Scam Alerts: Are There Loopholes In The NFT Industry?
Blockchain technology unlocks the impossible, and if you thought you had seen it all, you are in for new surprises. It’s the NFT industry this time around. Not like NFTs are a new concept. Non-Fungible tokens were around as early as 2014, but the industry hadn’t explored until recently.
2021 seems to be the most gifting year for the industry, although some experts believe it’s just a bubble that will soon pop out of favor. In any case, they are one of the hottest digital assets in the blockchain world right now. So, are you ready to invest in NFTs? Well, it could be a great idea.
Mike Winkelman’s artwork just fetched close to $70 million recently at Christie’s auction. Banksy’s sale is also still fresh in our minds. The street artist sold a print for $95,000 to a blockchain company that later burned and resold it for $380,000.
At this rate, the urge to break into the NFT space for many investors is inevitable. However, just because one might be in a position to buy an NFT doesn’t mean they should go ahead and buy. It’s good to consider the security of the industry first.
So, Are There Any Loopholes You Should Know?
Non-fungible tokens use blockchain technology to maintain digital ledgers that help track down the ownership of digital art pieces. Blockchain technology is the distributed ledger network next to impossible to alter, making it merely impossible to forge records.
However, with its continued application and evolution of the crypto world, there is an evident disconnect between how users think it works and how it does. The blockchain-based crypto industry lost a net of $1.8 billion within the first ten months of 2020. The statistics raise concerns over the security of NFTs under blockchain technology.
The NFTs’ Gray-area
Non-fungible tokens are a unique kind of crypto asset. They are built with the same type of programming. However, NFTs are not interchangeable, and this is what makes them pretty unique. In essence, cryptocurrencies are the same and can get exchanged for another and still hold the same value.
A Bitcoin holder can swap with another Bitcoin holder, and both will still have the same asset and value. On the other hand, each NFT is unique and is an original creation on its own, so it is not interchangeable with another. As pieces of art, NFTs exist as digital files. Therefore, it means it is possible to create other copies of the same file.
This fact could render NFTs meaningless when anyone can make a copy of the artwork. However, blockchain technology assigns the original file a code that makes it possible to distinguish the original file from copies.
While blockchain technology is in itself secure, the applications built around NFTs are sometimes not safe. Users have to access marketplace websites to buy and sell these digital assets, which exposes them to potential hacks. For instance, Nifty Gateway users suffered when hackers took control of their accounts and stole thousands of dollars worth of artwork.
Moreover, NFTs are heavily dependent on URLs which are prone to breaking down at some point. Most NFTs point to a URL belonging to the entity that minted or sold the artwork. As such, the file could vanish if the entity goes bust.
Identifying the Original File
The fact that anyone can make copies of digital pieces of art creates a loophole. Auctions sites must, therefore, set up stringent measures to prevent duplicates from accessing the marketplace.
However, the verification processes for both NFT listings and creators are not consistent. Some platforms do not even require owner verification for NFT listings. Buyers could take counterfeit NFTs.
Artists are falling victims to impersonators who take their artwork and convert it into NFTs without their knowledge. The scammers copy a piece of art from the owner’s website and present it on an auction site.
Many artists come to learn even after months or years when they stumble on the NFT on marketplaces. You don’t have to be the artwork owner to create an NFT. Also, it is possible to create more than one NFT from the same piece of artwork.
Although NFTs are not cryptocurrencies, they are part of the larger crypto space, and most NFT purchases happen in cryptocurrency. Cryptocurrencies are decentralized, meaning they are not under the control or regulation of a central authority.
Therefore, they are attractive avenues for scammers and hackers to get away with their activities smoothly. The legal loopholes act as incentives for some industry players to operate with impunity.
The short answer is yes. There are loopholes in NFTs, and scammers can get away with their activities. Nonetheless, the industry is still at its infant stage, and the growing popularity could attract hackers and scammers with magnitude.
Notably, the security of NFTs is not an anticipatory concern but an issue that already manifested with the Nifty Gateway hack.
Platforms can level up the security of users by beefing up verification processes to ensure only original NFTs access the marketplace. Owner verification will ensure artists do not get impersonated as we wait to see whether possible regulation of the crypto space will save the day.