7 Misconceptions About NFTs or Non-Fungible Tokens


By Akanksha Malik

Thanks to the recent rise of NFTs, we are witnessing a blockchain revolution. According to the Non-Fungible Tokens 2020 Yearly Report from NonFungible and L’Atelier, the NFT transactions tripled in 2020 and reached more than $250 million. The number of transactions only increased in 2021. And while new investors are entering the NFT market every day, there are still certain misconceptions that are making rounds. The reason is people buying single NFT items for a large amount and investing in NFT without a solid strategy.

In this article, we bust those misconceptions. Read on.

1. NFTs are a Digital Currency.

NFTs are often misunderstood as cryptocurrency. Yes, NFT and cryptocurrency have a lot in common because they both use blockchain technology. But the crucial difference is ‘fungibility.’ A fungible item can be replaced with an identical item priced at the same value. For example, you can swap an NFT valued at 1 ETH (a cryptocurrency) for another ETH. On the other hand, a non-fungible item or NFT has a unique value that another item cannot replace.

2. NFTs are Only Art.

This NFT misconception is because of the fact that a lot of money is being thrown on digital art NFTs right now. But if you do a little research, you would find that there are other popular sectors of NFTs as well, including music and gaming. Though paying millions for games isn’t common yet, it could change. The NFT market is liquid, but as the market shifts, the sentiments of investors will change too. We will just need to wait and see how the market adapts. Games like Axie Infinity have demonstrated how gaming micro-economies have a huge potential for growth through play-to-earn strategies.

3. Purchasing Equals Ownership.

NFTs are metadata (a piece of information) that provide more information about other data, such as the name of the asset and history. But the metadata often lacks information about who would carry forward the ownership of the underlying asset. This means that if you’re buying an NFT item, you cannot assume its ownership. Unless otherwise specified, the intellectual property rights (IPR) and copyright remain with the original artist. If you want the ownership of an asset or NFT item, you will need to include it in terms of sale before purchasing.

4. NFTs are a Way to Get Rich Quick.

NFTs are not scam but there are many middlemen who are luring people in with the hopes of making them rich quickly. These crooks have associated NFTs with Ponzi and phishing schemes, giving a terrible reputation to the market. Though NFTs can be used to scam people, all digital technologies can be misused for this purpose. This has been common since the age of phones without the internet.

Moreover, people are under the impression that anyone can create digital art and sell it quickly at a high price. However, this is not the case. It is difficult to create artworks and mint them as an NFT to be sold for thousands of dollars. Most artists are recognized and have a pre-existing fanbase, which makes their NFTs popular.

5. NFTs are Harmful to the Environment.

Many NFT transactions on the Ethereum blockchain consume more energy, which has generated talks of taxing digital NFT artworks. However, this is just an assumption. There is no information on how much energy the computer network consumes. 

Moreover, not all NFTs are built on Ethereum. The problem at hand is to understand the energy consumption happening with proof-of-work mining.

6. NFTs are Unique Assets.

NFTs are non-fungible tokens, which means that a digital artwork uses blockchain technology to generate a unique or irreplaceable unit of data. Even though the NFT is one-of-a-kind, it can have several tokens, i.e., several copies of the digital artwork. For example, a laptop skin can have 100 different but limited copies. It’s the restricted quantity that makes an NFT collectible. 

7. NFTs are Difficult to Understand.

NFTs are a transformative technology that were earlier perceived as complicated. But if you look past the market trends, you will observe that it is just like owning a copyright property or valuable digital asset. And since the transactions are done digitally, blockchain technology takes care of security, transparency, ownership, and provenance. In essence, NFTs have made owning the rights to digital assets possible.

The problems of security, transparency, ownership, and provenance are solved by:

  • Immutable transaction and ownership records
  • The unique serial ID of each token making visible transactions possible
  • Confirmation of ownership and transactions

NFTs are young. But at the rate at which the market is growing, there will be many misconceptions going forward. Newer uses of NFTs will emerge because the technology has the potential to disrupt major industries. If you’re looking to invest in NFTs, make sure to do your own research and get to the root cause of misconceptions.

About the Author

Akanksha Malik is a content creator & digital strategist at Mesha – India’s largest investing club & online community where the world’s best investors gather to share ideas, discover fellow investors, invest in NFTs & crypto, and compete in challenges for real money. She develops content to share her knowledge and insights helping her readers stay updated with the latest in fintech & investments, as well as cryptocurrency trends and upcoming NFT opportunities. Apart from being passionate about her work, Akanksha loves exploring architectural sites and different local dishes during her travels.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.