Non-Fungible Tokens: A multi-billion dollar market not untouched by frauds?

• The Non-Fungible tokens (NFTs) market has evolved considerably in recent years as more and more entities are getting associated with them. 

• Like the crypto industry, risks and skepticism hover around the NFT sector as it has witnessed hacks and thefts in the past. 

• Although the industry is growing by leaps and bounds, but there are certain risks associated that can prove to be critical if ignored.

Non-Fungible Tokens have opened a whole new path for digital artists to claim ownership of their art. NFTs are unique cryptographic tokens acting like collectibles or trading cards. They are stored on the blockchain, each having potential astronomical value. The NFT market has gained massive popularity lately and crossed US$40 Billion in December 2021. 

But similar to the crypto industry, NFTs also come with certain concerns and risks. And ignoring them while dealing with NFTs might not be a very good idea. NFTs contain URLs and the data is stored often on a server that is centralized and is open to potential hacks. 

For instance, around a year ago, one of the most significant NFT marketplaces, Nifty Giveaway, was attacked by hackers who targeted accounts that lacked two-factor authorization. They stole NFTs worth thousands of dollars. And transferred the NFTs’ ownership to their holdings, and the legitimate holders couldn’t recover their digital assets. 

NFT attacks have become common, which cost the collectors and creators massive amounts. And as the NFT market is emerging to become more prominent, so do the risks and concerns. Last month, the largest NFT marketplace witnessed an attack that cost it NFT theft worth $1.7 million. Hackers targeted the smart contracts to claim ownership on these OpesSea NFTs. And because the legitimate holders already signed the contract, the thefts came out to be legitimate transfers. 

When a miner adds its identifier into the blockchain, a digital asset becomes an NFT, and the process is called minting. Minting an NFT on the blockchain demands high amounts of energy, and the miners charge a one-time gas fee to compensate for this cost. Hence, storing an NFT on-chain becomes expensive and complex, which becomes a factor to ignore the process of the NFT mints. 

To interact with the digital image, the collector’s trade-in NFTs via the marketplaces as what’s stored on the blockchain is just an image identifier. And many centralized platforms store these digital assets that are minted only when purchased, and this is what we call lazy minting, which makes the NFTs more affordable for the creators.

However, this risk hovers around the NFTs, as creators who submit them without minting are actually handing over unprotected digital files. And NFT marketplaces facilitating lazy minting are also a cause that the NFTs become vulnerable to risks. Scammers can easily steal the digital arts and claim them. 

It might be initially affordable for the creators, but from the point of security, it’s good to take appropriate measures while creating, buying, or trading in NFTs. 

Non-Fungible Tokens are now just not limited to ownership of art. They are getting more and more limelight as they are being widely used for various industries like gaming, sports, real estate, Non-Fungible Tokens art, etc. Significant names and brands are continuously getting associated with the NFT projects. Some of the currently popular NFT projects are Bored Ape Yacht Club, Meebits, CryptoPunks, Axie Infinity, etc. Justin Bieber, Gwyneth Paltrow, Johnny Depp, Eminem, Snoop Dogg, Paris Hilton, Adidas, Jimmy Fallon, Avenged Sevenfold, Katy Perry, etc., are some names that are associated with the sector and own NFTs. 

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Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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