The problem with Non-Fungible Tokens

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If you spend any time on Twitter, you’ll see huge mainstream and internet celebrities changing their profile pictures to silly cartoon pictures. These celebrities include Jimmy Fallon, Post Malone, Steph Curry and Snoop Dog. So, what exactly are these pixelated profile pictures? If you don’t already know, they go by the name NFT, which stands for Non-Fungible Token. Simply put, an NFT is a unique asset that exists on the blockchain, and it uses blockchain technology as public proof of ownership. In Q3 of 2021, NFT trading volume was $10.67 billion. (1) So, as cryptocurrency continues to surge in popularity, what is the problem with huge celebrities getting into NFTs and seemingly bringing their fans into the crypto space? Simply put, these huge celebrities are buying and selling NFTs without truly understanding the economic and technical aspects of blockchain technology. I find this highly problematic, as their fans may lose money trying to emulate the actions of their idols. 

First, let’s discuss a simple fact. NFTs cannot exist without the underlying technology of blockchain and cryptocurrency technology. Without purchasing cryptocurrency, you cannot obtain an NFT. This presents a dilemma; how can someone buy or sell an NFT without having previously owned cryptocurrency? The issue then arises that someone is skipping this critical middle step of buying cryptocurrency and shifting their entire focus on NFTs. NFTs are not easy and buying and selling one is extremely complicated if you aren’t well versed in decentralized finance or crypto wallets. You cannot buy an NFT without understanding what Ethereum Gas fees are. What’s the difference between an NFT on the Ethereum Network and the Polygon Network and what is Wrapped Eth? These are all things that people who are just buying NFTs because celebrities are doing so, will find themselves asking about. 

Now, there is nothing wrong with NFTs themselves. They are unique collectibles that people find value in. The issue is that celebrities are refusing to teach their fans about the underlying technology before creating their own NFT brands. Uninformed people are interested in NFTs, while neglecting to learn about the intricate nature of cryptocurrency technology, transactions and markets. This creates a major dilemma, as very impressionable people are seeing their favorite celebrity with an NFT and want to buy one, without understanding the reasons why the NFT itself has value. 

This is akin to attempting to begin college without first having a high school education. Cryptocurrency has value and so do NFTs, but if you only purchase cryptocurrency with the sole aim of buying an NFT, without first understanding the reason cryptocurrency itself has value, you are skipping a critical step in your crypto journey. I would encourage anyone who wants to buy an NFT to first understand how and why cryptocurrency operates in the way it does and familiarize yourself with different wallets and cryptocurrency exchanges. In that way, when you end up buying that NFT you really want, you go in informed and don’t lose money foolishly. NFTs can be confusing, and if you don’t go into it informed, you may lose a ton of money. Being informed means doing your own research and not buying anything based solely on the recommendation of someone else. Be careful to not get rug pulled as cryptocurrency projects are notorious in their potential for scamming. If you feel something is off, chances are your gut may be right. If something looks too good to be true, then it probably is. Don’t buy anything without doing extensive research on the creator and other people that might own an NFT within that collection. And as always, do your own research before you do any investment of any kind. 

https://www.cnbc.com/2021/10/06/nft-trading-volume-hit-10-billion-2-reasons-why-people-are-buying.html#:~:text=NFT%2C%20or%20nonfungible%20token%2C%20trading,increase%20from%20the%20previous%20quarter.

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