Draft:Criticism of NFTs

As an image on the web, the digital art linked to a non-fungible token may be right-clicked and saved like any other picture file.

Non-fungible tokens (NFTs), unique digital identifiers recorded on a blockchain, have been the subject of significant criticism since their rise to prominence in the early 2020s. Critics have argued that NFTs fail to provide meaningful ownership rights, as purchasing an NFT does not inherently grant copyright or intellectual property rights over the associated digital file, which can still be freely copied and shared. The NFT market has also been compared to an economic bubble, a pyramid scheme, or a Ponzi scheme, with Bill Gates describing them as "100% based on greater fool theory." By September 2023, one report claimed that 95% of NFT collections had fallen to zero monetary value.

NFTs have drawn criticism for facilitating fraud, plagiarism, and art theft, with cases of artists having their work minted and sold without permission. The market's lack of regulation has enabled wash trading, insider trading, and "rug pull" exit scams. Concerns have also been raised about NFTs being used for money laundering due to the anonymity of transactions.

Critics have also raised environmental concerns during the NFT boom, as the proof-of-work protocols used by blockchains like Ethereum consumed significant amounts of energy. However, Ethereum's 2022 transition to proof of stake reduced its energy usage by approximately 99%. The video game industry has seen notable resistance to NFT integration, with platforms like Steam banning NFT-based games and companies like Ubisoft facing backlash from both consumers and developers over NFT projects.

Background

Main article: Non-fungible token
Illustration of a non-fungible token generated by a smart contract (a program designed to automatically execute contract terms)

A non-fungible token is a unique digital identifier recorded on a blockchain that certifies ownership and authenticity of an associated asset, typically a digital file such as artwork, music, or video. Unlike cryptocurrencies, which are fungible and interchangeable, each NFT is distinct.[1] The first known NFT, Quantum, was created by Kevin McCoy and Anil Dash in May 2014,[2][3] though the term "NFT" did not gain widespread use until the popularity of the blockchain game CryptoKitties in 2017.[4] The ERC-721 standard, published in 2018, formalized the technical framework for NFTs on the Ethereum blockchain.[5]

The NFT market experienced explosive growth in the early 2020s, with trading volume increasing from US$82 million in 2020 to US$17 billion in 2021.[6] High-profile sales, including Beeple's Everydays: the First 5000 Days for US$69.3 million at Christie's, attracted mainstream attention and speculation.[7] In 2022, the NFT market collapsed; according to The Wall Street Journal, daily sales declined 92% from their 2021 peak and the number of active wallets fell 88%.[8] By September 2023, cryptocurrency gambling website dappGambl reported that 95% of NFT collections had fallen to zero monetary value and 79% of all collections remained unsold.[9][10]

Environmental concerns

See also: Environmental impact of bitcoin

NFT purchases and sales have been enabled by the high energy usage, and consequent greenhouse gas emissions, associated with some kinds of blockchain transactions.[11] Though all forms of Ethereum transactions have had an impact on the environment, the direct impact of these transaction has also depended on the size of the transaction.[12] The proof-of-work protocol required to regulate and verify blockchain transactions on networks (including Ethereum until 2022) consumes a large amount of electricity.[13][14] To estimate the carbon footprint of a given NFT transaction requires a variety of assumptions or estimations about the manner in which that transaction is set up on the blockchain, the economic behavior of blockchain miners (and the energy demands of their mining equipment),[15] and the amount of renewable energy being used on these networks.[16] There are also conceptual questions, such as whether the carbon footprint estimate for an NFT purchase should incorporate some portion of the ongoing energy demand of the underlying network, or just the marginal impact of that particular purchase.[17] An analogy might be the carbon footprint associated with an additional passenger on a given airline flight.[11]

In 2022, Ethereum cut its energy usage by 99.99 percent by switching to proof of stake.[18][19] Other approaches to reducing electricity include the use of off-chain transactions as part of minting an NFT.[11] Some NFT markets have offered the option of buying carbon offsets when making NFT purchases, although the environmental benefits of this have been questioned.[20] In some instances, NFT artists have decided against selling some of their own work to limit carbon emission contributions.[21]

Fraud and scams

Art theft and plagiarism

Gaming industry

Analysis

See also

References

  1. ^ "Definition of NFT". Merriam-Webster. July 20, 2023. Retrieved January 27, 2026.
  2. ^ Cascone, Sarah (May 7, 2021). "Sotheby's Is Selling the First NFT Ever Minted – and Bidding Starts at $100". Artnet News. Retrieved November 12, 2021.
  3. ^ Dash, Anil (April 2, 2021). "NFTs Weren't Supposed to End Like This". The Atlantic. Retrieved May 5, 2021.
  4. ^ Zimmer, Ben (April 16, 2021). "'Fungible': The Idea in the Middle of the NFT Sensation". The Wall Street Journal. ISSN 0099-9660. Retrieved November 28, 2023.
  5. ^ Regner, Ferdinand; Schweizer, André; Urbach, Nils (2022). "Utilizing Non-fungible Tokens for an Event Ticketing System". Blockchains and the Token Economy. Technology, Work and Globalization. Springer International Publishing. pp. 315–343. doi:10.1007/978-3-030-95108-5_12. ISBN 978-3-030-95107-8. Retrieved November 20, 2023.
  6. ^ "NFTs Hit $17B In Trading in 2021, Up 21,000%". pymnts.com. March 10, 2022. Retrieved May 5, 2022.
  7. ^ Kastrenakes, Jacob (March 11, 2021). "Beeple sold an NFT for $69 million". The Verge. Archived from the original on March 21, 2021. Retrieved March 21, 2021.
  8. ^ Vigna, Paul (May 3, 2022). "NFT Sales Are Flatlining". The Wall Street Journal. Retrieved May 5, 2022.
  9. ^ Yang, Maya (September 22, 2023). "The vast majority of NFTs are now worthless, new report shows". The Guardian. Retrieved September 26, 2023.
  10. ^ Vigliarolo, Brandon (September 21, 2023). "95% of NFTs now totally worthless, say researchers". The Register. Retrieved September 26, 2023.
  11. ^ a b c Calma, Justine (March 15, 2021). "The climate controversy swirling around NFTs". The Verge. Retrieved April 15, 2021.
  12. ^ Marro, Samuele; Donno, Luca (January 29, 2022). "Green NFTs: A Study on the Environmental Impact of Cryptoart Technologies". arXiv:2202.00003 [cs.CR].
  13. ^ Krause, Max; Tolaymat, Thabet (2018). "Quantification of energy and carbon costs for mining cryptocurrencies". Nature Sustainability. 1: 814. doi:10.1038/s41893-018-0188-8.
  14. ^ Gallersdorfer, Ulrich; Klassen, Lena; Stoll, Christian (2020). "Energy Consumption of Cryptocurrencies Beyond Bitcoin". Joule. 4 (9): 1843–1846. Bibcode:2020Joule...4.1843G. doi:10.1016/j.joule.2020.07.013. PMC 7402366. PMID 32838201.
  15. ^ deVries, Alex (May 16, 2018). "Bitcoin's Growing Energy Problem". Joule. 2 (5): 801–805. Bibcode:2018Joule...2..801D. doi:10.1016/j.joule.2018.04.016.
  16. ^ Cuen, Leigh (March 21, 2021). "The debate about cryptocurrency and energy consumption". TechCrunch.
  17. ^ De-Mattei, Shanti Escalante (April 14, 2021). "Should You Worry About the Environmental Impact of Your NFTs?". Art News. Retrieved June 2, 2021.
  18. ^ Sparkes, Matthew (April 26, 2023). "Cryptocurrency Ethereum has slashed its energy use by 99.99 per cent". New Scientist.
  19. ^ Clark, Aaron (December 6, 2022). "Ethereum's Energy Revamp Is No Guarantee of Global Climate Gains". Bloomberg.
  20. ^ Di Liscia, Valentina (April 5, 2021). "Does Carbon Offsetting Really Address the NFT Ecological Dilemma?". Hypoallergic. Retrieved April 21, 2021.
  21. ^ Howson, Peter (April 2021). "NFTs: why digital art has such a massive carbon footprint". The Conversation. Retrieved April 6, 2021.

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