What Are The NFTs Facts and Red Flags You Need To Know. Many people continue to have misconceptions about NFTs and cryptocurrencies in general. Non-fungible tokens (NFTs) have altered people’s perceptions of virtual assets by making their ownership and sale legal. NFTs are the way of the future for many artists and collectors, enabling financial freedom as well as investment potential.
Non-fungible tokens, or NFTs, are digital-only collector items backed by blockchain technology. When it comes to NFTs, the entire process can appear challenging. It’s a lot easy to understand than you might think! Here are ten things to consider before making an investment in the NFT market.
A Little Introduction to NFTs
Non-fungible tokens (NFTs) are unique crypto assets. Unlike cryptocurrencies, they cannot be swapped for another token of the same value. The blockchain is used to authenticate NFTs, which are used to denote ownership of digital artwork or goods. The owner may purchase them because they enjoy the item, believe it is a good investment, or want to raise their social position. NFTs, like real-world pieces of art or collections like baseball cards or comic books, have value because a huge portion of the population believes they do.
Despite the fact that they’ve been around since 2014, NFTs are becoming increasingly popular as a way to buy and sell digital art. A total of $174 million has been spent since November 2017.
Here are the 10 NFT facts you need to know | What Are The NFTs Facts
With the use of smart contracts, anything digital can become an NFT.
Any digital object has the potential to become an NFT. Although the majority of the focus is on the selling of digital art and collectibles, the technology’s adaptability permits tokenization of practically anything. To create ownership proof, domain names, in-game assets, tweets, songs, and movies, to name a few, may all be tied to a smart contract.
Ethereum is the most important blockchain that supports NFTs.
Despite the fact that Solana NFTs are expected to make a big splash in 2021, Ethereum remains the market leader in the NFT. With such an emphasis on confirming holdings through proof of stake methods, Ethereum supports a large number of NFT collections and permits their sale through various online auctions.
Ethereum, a blockchain technology known for its security and safety, enables secure and stable transactions devoid of fraud or third-party interference, making it the ideal platform for supporting NFTs.
NFTs help artists connect with potential customers.
NFTs dubbed the “new disruptor” of the art world, are creating waves in a sector that was previously dominated by traditional investors. Through marketplaces like OpenSea, Nifty Gateway, and SuperRare, artists like Trevor Jones and Fewocious are now being brought together with investors looking for the next big thing. As of December 30, 2021, the sector is bursting at the seams, with over 1.4 million daily unique users and a total sales volume of $165,348. In 2021, $20 billion in NFT sales were recorded on the Opensea platform. In comparison, Rarible was the second-most active platform in 2021, with $260 million in sales volume.
Investing in NFTs can be lucrative, but keep in mind that they are illiquid.
Investors are flocking to the NFT industry in order to partake in the digital gold rush. Investors are frantic not to miss out on the next big thing, since NFTs like Cryptopunk #7523 have risen in value by 71,000 percent in just a few years, from $1646 to $11.8 million. Because the sector is still in its infancy, there are several investment prospects. In June 2021, for example, the generative art Fidenza #313 was sold for 0.58 ETH ($1,400). Two months later, it was resold for 1,000 ETH ($3.3 million). CryptoPunk #4156 was sold for 2500 ETH in December 2021, making it the third-highest CryptoPunk sale ever.
‘NFT’ is currently more popular than ‘crypto,’ according to Google Trends.
Google Trends shows that interest in NFTs is outpacing interest in cryptocurrencies. According to the most recent Google Trends data, the search term ‘NFT’ has seen a significant increase in popularity. The fact that the price of Bitcoin has been steady for some time may have contributed to the crypto word’s decline in popularity. On the other hand, the NFT market is doing well. As a result, it’s only natural for interest to continue to rise.
Another factor is that the term NFT is only now gaining popularity. As a result, many newbies use Google to check up on the term.
Cryptopunks and Cryptokitties were the first mainstream NFT projects.
The first NFT ventures to reach public success were CryptoPunks and CryptoKitties, which were both launched in June 2017 and November 2017. Both applications were built on Ethereum and were among the first to employ the ERC-721 token standard for NFT.
The market for digital land non-fungible token (NFTs) is growing.
Decentraland and the Sandbox are both digital domains on their way to becoming a digital real estate. These platforms use NFTs to allow users to not only occupy and interact with virtual surroundings, but also to buy, sell, and now own land within them, which they can expand as needed. The market is about to explode, with plot sales now surpassing $1 million.
Solana is a non-fungible token (NFT) that competes with Ethereum.
Solana has risen to prominence as a blockchain worth investigating, with the potential to challenge Ethereum’s dominance. NFT technology has been included in a number of blockchains, however, they have largely relied on Ethereum. Solana’s NFT coins would be native to the company’s blockchain, with lower gas fees and faster transactions, and the company has a lot of volumes.
NFTs could be used as a kind of collateral.
NFTs might then be used as a reward for dApps like NFTfi. Due to the interoperability of Ethereum’s tokens, NFTs might be used to borrow crypto in Defi apps or stored to make loans on. This company allows NFT’s owners to profit from the sale of their collectibles.
The CEO of Twitter, Jack Dorsey, sold an NFT of his first Tweet for $2.9 million.
NFT enthusiast and Twitter co-founder Jack Dorsey sold his first Tweet as an NFT for $2.9 million in March 2021. The NFT was purchased by Sina Estavi, the CEO of Bridge Oracle, after a furious price war on the V.Cent.co marketplace, where he also bid on Elon Musk’s tweets. NFTs enable the preservation of internet history, such as Dorsey’s Tweet, while also raising funds for poverty relief.
Because NFTs are still relatively new, it may be worthwhile to invest a little amount of money to try them out for the time being. To put it another way, investing in NFTs is ultimately a personal decision. It’s something to consider if you have some extra cash, especially if the artwork holds sentimental importance for you.
Keep in mind, however, that an NFT’s worth is purely decided by what someone else is willing to pay for it. As a result, demand would drive prices rather than fundamental, technical, or economic indicators, which have traditionally influenced stock prices and, at the very least, formed the basis for investor demand.
NFTs Red Flags You Need To Know
The term “rugged” or “rug” comes from the phrase “having the rug pulled out from under you,” which is another way of saying “being scammed.” There are many scams in the NFT and crypto space, and despite the blockchain’s inherent transparency, the scammers can easily remain anonymous.
What happened on the project I was working on was that it was minting really slowly (only a few hundred out of the 10K minted after 24 hours). The owner then admitted in DMs that it was a rug pull, and the Twitter, Discord, and website were all erased shortly after. Thankfully, it wasn’t a more nefarious scheme in which your wallet was emptied – the only thing you lost was the value of the coins.
Of course, this comes with all of the normal warnings: conduct your own research and don’t take this as financial advice!
Take a look at the Engagement
The project I was working on has a sizable Twitter following (over 10,000 followers) and a sizable Discord community (a few thousand). I’ve seen a lot of good initiatives with smaller budgets. Of course, you can (cheaply) buy all of these numbers to give the impression of validity. Participation is more difficult to fabricate, and in hindsight, that initiative had relatively minimal engagement on Twitter and Discord. It wasn’t so low that it seemed suspicious, but it was clearly out of proportion to the number of “following.”
Take a look at the team
In my situation, the “team” seemed to consist of only one individual. While it’s not impossible for a single person to launch a credible initiative, it’s a lot of work, and they’re considerably less likely to follow through. There was also no information on the owner’s previous projects (that were listed), Twitter, or anything else about them as a person or their background. It was also discovered that the mods were simply early Discord users with no connection to the team. This isn’t an unusual method of finding moderators, but it did imply that there was no connection to the project’s actual owner(s), which meant they may vanish at any time.
Check the road map
In retrospect, the project’s plan was intriguing, but a little unrealistic. A playable online game was promised to be released within a few days of the mint, in which you could use your token as a character. Other NFT collections are using a similar gamification strategy, so it’s not impossible, but it’s highly unlikely that a single-person team could complete the technical lift of building this game in such a short timeframe (even if the labor was outsourced).
Examine the procedure
The mint’s timing was all over the place in this example, with at least the following changes:
- The mint date was scheduled for mid-October 2021, and the mint price was set at one SOL.
- The mint has been moved up to early October, and the mint price has been cut to 0.3 SOL (not super unusual, however).
- Due to “technical problems,” mint time was moved 3–4 times on mint day (again, not impossible, but started to get unusual).
- They altered (briefly, before the site went down) to mint 3 tokens for the same price on rug day (mint day + 1 day). This is something that respectable mints have done in the past to increase volume, but there was no mention of existing owners receiving airdrops.
In addition, the proprietor was not particularly receptive to concerns or technical issues. While it’s obvious that they’re busy (particularly during the mint season), the community’s “customer service” aspect is crucial (and free). Overall, the process conveyed the impression that they didn’t have everything under control.
Other Minor red flags
There were a few further concerns when the mint time arrived:
- The mint button was active prior to mint (normally a mint site would have a countdown), but it didn’t allow the mint transaction to finish.
- Despite the fact that it was a $10,000 mint, it initially displayed the amount remained out of $5,000 (yet the $10,000 figure was right on the same page!).
- The tokens’ numbering seemed strange – they generally go in order, but in this case they went from 100s to 1000s immediately away (e.g., 106 to 1060).
- The quantity of coins minted as declared on Twitter did not match the number of coins left on the mint page (Twitter said 350 or so were minted, the mint page said about 150).
Metadata was also inconsistently appearing and taking a long time to appear, though I’ve observed this in authentic mints as well – it just takes time.
What’s more challenging is that many of the red flags can also occur at reputable mints. It’s just a part of being in such a fledgling and fast-paced environment. So the foregoing isn’t meant to imply that the red flags are a firm no-no, but they are something to consider when looking at a real rug pull.
It’s easy to become enthused about new mints, and in this space, even reputable mints may use “cheaper” images and low-quality websites, making it even more difficult to separate the good bets from the red flags. As previously noted, this is not financial advice, and you should conduct your own research! I hope the following overview might serve as a useful starting point for you.