NFTs, Between the Wild West and the Gold Rush…

It’s my guess, but it’s not an investment. It’s high tech, but it can fit into a GIF. It’s the next big thing for those who dream of a digital economy devoid of big banks. It is a den of scammers. This is NFT (non-replaceable tokens), or non-replaceable tokens in French.

NFTs are cryptographic tokens that make it possible to authenticate and assign ownership of a digital asset using a secure ledger found in a cryptocurrency such as Ethereum (which is also widely used in this context). Think of the seal that a notary applies to the bottom of the Certificate of Authenticity. In the case of NFTs, the notary is replaced by a technology called blockchain that provides credibility to cryptocurrencies such as Bitcoin, Ethereum, and others.

It’s a technology found in another technology. It’s a new brand, yet the NFT market generated $4 billion in sales in 2021 alone. When you hear about an artist who sold a simple JPEG-like graphic file for $69 million, you can imagine that there is a small fortune to be made in this booming market.

This stuns the imagination of many small investors looking for a quick return, similar to what happened during the months when bitcoin was rapidly gaining value. Many speculators will urge you to invest ASAP, because the more people involved in the NFT movement, the more they will benefit from arriving first.

If you find this all to be something like a hierarchical model, then you are among those who fear that NFT is just a new fad derived from cryptocurrencies, which in itself remains an investment in the eyes of financial experts. It remains highly speculative.

>> To read also: Do ​​you invest or not in cryptocurrency?

Fraud 101

This is not entirely wrong. The NFT market, which is still very new, can take many directions. Since they have a large influx of capital from all over the world and the technology is unregulated, NFT is bound to attract more than its fair share of scammers and fraudsters.

The most common? NFTs are used to authenticate digital objects. These things have no value other than that which burns in the eyes of her most ardent admirer. A short video of a memorable feat performed by a sports character is the modern equivalent of the 80s corner store player cards. But it also goes further: a fairly rare virtual item found in a video game that can become a collector’s item associated with NFT.

If someone else wants to buy this digital item, they can bid higher. This is where the present value of NFTs is.

In principle, the more rare these virtual items are, the higher their value. That is why their creators will offer them in limited quantities. This is also where the first and main form of NFT-related scam was found: malicious people could use phishing to direct buyers interested in obtaining a rare virtual object to sites where they would be asked for some Ethereum tokens to obtain said item. But it will be a false promise, the transaction will not take place and the change you have made will be gone.

Other scammers will go further by asking for the phrase to redeem your crypto wallet. This top secret phrase should stay the same and obviously sharing it is very frustrating, as it is the key that unlocks your wallet. Anyone who has it can delete your account.

This type of fraud is also seen on somewhat private messaging services like Discord, which are very popular among NFT followers, even Twitter or elsewhere. The motto of the specialists is to regard any NFT display on these platforms as an attempt to scam… until proven otherwise.

How are NFTs created?

It’s surprisingly easy to “create” an NFT. All you have to do is associate a digital document with a cryptocurrency (this process is called minting orcoinagein English) and then publish the result on the NFT exchange platform. The best known place to create an NFT is called OpenSea (opensea.io). You can keep these virtual goods or trade them as many times as you like.

It’s not always about art or collectibles: Entrepreneurs can start a business and finance it by issuing a set number of NFTs, as is the case with stocks on a stock exchange.

This is perhaps where the greatest potential value of this technology lies. This way of using NFTs could further democratize what is called decentralized finance, or “DeFi” (for “decentralized finance), which aims to replace various components of the current financial system with solutions that are not controlled by a central institution, such as a bank.

This concrete application of NFTs is still in its infancy. Meanwhile, as we’ve seen with Bitcoin, the spreads around NFTs are still just a fad. Even the biggest tech promoters will warn newcomers to be very careful if they intend to acquire it.

On the part of the authorities, we have not resolved the matter yet. The Autorité des marchés financiers in Quebec has not yet developed a guideline regarding NFTs. This has always been a reminder to beware of investing too much in “crypto assets,” and NFTs are certainly one of them.

So be careful. Because this gold rush has the appearance of a digital Far West…

>> Read also: Cryptography in RRSPs?

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