Since the NFTs or non-fungible tokens have been the subject of many discussions, their popularity grew - and has been declining for several months until now. Unfortunately, the number of misconceptions about them started to increase.
Many individuals regard NFTs as worthless, irrelevant, or simply a made a mountain out of a molehill result of public talk about them. Despite being accessible to the general public since 2013, NFTs also started being used for gaming and other services in 2015 and 2016. Nevertheless, NFTs are considered a relatively new concept, so they are still partially shrouded in mystery, with an open door for individuals to construct and embrace many widespread myths about them that are not entirely accurate.
In this blog, we will debunk some of the most common misconceptions. If you want to learn more about NFTs and their potential applications, we invite you to download our free e-book here.
Misconception 1: NFT is a blockchain or type of cryptocurrency
People usually believe this because discussions about blockchain or cryptocurrencies like ether typically contain the term “NFT”. Although they are essentially distinctive, NFTs are closely connected to both blockchains and cryptocurrencies.
NFTs use blockchain technology to create an unchangeable proof of ownership.
There are different definitions, but in brief, blockchain is a digital ledger of decentralized data that are securely stored and shared. NFTs are commonly stored on the Ethereum blockchain, although they can also be stored on other blockchains.
It's crucial to highlight that while all NFTs exist on the blockchain, the content (underlying asset) does not, at least not in most cases. The NFT is only the container, and the images are usually kept elsewhere. The image itself is practically never held on the blockchain because to do so would be prohibitively costly. The majority of NFTs rely on a link that leads to another location where the NFT image is actually stored.
NFTs and cryptocurrencies are fundamentally different assets.
NFTs are typically created by utilizing the identical type of programming as cryptocurrency, but the resemblance ends there. Even though they both use blockchain technology, fungibility is the essential difference between them. NFT is a non-fungible digital asset. It is irreplaceable and indivisible, a one-of-a-kind collector’s item that cannot be substituted with one another and has a unique value.
For example, Vincent van Gogh’s painting ‘Starry Night’ is one representation of a non-fungible asset because there cannot be another equal painting with the same qualities or value.
Cryptocurrencies are fungible, which means they can be divided and exchanged and aren't unique. Cryptocurrencies and fiat money can be traded or swapped for one another. Their worth is identical: 10 dollars are always worth 10 dollars, and 10 ETH is always worth 10 ETH. The fungibility of cryptocurrency makes it a secure way to execute transactions on the blockchain.
Misconception 2: NFTs are all a scam
Like other crypto assets, NFTs are unfortunately associated with scams such as phishing or Ponzi, pyramid, and get-rich-quick schemes. Despite many good use cases for NFTs, these scams have unjustly earned them a bad name in the public media. Although NFTs may be exploited to defraud people, one can claim the same for any previous popular technology. Even before blockchains and NFTs, con artists developed schemes for phones, emails, and the internet generally.
NFTs have also been connected to digital art and other forms of digital media (e.g., tweets, meme gifs). Some NFT-minted pieces have sold for hundreds of thousands of dollars to millions of dollars. It promotes the notion that anyone can make digital art and sell it rapidly for a significant amount of money. This is not the case, though.
Creating an artwork, minting it as an NFT, putting a high price tag on it, and finally selling it for thousands of dollars is challenging.
The mere act of minting an NFT does not imply that it is valuable.
If it were not valued before being minted into an NFT, its value usually would not grow. In most cases, artists who have successfully sold their artwork as NFTs have already established themselves in the business, creating their reputation and a significant number of fans following their art. The value of other digital media, such as tweets and meme gifs, is directly connected to its cultural relevance.
Taking advantage of naive investors is not news, so as with any investment, it's critical to do your homework. Unfortunately, whenever there is an investment opportunity, there will always be con artists, who we all have to be careful of. However, painting the entire technology with a broad brush by declaring all NFTs are a scam is inaccurate and unwise behavior.
Some people frequently jump to conclusions based on erroneous generalizations made up by people who superficially follow the story of NFTs.
Misconception 3: NFTs have no value or utility
Depending on the point of view, the answer to this is both yes and no.
Essentially, NFTs serve as proof of ownership (of an underlying asset) that is stored on a blockchain. The related NFT corresponds with the underlying asset's value as long as that asset has genuine value. Also, the value can be a very subjective thing.
Fiat money functions similarly. A bill you own is believed to represent the value of the underlying asset, which is, generally speaking, a function of the economic and political stability of the government issuer. Since the bill is just a piece of paper or plastic, it has no intrinsic worth.
So, in practice, yes - NFTs can serve as digital representations of assets with real value.
However, It is worthless without the underlying asset.
Regarding utility, digital avatars on social media profiles (like the Bored Ape Yacht Club NFTs) are one of many widespread applications for NFTs. The avatars are entry keys to exclusive events, offers, and promotions, ultimately supplying more value than just their visuals. Basically, whoever possesses those NFTs can be a member of an exclusive community. Besides the artwork-related features, NFTs can be used as proof of a restaurant membership to gain exclusive benefits or just for reservations. It can be utilized in the music industry to sell NFT albums and tickets with special privileges, or in gaming to buy skins or gain VIP access in the metaverse. It can serve as access to exclusive merchandise, special discounts, digital keys to online spaces where holders can engage with each other, along with many more use possibilities.
As seen above, the applications of NFTs are numerous, and there may be even more in the future, so stating that NFTs have no utility is simply incorrect.
The key takeaway
With some currently popular misconceptions, there will also be more in the future as NFTs continue to uncover their new use cases. It is natural to have some skepticism or reservations about new technologies at first. However, as their importance grows, so should the need to clear the misconceptions about what they really are.
If you're a skeptic, we hope this blog post has debunked at least some of your doubts and sparked your curiosity to explore more about the intriguing world of NFTs.
Your take on the subject
They say knowledge has power only if you pass it on - we hope our blog post gave you valuable insight.
If you want to share your opinion or learn more about misconceptions or mysteries about NFTs, feel free to contact us. We'd love to hear what you have to say!