A non-fungible token (NFT) is a piece of data that is stored on a blockchain and authenticates a digital asset like a song, a piece of art, or even a tweet. Some NFTs have already fetched millions of dollars in the marketplace.
But this new style of commerce is still largely unregulated. In this video clip from “The Virtual Opportunities Show,” recorded on Feb. 15, Motley Fool contributors Rachel Warren, Demitri Kalogeropoulos, and Jose Najarro discuss three issues with the NFT marketplace right now, and what other questions they raise for people interested in participating in the space.
Rachel Warren: You guys know I’m completely utterly fascinated now with this aspect of the whole move to the digitization of the universe, the metaverse as we call it. I’m the first person to say I think there are a lot of opportunities with NFTs. I love the stories we’ve been seeing coming out, ordinary people changing their lives by maybe turning just a picture of something special or using their unique artistic skills to make an NFT and actually make money from it. Now obviously that is not necessarily everyone’s experience. It’s probably not the majority of people who make NFTs experience but I like that aspect of it. But there is a darker side to the whole NFT craze. This was something that caught my eye, a story I saw by Reuters the other day. It was reporting that a well-known NFT marketplace called Cent — that marketplace was notable because it was the platform that sold an NFT of Jack Dorsey’s first tweet for $2.9 million, so that marketplace. Apparently they actually had to halt most transactions on the platform because, according to Reuters, people were selling tokens of content that did not belong to them.
Reuters said marketplaces spend most NFT sales citing rampant fakes and plagiarism. Now as you guys know, an NFT can be almost anything. As long as it’s an asset that you can store digitally, it has some inherent value. Obviously, a lot of the value that goes into NFTs is very much in the eye of the beholder sometimes, I think you could argue. But this problem of there being rampant frauds, and fakes, and plagiarism is really an issue that I feel like needs to be talked about a little bit more. I saw another article on a website called Pita Pixel and it was talking about the story by Reuters. It was saying that the founder of Cent has said there’s a major problem of people selling tokens of content that did not belong to them and not as a fundamental problem with the NFT marketplace overall.
He told Reuters there’s a spectrum of activity that’s happening that basically shouldn’t be legally. They had to stop the sale of all NFTs except the NFTs of tweets, which they call valuables. According to this interview, they were saying there’s three main problems with the NFT marketplace today: People who sell NFTs that are unauthorized copies of other NFTs, then you have people who sell NFTs of content that they actually don’t own, and then the third issue, according to this article, is people selling sets of NFT together in the form that is like security. This is something that’s very difficult to stop. Now obviously, this is not something that is specific to this platform Cent alone. A very well-known NFT platform called OpenSea in January said that 80% of the NFTs minted with its popular tool that people used to make the NFTs, were according to this article, “rife with misuse.” OpenSea had tweeted that over 80% of the items created with this too were plagiarized works, fake collections, and spam.
For example, if you have someone making an NFT from let’s say a beautiful piece of photography they took while on vacation, they turn it into an NFT, that’s something that can be really easily duplicated or stolen. You see how these platforms are really trying to stop this plagiarism and stop these duplications. They are trying to implement a lot of different solutions. But it’s not necessarily something that is easily fixable. I think part of that is because this is still an area that is somewhat unregulated. Related to this there was an article on a website called nftsstreet.com. It quoted a copyright law expert and he was saying, “NFT is a cryptographically signed receipt that you own a unique version of a work. According to this law, the owner of that particular piece only owns that version of the piece, which clearly does not mean that NFT gives you the proprietary rights of possession of every version, meaning the person has no control over the duplication of the piece he owns which makes the marketplace very vulnerable to fraud and theft.” I have a lot of optimism around the space. The more I’ve learned about it, obviously, I’m talking about a lot on this show, will continue to do so in the months ahead. But I do think this is something that’s really key to be aware of. We do have legal experts that are taking a look at this. There is obviously some legal framework in place although it seems to be pretty loose. But this is a real problem and could potentially really undermine some of the artistic potential in this marketplace. I’m curious to hear what your thoughts are.
Demitri Kalogeropoulos: Jump in real quick and one here, Jose has an opinion, too. But yeah, legal issues on here are just, let’s highlight a lot of that. We’ve heard this past week, I know Nike got involved in a pretty highly publicized lawsuit about some NFTs being minted against their copyright wishes I guess. That whole idea that you can, like you said, you can easily make a digital copy of these things and people can try to sell them. Part of the appeal of an NFT is that you’re getting unique control, rights to a digital asset but if someone can just flood the market with pictures of it or exact the digit replicas, is going to hurt your ability. Actually, this particularly is going to be a problem for the exchanges, having to police all this stuff. But like you’re saying, I take pictures, I have an Apple iPhone and I like that live option where basically takes a second of a picture and then just picks a frame that everyone is looking at the camera. I have a nephew who’s three-years-old and refuses to look at the camera for [laughs] more than a half-second at a time. But one of my favorite things to do there is you can scroll through the frames and pick the frame that’s working, that he is actually looking at the camera. If I minted something like that and then I switched a frame, that’s just the legal question. If I just change a frame by one or two, then can I mint that again and I can sell it again. So all kinds of interesting legal questions I’d say.
Warren: Well, the other thing that’s interesting is one of the key aspects of the blockchain and building on the blockchain is there’s anonymity to it. You have the ability, that can be a really great thing, but it can also make it much more difficult to track down people that are like plagiarizing works or maybe, “Oh, they think I have ownership because this is my version of the NFT.” It’s crazy. What about you Jose, what are your thoughts?
Jose Najarro: I want to say, I think this space is very tricky especially if you’re just starting off. If you are actually in the NFT community, usually some of these groups they have like their own Discords. Something that I’ve been seeing frequently in the past two weeks is a lot of people or a lot of hackers are hacking into these Discord groups, where supposedly they’re little bit secure to some extent and if you’re getting a message from someone in that Discord channel, it tends to be more reliable. It’s like, “Hey, someone from this team is actually messaging me.” But hackers right now are getting into Discord messaging people went somehow linking their wallets or wherever they have their NFTs and stealing everything that they have and it’s very hard to get that stuff back. Right now it’s definitely pretty scary to my opinion if you’re just starting off. Is a space I personally wouldn’t go in with a lot of money, maybe what I call speculative money, maybe something in the gambling type of way where yeah, there’s potential of making big money but there’s, just like Demitri mentioned, no regulations in this market, so it makes it very easy for the bad people, a lot of hackers and a lot of ways to get your items, your assets, or whatever stolen.