NFTs have looked to many to be the new frontier of collecting. In a world where more people are deeply involved in digital worlds (Metaverse, here we come!), and younger people are living in smaller homes because of affordability issues, it may make sense. Practically anything collectible can be made into an NFT, they live in blockchain or the Metaverse, and they take up no physical space. What's not to like?
First, before we proceed, a quick explanation of NFTs for those not familiar. NFT, an abbreviation of non-fungible token, is a way of creating unique copies of something that is digital in form. Something digital is inherently reproducible, fungible if you will. A non-fungible token, then, is something that “attaches” to a digital image that shows it is a unique copy, even if it looks the same as all others. So, for example, if you have an electronic piece of artwork that can be downloaded onto any computer, each of which look will look the same, the artist can attach an NFT to it. This NFT will establish that it is the original copy of that electronic piece of art, sort of like an original painting. The artist could also make original copies, sort of like prints, in a limited edition of, say, 100. Those could have NFTs with numbers 1, 2, 3 and so on. They won't be as valuable as the original artwork, but more valuable than ordinary downloaded images with no established precedence, like original prints.
We are already seeing NFTs for artworks and collectible sports cards, things formerly only collectible in physical form, and some fitting the category of “works on paper.” Books cannot be far behind. Hand or typewritten paper manuscripts have been replaced with books being written on computers, making physical manuscript collecting impossible. Letters have been replaced by digital email and “tweets.” How long before the same happens to other forms of paper, notably books? An author could sell the first copy of his/her e-book for big bucks. Or, like prints, sell a limited, first edition copy with an NFT, like limited first editions of physical books are sold today.
While the convenience of this form of collecting is one advantage, another supposed benefit has also been touted – security. With these unique tokens, and storage on blockchain, these unique items cannot be stolen or forged, like physical copies. Or can they? A recent event has upended the assumption that NFTs really are so secure. Cent, the company that made the $2.9 million sale of the NFT of Twitter founder Jack Dorsey's first “tweet,” recently suspended the use of its platform to create NFTs. Cent and other companies such as OpenSea, allow you to create your own NFTs. However, the blockchain universe, sometimes referred to as Web3, has no owners and consequently no regulators. It's a place where people do pretty much as they please. It is why blockchain currency – cryptocurrency – can be used for funneling money illegally, such as for drug sales or blackmail, and for evading taxes. Unlimited freedom sometimes has its downside.
The problem Cent and others have been experiencing in large volumes is the crypto equivalent of forgery. People are using the platforms to create counterfeit NFTs, that is, placing their token on someone else's work and claiming it to be authentic. Unlike forged books, that are few and far between because of the amount of work and skill needed to create a believable forgery, it is easy to create a perfectly real-looking counterfeit NFT. Cent explained, “Recently, on our network, we’ve seen people taking others’ work and re-minting it using our services. We believe these people are bad actors, who only engage with Cent for the purpose of tricking others into purchasing counterfeit work. We do not condone this behavior – ethically, legally, and philosophically, it goes against our values and what we stand for as a company.”
The extent of this fraud seems unimaginable, but according to a January 27 “tweet” by OpenSea, “we've recently seen misuse of this feature increase exponentially. Over 80% of the items created with this tool were plagiarized works, fake collections, and spam.”
Cent went on to note, “Our response has been to ban the offending accounts, but we believe that this approach is not sustainable. That’s why, effective today, we’re removing the ability to sell NFTs here. Our intent is to make this limitation temporary until we can rollout a strategy to overcome the challenges we’re facing.” In other words, attempting to stop the forgeries one by one, a process they describe as “whack-a-mole,” is not very effective. It has become too pervasive. They also point out, “Currently, there is no industry wide standard for counteracting bad behavior.” Even if one is created, it will at most be voluntary, and easily ignored, as blockchain has no authority and is not regulated by the government. And this is a form of collecting once thought of as being more secure. 80%!
There is a lesson in this. NFTs are a very different form of collectible than physical objects. Their appeal may be hard for many of us to understand, but according to Reuters, there were $25 billion in sales of NFTs in 2021. There is big money here, and where there is serious money, crime, theft, fraud will surely follow. Welcome to the real world, denizens of the Metaverse!