Last Edit: Jan 13, 2022

There’s a recent reddit r/OutOfTheLoops question about the concerns people have about NFTs and we got an answer that gained a lot of traction there. This would be the best list of cons I have seen on reddit so far, so I am going to try to answer each point using data and links to go deeper. Here we go!

the non-fungible (un-reproduceable) part of NFTs is usually just a receipt pointing to art hosted elsewhere, meaning it's possible for the art to disappear and the NFT becomes functionally useless, pointing to a 404 — Page Not Found

First of all, yes it’s a receipt which denotes proof of ownership, because there’s a unique “From” and “To” address which can’t be copied. There is also proof of time of the transaction, and these days usually the smart contract includes a permanent royalty fee to the original artist (around 10%) so it already takes care of a lot, not “just” a receipt.

Additional Info Regarding Royalty: Royalty Fee implementation in ETH for ERC 721 and ERC 1155 is not standardized yet, so each of the secondary marketplace has to code their own. Soon though, this will be standardized because EIP-2981: NFT Royalty Standard has just been approved the past month. For other blockchains, I imagine the situation is about the same.

Second of all, NFTs these days are using IPFS (InterPlanetary File System) which is a distributed system for storing and accessing files, websites, applications, and data. Please dive deep in the IPFS explanation link above where it’s explained why it’s unlikely for data to just disappear when it’s decentralized. You can check and confirm the metadata of your NFT as well, step by step outlined here.

some art is generated based off the unique token ID, meaning a given piece of art is tied to the ID within the system. But this art is usually laughably ugly, made by a bot who can generate millions of soulless pieces of art.

Also, someone could just right click and save a piece of generated art, making the 'non-fungible' part questionable. Remember, the NFT is only a receipt, even if the art it links to is generated off an ID in the receipt.

Art is highly subjective, most of the generative arts don’t resonate with me either and yes, AI/bots can create arts already why is that something so bad?

We are just on the second point and we’re already biting into something spicy! Right-Click Save is something that anyone can do. We spoke about NFT as the receipt or proof of ownership earlier. This "receipt" doesn't have to enforce ownership to the art (or in general the asset) it's pointing to, because if you try to create a duplicate NFT from that asset (by right-click save for example), it's verifiable that it doesn't get minted from the original address and furthermore from the timestamps, it'll be minted after the original NFT.

In the real world analogy, you can take a picture of the Mona Lisa in the museum, or buy the imitation Mona Lisa painting. Does it matter even one bit (pun intended)? When you try to sell this imitation, some people that doesn’t know better might be fooled but to ones who do, the imitation will be found out. It just takes expertise to figure it out in the analog world and it’s arguably easier in the digital world by using NFT as proof of originality.

Furthermore, the JPEG NFTs (the one we are currently discussing) revolve around the community. When you right-click save, you didn’t imitate the community either because yours don’t have legitimacy. This brings us to the topic of utility. This creates value for people, such as Bored Ape ownership that unlocks the possibility to attend parties, venues and in some cases unique merchandise. This article discusses a deep-dive on BAYC utility and its value as a brand new way of branding.

however, NFTs are marketed as if they're selling you the art itself, which they're not. This is rightly called out by just about everybody. You can decentralize receipts because those are small and plain-text (inexpensive to log in the blockchain), but that art needs to be hosted somewhere. If the server where art is hosted goes down, your art is gone.

I guess here is a continuation of point one. We need to define selling the art here. When I buy from OpenSea, the creator is transferring me an ownership of this art (and they will get a percentage of proceeds from my sale or any of the next future sales). In addition to owning the object, usually in a community-based NFT such as Bored Ape, it means I also gain access to concerts and other things organized by the community.

What can I do with it? I can stake some NFTs, lend this to someone else, sell it on marketplace and other things we might not think about now.

Please refer to IPFS point from the first and other decentralized file storage such as Arweave or Filecoin to see why this is not just disappearing when the host server goes down.

NFT minters are often art thieves, minting others' work and trying to spin a profit. The anonymous nature of NFTs makes it hard to crack down on, and moderation is poor in NFT communities.

This is something real and have happened albeit more recently as of this year due to the popularity of NFTs. This is the nature of grifters when they see opportunities, and it also happened on Etsy, Deviantart, and other places. Identity theft is a thing and we definitely need to fight it.

Here is what DeviantArt has done to help safeguard artist’s creation and you can find OpenSea’s guidelines to remove listings that belongs to someone else. The marketplaces such as OpenSea, Foundation, rarible, and Zora have implemented the report button so they can take it off listing. Adjudicating content is a lose-lose game (too strict and free speech community will be offended, too lose and everyone else hates it) so this responsibility comes along with the take rate that they’re including in the transactions (usually around 2.5% or so).

However the real solution is the people (the base layer of everything, so we can call it Layer-0) not giving legitimacy to these bogus listings. Bogus listings are definitely not the majority as is shown by this listing, showcasing the top 100 NFT collection by transaction volumes and you can see people are not legitimizing the fake collections. Legitimacy is truly the most important scarce resource in the Layer-0.

Artists who get into NFTs with a sincere hope of making money are often hit with a harsh reality that they're losing more money to minting NFTs of their art is making in profit. (Each individual minted art piece costs about $70-$100 USD to mint)

This actually acts as a deterrent as well to the bad actors, so people will need to provide tangible investments to opt in and becomes a part. It’s part of the mechanism design. It’s also the harsh reality of trying to make it as an artist and creator. This is nothing new, however creators with sincerity and originality might be able to increase the possibility of making it because they can go direct to consumer and you don’t exactly need a large following to make it. A certain few who loves you is enough.

most huge sales are actually the seller selling it to themselves under a different wallet, to try to grift others into thinking the token is worth more than it is. Wallet IDs are not tied to names and therefore are anonymous enough to encourage drumming up fake hype.

example: If you mint a piece of art, that art is worth (technically speaking) zero dollars until someone buys it for a price. That price is what the market dictates is the value of your art piece.

I have no doubt that this happens. However the good ones, such as Beeple, CryptoPunks, or the Benoni Whales and many many others don’t do this. They create a community first (for Beeple not necessarily in Discords but via a large following in traditional arts) and then the value is derived from the community’s perception of the collection.

creating artificial scarcity as a design goal, which is very counter to the idea of a free and open web of information. This makes the privatization of the web easier.

Artificial scarcity, in the case of bitcoin and some cryptocurrency, is part of the mechanism design to counter the second problem premise: the problem with fiat money or modern monetary theory when the central banks are largely doing irresponsible money printing.

For NFTs, there is ownership, but not necessarily scarcity. No one can deny that LarvaLabs people might mint another 10,000 cryptopunks, or more Bored Apes might be minted. The reason why NFT collection has value is not purely from scarcity. People love a good story and successful NFT collection is strong on the narrative for the community building. At this time, it might be worth mentioning that NFT implementation as JPG is barely scratching the surface.

using that artificial scarcity to drive a speculation market (hurts most people except hedge funds, grifters, and the extremely lucky)

NFTs are driven by hype, making NFT investers/scammers super outspoken and obnoxious. This is why the tone of the conversation around NFTs is so resentful of them, people are sick of being forced to interact with NFT hypebeasts.

I agree with these points completely. Some part of the community, the “hypebeasts” are only purely interested in this implementation to make money, to go to the moon, etc and it can be toxic.

However, this is not a unique phenomenon to NFTs. Even one of the richest artist alive, Damien Hirst has some that contests his originality, saying some of his work are plagiarised, or is purely marketed from hype generating piece.

questionable legality — haven for money laundering because crypto is largely unregulated and anonymous

Some parts might be unregulated. However most people get access to crypto through Exchanges such as coinbase, Gemini, Kraken, Binance and the likes. They all have to implement a Know Your Customer (KYC) process before letting people owning and transferring cryptocurrency. In addition to this, crypto trading incomes are largely included as short or long term investment income (in the US at least).

Because cryptocurrencies are actually transparent, people can follow the money and wallet and found out that a few wallets are actually responsible for these illicit activities. Companies like Ciphertrace published reports like this for 2020 and it’s largely data driven because on chain analysis is possible. FinCEN already have a framework to regulate this as well if you read the report.

gamers are angry because game publishers love the idea of using NFTs as a way to squeeze more money out of microtransactions. Buying a digital hat for your character is only worth anything because of artificial scarcity and bragging rights. NFTs bolster both of those

Agreed completely, the way the publishers are currently doing it doesn’t benefit the community/users. What is supposed to happen is for the publishers to start with what the community cares about and try to do something with it. Let’s say about climate change, there is a DAO (decentralized autonomous organization) that is implementing a way to tie-in carbon sequestering into the blockchain called Klima. So why not make a Klima x [insert brand here] for example.

They are largely doing the following:

• try to make NFTs which doesn't do anything or create any feeling to not offend anyone

• create engagement via advertisement

• NFT launch create buzz for like a day or two

• followed by nothing, no unique value or experience created for the users/enjoyooooors

• Community goodwill is ruined

The computational cost of minting NFTs (and verifying blockchain technology on the whole) is very energy intensive, and until our power grids are run with renewables, this means we're burning more coal, more fossil fuels, so that more grifters can grift artists and investors.

For proof of work blockchains, the way to do Net Zero mining is outlined and planned. You can find an explanation for Bitcoin, for example, here. Even so, cryptocurrency mining accounts for around 0.9% of total electricity usage. We should try to compare this with other systems that would fall under technology improvements for humanity.

In addition, for Proof of Stake networks such as Solana, AVAX, Tezos and many Ethereum scaling solutions such as MATIC it consumes electric just like any other computer. It should be a non-issue here unless you want to attack basically everyone using mobile or desktop computing.

The costliest asset to create in human history are networks, and they very rarely persist between generations (some human social networks tend to stay longer, however, for both good and bad reasons). We have now arrived at a time where it is possible to have frictionless information and value transfer network (something that hasn’t happened before cryptocurrency) that will also be very likely to persist due to its decentralized nature (where not only one institution collects and stores a copy, but a lot across the world).

The next thing we need is to cultivate trust between each of us, participants in the network, not only to sing Kumbaya or say gm to each other (who doesn’t love a bit of gm though?) but also to provide possibility of healthy discourse, disagreements, and discussion. This will enable us to propel towards the future and ensure no one gets left behind by choice.

If you like what you read, drop me a line or follow me on Twitter below. Let’s discuss!

https://twitter.com/GueRakun

Last Edit: Jan 13, 2022

There’s a recent reddit r/OutOfTheLoops question about the concerns people have about NFTs and we got an answer that gained a lot of traction there. This would be the best list of cons I have seen on reddit so far, so I am going to try to answer each point using data and links to go deeper. Here we go!

the non-fungible (un-reproduceable) part of NFTs is usually just a receipt pointing to art hosted elsewhere, meaning it's possible for the art to disappear and the NFT becomes functionally useless, pointing to a 404 — Page Not Found

First of all, yes it’s a receipt which denotes proof of ownership, because there’s a unique “From” and “To” address which can’t be copied. There is also proof of time of the transaction, and these days usually the smart contract includes a permanent royalty fee to the original artist (around 10%) so it already takes care of a lot, not “just” a receipt.

Additional Info Regarding Royalty: Royalty Fee implementation in ETH for ERC 721 and ERC 1155 is not standardized yet, so each of the secondary marketplace has to code their own. Soon though, this will be standardized because EIP-2981: NFT Royalty Standard has just been approved the past month. For other blockchains, I imagine the situation is about the same.

Second of all, NFTs these days are using IPFS (InterPlanetary File System) which is a distributed system for storing and accessing files, websites, applications, and data. Please dive deep in the IPFS explanation link above where it’s explained why it’s unlikely for data to just disappear when it’s decentralized. You can check and confirm the metadata of your NFT as well, step by step outlined here.

some art is generated based off the unique token ID, meaning a given piece of art is tied to the ID within the system. But this art is usually laughably ugly, made by a bot who can generate millions of soulless pieces of art.

Also, someone could just right click and save a piece of generated art, making the 'non-fungible' part questionable. Remember, the NFT is only a receipt, even if the art it links to is generated off an ID in the receipt.

Art is highly subjective, most of the generative arts don’t resonate with me either and yes, AI/bots can create arts already why is that something so bad?

We are just on the second point and we’re already biting into something spicy! Right-Click Save is something that anyone can do. We spoke about NFT as the receipt or proof of ownership earlier. This "receipt" doesn't have to enforce ownership to the art (or in general the asset) it's pointing to, because if you try to create a duplicate NFT from that asset (by right-click save for example), it's verifiable that it doesn't get minted from the original address and furthermore from the timestamps, it'll be minted after the original NFT.

In the real world analogy, you can take a picture of the Mona Lisa in the museum, or buy the imitation Mona Lisa painting. Does it matter even one bit (pun intended)? When you try to sell this imitation, some people that doesn’t know better might be fooled but to ones who do, the imitation will be found out. It just takes expertise to figure it out in the analog world and it’s arguably easier in the digital world by using NFT as proof of originality.

Furthermore, the JPEG NFTs (the one we are currently discussing) revolve around the community. When you right-click save, you didn’t imitate the community either because yours don’t have legitimacy. This brings us to the topic of utility. This creates value for people, such as Bored Ape ownership that unlocks the possibility to attend parties, venues and in some cases unique merchandise. This article discusses a deep-dive on BAYC utility and its value as a brand new way of branding.

however, NFTs are marketed as if they're selling you the art itself, which they're not. This is rightly called out by just about everybody. You can decentralize receipts because those are small and plain-text (inexpensive to log in the blockchain), but that art needs to be hosted somewhere. If the server where art is hosted goes down, your art is gone.

I guess here is a continuation of point one. We need to define selling the art here. When I buy from OpenSea, the creator is transferring me an ownership of this art (and they will get a percentage of proceeds from my sale or any of the next future sales). In addition to owning the object, usually in a community-based NFT such as Bored Ape, it means I also gain access to concerts and other things organized by the community.

What can I do with it? I can stake some NFTs, lend this to someone else, sell it on marketplace and other things we might not think about now.

Please refer to IPFS point from the first and other decentralized file storage such as Arweave or Filecoin to see why this is not just disappearing when the host server goes down.

NFT minters are often art thieves, minting others' work and trying to spin a profit. The anonymous nature of NFTs makes it hard to crack down on, and moderation is poor in NFT communities.

This is something real and have happened albeit more recently as of this year due to the popularity of NFTs. This is the nature of grifters when they see opportunities, and it also happened on Etsy, Deviantart, and other places. Identity theft is a thing and we definitely need to fight it.

Here is what DeviantArt has done to help safeguard artist’s creation and you can find OpenSea’s guidelines to remove listings that belongs to someone else. The marketplaces such as OpenSea, Foundation, rarible, and Zora have implemented the report button so they can take it off listing. Adjudicating content is a lose-lose game (too strict and free speech community will be offended, too lose and everyone else hates it) so this responsibility comes along with the take rate that they’re including in the transactions (usually around 2.5% or so).

However the real solution is the people (the base layer of everything, so we can call it Layer-0) not giving legitimacy to these bogus listings. Bogus listings are definitely not the majority as is shown by this listing, showcasing the top 100 NFT collection by transaction volumes and you can see people are not legitimizing the fake collections. Legitimacy is truly the most important scarce resource in the Layer-0.

Artists who get into NFTs with a sincere hope of making money are often hit with a harsh reality that they're losing more money to minting NFTs of their art is making in profit. (Each individual minted art piece costs about $70-$100 USD to mint)

This actually acts as a deterrent as well to the bad actors, so people will need to provide tangible investments to opt in and becomes a part. It’s part of the mechanism design. It’s also the harsh reality of trying to make it as an artist and creator. This is nothing new, however creators with sincerity and originality might be able to increase the possibility of making it because they can go direct to consumer and you don’t exactly need a large following to make it. A certain few who loves you is enough.

most huge sales are actually the seller selling it to themselves under a different wallet, to try to grift others into thinking the token is worth more than it is. Wallet IDs are not tied to names and therefore are anonymous enough to encourage drumming up fake hype.

example: If you mint a piece of art, that art is worth (technically speaking) zero dollars until someone buys it for a price. That price is what the market dictates is the value of your art piece.

I have no doubt that this happens. However the good ones, such as Beeple, CryptoPunks, or the Benoni Whales and many many others don’t do this. They create a community first (for Beeple not necessarily in Discords but via a large following in traditional arts) and then the value is derived from the community’s perception of the collection.

creating artificial scarcity as a design goal, which is very counter to the idea of a free and open web of information. This makes the privatization of the web easier.

Artificial scarcity, in the case of bitcoin and some cryptocurrency, is part of the mechanism design to counter the second problem premise: the problem with fiat money or modern monetary theory when the central banks are largely doing irresponsible money printing.

For NFTs, there is ownership, but not necessarily scarcity. No one can deny that LarvaLabs people might mint another 10,000 cryptopunks, or more Bored Apes might be minted. The reason why NFT collection has value is not purely from scarcity. People love a good story and successful NFT collection is strong on the narrative for the community building. At this time, it might be worth mentioning that NFT implementation as JPG is barely scratching the surface.

using that artificial scarcity to drive a speculation market (hurts most people except hedge funds, grifters, and the extremely lucky)

NFTs are driven by hype, making NFT investers/scammers super outspoken and obnoxious. This is why the tone of the conversation around NFTs is so resentful of them, people are sick of being forced to interact with NFT hypebeasts.

I agree with these points completely. Some part of the community, the “hypebeasts” are only purely interested in this implementation to make money, to go to the moon, etc and it can be toxic.

However, this is not a unique phenomenon to NFTs. Even one of the richest artist alive, Damien Hirst has some that contests his originality, saying some of his work are plagiarised, or is purely marketed from hype generating piece.

questionable legality — haven for money laundering because crypto is largely unregulated and anonymous

Some parts might be unregulated. However most people get access to crypto through Exchanges such as coinbase, Gemini, Kraken, Binance and the likes. They all have to implement a Know Your Customer (KYC) process before letting people owning and transferring cryptocurrency. In addition to this, crypto trading incomes are largely included as short or long term investment income (in the US at least).

Because cryptocurrencies are actually transparent, people can follow the money and wallet and found out that a few wallets are actually responsible for these illicit activities. Companies like Ciphertrace published reports like this for 2020 and it’s largely data driven because on chain analysis is possible. FinCEN already have a framework to regulate this as well if you read the report.

gamers are angry because game publishers love the idea of using NFTs as a way to squeeze more money out of microtransactions. Buying a digital hat for your character is only worth anything because of artificial scarcity and bragging rights. NFTs bolster both of those

Agreed completely, the way the publishers are currently doing it doesn’t benefit the community/users. What is supposed to happen is for the publishers to start with what the community cares about and try to do something with it. Let’s say about climate change, there is a DAO (decentralized autonomous organization) that is implementing a way to tie-in carbon sequestering into the blockchain called Klima. So why not make a Klima x [insert brand here] for example.

They are largely doing the following:

• try to make NFTs which doesn't do anything or create any feeling to not offend anyone

• create engagement via advertisement

• NFT launch create buzz for like a day or two

• followed by nothing, no unique value or experience created for the users/enjoyooooors

• Community goodwill is ruined

The computational cost of minting NFTs (and verifying blockchain technology on the whole) is very energy intensive, and until our power grids are run with renewables, this means we're burning more coal, more fossil fuels, so that more grifters can grift artists and investors.

For proof of work blockchains, the way to do Net Zero mining is outlined and planned. You can find an explanation for Bitcoin, for example, here. Even so, cryptocurrency mining accounts for around 0.9% of total electricity usage. We should try to compare this with other systems that would fall under technology improvements for humanity.

In addition, for Proof of Stake networks such as Solana, AVAX, Tezos and many Ethereum scaling solutions such as MATIC it consumes electric just like any other computer. It should be a non-issue here unless you want to attack basically everyone using mobile or desktop computing.

The costliest asset to create in human history are networks, and they very rarely persist between generations (some human social networks tend to stay longer, however, for both good and bad reasons). We have now arrived at a time where it is possible to have frictionless information and value transfer network (something that hasn’t happened before cryptocurrency) that will also be very likely to persist due to its decentralized nature (where not only one institution collects and stores a copy, but a lot across the world).

The next thing we need is to cultivate trust between each of us, participants in the network, not only to sing Kumbaya or say gm to each other (who doesn’t love a bit of gm though?) but also to provide possibility of healthy discourse, disagreements, and discussion. This will enable us to propel towards the future and ensure no one gets left behind by choice.

If you like what you read, drop me a line or follow me on Twitter below. Let’s discuss!

https://twitter.com/GueRakun