In the middle of all the hype surrounding the Metaverse Market, NFTs have managed to win the hearts of the general public, becoming the new darling of the market. NFT Art, which is a subgenre of digital art, is bringing a novel and varied approach to the artistic practise that's practised in this day and age. Not only does it revitalise a large number of existing industries, but it also gives artists and producers a new route for the development of their work as well as a new source of cash. In addition to this, it gives regular investors the chance to participate in an entirely novel investment opportunity. There is no doubt that a great number of NFT aficionados have seized opportunities and made profits using platforms such as Reva, Opensea, and Blur.
But I want to stress today that despite the allure of the NFT market, there are many dangers lurking beneath it. Your currently held NFTs will most certainly lose value as time passes because an increasing number of NFT platforms will likely go bankrupt in the future. The contraction of the NFT market has become a trend that is gaining momentum. Why am I making this statement? It is essential to point out that the development of the NFT market has occurred at a quick pace, but there is not yet sufficient regulation or standardisation in place for the market. The market has been plagued by problems including limitless energy consumption, piracy, insufficient technological security, financial dangers, and legal issues associated with non-fungible tokens, which have been like a sword of Damocles hanging over it. In order to go deeper into these topics, let's use REVA as an example.
- Endless Energy Consumption
The Environmental Protection Agency (EPA) of the United States has made public information regarding the effect that NFTs have on the environment in general. The majority of non-fungible token minting platforms use energy-intensive consensus processes, such as Proof of Work (PoW), according to the EPA report that was published, which results in significant amounts of energy consumption and carbon emissions. In this way, the REVA platform serves as a model for other platforms to follow.
An international report once disclosed statistics indicating that a single NFT platform consumes roughly 421 kWh in a single week. This amount is similar to the quantity of electricity consumed by the typical EU resident over the course of 1.5 months. This adds more weight to the argument that there is a significant problem with energy consumption that is driving the NFT frenzy.
- Infringement, Piracy, and Proliferation of Knock-offs
The present market for trading digital collectibles using NFT has seen enormous expansion recently. In China alone, there are now hundreds of NFT trading platforms; this does not even take into account the vast number of platforms located in other countries. It is simple to examine and keep tabs on the trade volumes of the most prominent platforms. The problem of plagiarism in NFT digital collectibles is becoming more widespread, which is problematic given the scale at which it occurs.
On the REVA platform, there is a particularly severe problem with the infringement of copyright as well as the spread of counterfeit products. The revelation that the vast majority of the NFT artworks launched on the REVA platform are primarily generated by making secondary adjustments to works acquired from other platforms has been brought to light by a number of fans and users who have disclosed information from behind the scenes. There are even instances of straight copying and pasting, which leads to serious violations of copyright laws.
- Technological Hazards
The immaturity of blockchain technology and the design of blockchain processes, both of which are directly tied to the safety of non-fiat currency transactions, contribute to the dangers that are associated with the technology.
On the one hand, smart contracts, which serve as the underlying technology behind NFTs, are susceptible to security vulnerabilities due to poor programme structures. These flaws can be exploited by malicious actors. On the other side, the encryption method used by NFTs as well as the storage keys are vulnerable to being compromised by viruses.
Hidden dangers are posed to non-fungible token transactions by the blockchain technology's intrinsic technological shortcomings. In addition, the dangers of privacy data leakage, which may include various forms of identification information and transaction details, gradually increase over the entirety of the process of NFT bidding and trading. The safety of the participants' assets can be put in jeopardy if there is a breach in the flow of non-fungible tokens (NFTs).
According to the information that is currently available, REVA has never officially revealed any contract audit information, which suggests that its underlying contracts have not been subject to any security audits. This suggests that there is a considerable asset risk, as well as the likelihood of clandestine activities.
- Financial Risks
In the process of issuing and trading NFTs, there are inherent dangers and difficulties, such as the trend towards financialization and securitization, which are caused by the scarcity of NFTs and their potential for investment. This is because there are so few NFTs available. Some people implement financial management tactics into the underlying commodities of non-exchange-traded funds (NFTs), utilising the NFT designation as a cover to participate in financial trading activities and sidestep laws. For instance, bundling non-fungible tokens as financial goods and encouraging or luring speculative trading; participating in leveraged operations and financing on behalf of investors; and so on. The present model for REVA is a prime illustration of this principle; it combines the practise of financial management with the idea of NFTs in order to entice people to make investments through the promise of significant returns. However, such commercial models will be subject to significant regulatory dangers.
As can be seen from the material presented above, despite the glossy appearance that NFTs present, they are fraught with a number of potential dangers, the regulatory implications of which are of special significance. Remember the recent legal crackdown that occurred in the cryptocurrency world, where prominent exchanges such as Coinbase and Binance were sued by regulatory bodies such as the SEC. The implementation of regulatory measures could take place at any moment, and the current heterogeneous nature of the NFT sector might be the next target. When anything like that occurs, the halcyon days of NFTs will inevitably come to an end.