Misconceptions About NFTs

Photo by Fakurian Design on Unsplash

Before deciding to buy an NFT, take a look at how Ethereum describes it.

Recently, “NFT” has become the latest craze, and everyone is rushing to “collect” them. Yet, many people do so under false assumptions. Below is a breakdown of common misconceptions:

• NFTs are not inherently a scam, but their mechanics make them ripe for speculation and hype

  • Furthermore, there are currently no legal remedies available

• NFT stands for non-fungible token (translated as 非同質化代幣 in Chinese)

  • Translating “token” as “代幣” (coin/token) feels a bit awkward; I feel the English word “token” better captures its underlying meaning

• NFTs do not encrypt your images, videos, text, or artwork contents

  • Therefore, NFTs cannot be considered DRM (Digital Rights Management)
  • Your actual work does not exist on-chain (to reiterate: only the token and URL live on the blockchain)

• Buying an NFT does not grant you ownership or copyright of the artwork; it only proves that you own this particular token

  • This token points to a specific URL that displays the work’s content
  • In simple terms, it is just a pointer

• Following from above, since it is a URL, the domain owner can manipulate what content is hosted there

  • From this perspective, NFTs are not genuinely decentralized

• By the same token, what content is displayed can vary depending on the marketplace

  • It might show image A on OpenSea, but image B somewhere else

• Once recorded on the blockchain, the record exists forever with no way to take it down or delete it

  • For example, you buy an NFT that renders normally on Platform A, but on Platform B it points to a DeepFake pornographic video
  • You could then be arrested for distributing or spreading illicit content (assuming identity verification is in place, as transactions themselves are pseudonymous)

• How should profits from trading NFTs be handled?

  • If a real-name system for cryptocurrency is implemented like in Japan, there is nowhere to hide when tax authorities audit you
  • As for how the tax system categorizes these gains, that is a question best left to lawyers and tax accounting professionals

Yet, most articles out there only emphasize their value as “digital collectibles.” If you don’t understand how NFTs fundamentally work, you are essentially handing your money over to scam operations, completely unregulated by law. Not long ago, a 30-year-old woman tragically took her own life after falling for a cryptocurrency get-rich-quick scam.