possibly even those not interested in the crypto sphere at all have heard about the NFT collection Bored Apes Yacht Club, or at least heard someone say, “why would I want to pay heaps of money for an image of a silly monkey.”
However, NFTs are expanded to many more industries than just digital art.
As NFTs represent media files attached to a specific digital token, which can be tracked and verified on the blockchain, they provide an ideal ground for the music industry, sports collectibles, gaming, and ticketing, to name a few.
2. NFTs don’t have any real-world value
The claim that NFTs don’t have any real-world value presumably comes from the same mistaken belief that non-fungible tokens represent only digital art.
When we look at NFTs like we would look at regular art, then the value of a single artwork is by all means completely subjective, and the monetary value is determined by the seller and the market demand.
This means that the value of NFT artworks and traditional artworks are driven by the same factors - authenticity, scarcity, the reputation of the artist, etc. The main difference is that verifying the authenticity of an NFT and ownership is much easier, and anyone can access the information.
And as we already covered above, NFTs have far more use cases than only digital art. For instance, NFTs can have a significant impact on the real estate industry.
When intermediaries are replaced with smart contracts that conduct a straightforward transfer of ownership, the process is drastically sped up. Moreover, all ownership and rights history is recorded on the Blockchain, where it can easily be accessed and verified.
3. An NFT is an artwork, a song, a photo, or other assets that are stored on the blockchain
Whereas many people have understood that there are more use cases for NFTs than solely digital art, the concept of crypto and blockchain is still complex topics to get your head around.
First of all, NFT is not an asset itself but a representation of one of a kind record of digital data, which in turn is tied to (most commonly digital) asset by cryptographically associating a named token with the asset.
Therefore, NFT is foremost a digital key to find and access the asset that is also known as a digital signature or a hash but otherwise stands separate from the asset itself.
Secondly, the asset is not stored on the blockchain’s digital ledger. The NFT is, and the NFT is pointing to the asset, which is stored somewhere “off-chain.” For instance, digital assets can be stored on the InterPlanetary File System (IPFS) - a peer-to-peer file system for storing and sharing data.
4. NFTs give you rights to the product
While NFTs work as proof of ownership, it does not automatically grant copyright or other intellectual property rights (IPR).
Misconceptions like these can have dire consequences. At the end of 2021, an anonymous NFT group called Spice DAO purchased a copy of a rare artbook Jodorowsky's Dune, for $3 million, believing the purchase would give them the rights to Dune’s IP.
However, in reality, the copyright still belongs to the owners of the Dune franchise. Therefore sadly, the group’s ambitious plan to convert the book into NFTs, burn the physical copy, and adapt the story into an animated series failed. Instead, they just own an extremely expensive book.
Of course, purchasing an NFT might sometimes include other associated rights if it’s concluded in the terms of sale. The terms are always dependent on the contract at hand and have to be looked at on a case-by-case basis.
This is a good place for a reminder to never just hope for luck to be on your side. Always do your own research and really investigate what you will be getting in return for your money.
5. NFTs are bad for the environment
NFTs have gained a reputation for negatively impacting the environment. And while it can’t be argued that traditional methods of minting and verifying NFTs have a high energy consumption, there are more and more carbon-neutral blockchains on which NFT marketplaces can be built.
In nature, NFTs are not bad for the environment themselves. What is bad is proof of work, which stands for the validation method that confirms transactions including NFT transactions. As this method requires an enormous amount of computer processing it inherently consumes a lot of energy and impacts the environment.
Currently, over half of NFT trades are made on the OpenSea platform which was the first major NFT platform, and naturally, both users and brands flocked to it.
As OpenSea is built on the Ethereum blockchain, and Ethereum uses proof of work for validating transactions, this consequently makes it seem like NFTs are harming the environment.
Fortunately, today there are many alternatives to OpenSea and other proof of work platforms. By using proof of stake instead of proof of work, the energy consumption of blockchain transactions is reduced about 99%.
Therefore, if you wish to ensure that you are supporting brands that are as sustainable as possible, see if they are using proof of stake blockchains like Solana or Cardano.
To Sum Up
It’s natural that misconceptions are easy to spread when people are busy and don’t have time to go into depth when reading about certain topics like blockchain, crypto, and NFTs.
This is why it’s always important to double-check your understanding surrounding NFTs before making any important decisions.