Introduction
It’s hard to know where to begin with an explanation on why I think NFTs have the potential to disrupt our current social and economic systems. There are many interesting parts and some people will find some aspects more interesting than others. For example, I could begin with the metaverse, cryptocurrencies, NFTs, Web3, fake news, or the digital renaissance, each of which has some aspects that lead into others.
I have prepared an introduction to Web3 and the metaverse generally. The following is a list of questions I have been asked when I tell people I have been looking into NFTs. I will try to answer them as simply as I can and will provide more detailed articles that tie the different components together.
Please remember that one of the fundamental aspects of Web3 is Do Your Own Research (DYOR). It is okay that these concepts are strange, and sometimes uncomfortable, to think about. It is okay if you find the technology confusing. What matters is to remember that everyone feels the same way when beginning to learn about Web3. What matters is to research, try to learn, and ask questions along the way. There is no right answer on how to understand and build Web3. We are learning this together.
FAQ on Web3 & NFTs
Questions
- What is Web3?
- What is Blockchain?
- What are Cryptocurrencies?
- How does Ethereum work?
- What Are Cryptocurrencies Used For? What is an NFT?
- Are All NFTs The Same? What Is A Smart Contract?
- What Is Minting?
- Why should I care about web3 and NFTs? Who should care?
- What is Self-Sovereignty?
- What Do NFTs Have To Do With The Metaverse?
- Am I Too Late To Get Into NFTs?
- Are NFTs A Scam?
- Are NFTs Bad For The Environment?
What is Web3?
Web3 is another layer on the internet, sometimes referred to as the ownership layer. This additional layer runs on one or more blockchain platforms. To explain what this means, I will first describe web1 and web2.
Web1 was the beginning of the internet. People or corporations would upload readable documents online and users could read the content they posted. This content was not interactable. In other words, I could not comment on a blog post or have a conversation with someone on a website. The internet was a place of reading, a one-way street of information flow.
Web2 developed as the internet became more engageable. Websites began to allow people to comment on posts, message each other, and upload their own content. In other words, the internet is now a two-way street of information flow. I could read content presented online and could write to the internet by adding my own content (e.g., photos) or commentary.
Web3 allows one to truly own a digital file and demonstrate that ownership online. Imagine if every digital file (mp3, jpeg, PDF, etc.) came with a certificate of authenticity that can be shown to others online. For example, if I post a photo online, anyone can right click save or screenshot that photo and pretend that it is theirs. I have to rely on a third party (e.g., Instagram) to check for me and decide whether my photo was stolen or not, or I can sue the person for copyright infringement. There is no way to automatically check the authenticity of a digital item. Or I should say, there was no way.
Enter Web3.
With Web3, I can demonstrate ownership of the digital file myself. No one can take that ownership away from me. I can also point backwards in time to show the history of the digital file to demonstrate that I was the one who created it or purchased it from the original creator.
In summary, the progression of the internet can be described as:
Web1 = read
Web2 = read + write
Web3 = read + write + own
What is blockchain?
Web3 takes Web2 one step further by adding a method to track information/files online. This method is added as another layer to the internet, a layer of blockchain. Each time someone wants to transfer information (send a Bitcoin, buy an NFT, create an NFT), a new transaction block is created between the giver and the receiver. If that same piece of information is transferred to a third person, a new transaction block is created, and so on and so forth.
These blocks form a chain that is permanently trackable over time. This permanent nature is referred to as being immutable. The trackable nature is referred to as transparency. In other words, anyone can check to see who has purchased an NFT by tracing its history on the blockchain. This history is available for anyone in the world to see through a website called Etherscan.
There are many different blockchain networks that allow for information to be digitally tracked. One common example is Bitcoin. Bitcoin can be considered digital gold, a digital identifier that has a particular value attributed to it by what society deems it to be worth. In other words, one person can use that gold to purchase something based on what another person is willing to pay in exchange for that Bitcoin.
Bitcoin is decentralized across a peer-to-peer (P2P). Decentralization means that there is no single centralized authority responsible for issuing and regulating Bitcoin. Instead, there is what is called a distributed ledger, a tracking system, that is run by a decentralized community of people across the world. Each time a digital file, or a piece of information such as a Bitcoin, is moved from one person to another, a new transaction block is created that gets added to the distributed ledger. Accordingly, there is a currency, a type of gold, that can be used to buy and sell things around the world, including other currencies, without being controlled by a single authority.
Another example of a blockchain network is Ethereum. If Bitcoin is considered digital gold, a commodity that is bought and sold for investment purposes, Ethereum can be considered more akin to a traditional currency that can be used for debit transactions. In other words, Ethereum is often used for more day-to-day transactions. Of course, Ethereum can be used for investment purposes and Bitcoin can be used for day-to-day purchases, but Ethereum has the capacity to be used for much more.
What are Cryptocurrencies?
Bitcoin and Ethereum are two of a potentially infinite number of cryptocurrencies. Anyone is able to create a new cryptocurrency if they feel like it. Cryptocurrencies can be used for different purposes, for replacement fiat currency (USD, CAD, EUR, etc.), as a reward for playing a video game (play to earn, or P2E), or to track inventory or supply chain movement.
Many people get caught up in the potential uselessness of cryptocurrencies. I agree, I expect that almost all cryptocurrencies will likely be worth 0 in the relatively near future. In order for a cryptocurrency to be worth something, the users of that coin need to attribute value to it. But when you think about it, that’s the same as everything. Each object that we use as a replacement for the bartering system (gold coins, paper bills, digital banking) is only worth the value that other people are willing to pay for it. Some value holding objects, such as the USD, retain their value in a relatively stable way over time. This value is maintained because there is a large economy that has been strategically built over a long period of time, with millions of people using that currency as a foundation for national and international transactions.
Most cryptocurrencies are likely a fad, without having proven themselves to stand the value test of time. Some have the potential to increase in value over time, due to the scarcity associated with the quantity of that cryptocurrency. For example, Bitcoin will only ever have 11 million Bitcoins (minus the lost Bitcoins due to people throwing them out when they thought Bitcoin was useless). Bitcoins may be broken up into smaller and smaller increments over time, until the minimal usable quantity is reached. In the case of Bitcoin, the smallest amount that can be transferred is called a Satoshi, named after the founder of Bitcoin. 1 Satoshi = 0.00000001 BTC. In other words, Bitcoin is inherently deflationary since there is a finite number of useable sub-components of Bitcoin that will ever be in existence.
In contrast, most (if not all) fiat currencies are increased over time and are inherently inflationary. For example, in the USA, 80% of all USD in circulation was printed between January 2020 and October 2021 to deal with the pandemic. The amount of USD in circulation went from $4 trillion to $20 trillion. This increase is what is causing the current inflation problems.
How does Ethereum work?
Ethereum is a bit more complicated, since it uses what is called burning as a method of maintaining the supply. Each time Ethereum (ether, ETH) is used as a payment method for a transaction, a portion of the transaction price includes a gas payment, which burns away some of the ETH. Accordingly, some ether is removed from the total ether available in circulation.
The amount of ETH that is burned in each transaction is changing and will continue to change until ETH switches from proof-of-work to proof-of-stake. I will explain this in more detail in a separate post, as this relates to a structural transition that is currently occurring to the Ethereum platform. At this point, it is sufficient to recognize that the scarcity of Ethereum is inherently built into the use of the network.
For example, Ethereum is one of the most commonly accepted forms of currency for purchasing NFTs. When an NFT is purchased, the transaction price includes the price of the NFT + gas. In other words, gas can be considered the transaction fee associated with using the Ethereum network. The gas has two portions, the first is a portion of Ether that is burned from circulation and the second is a portion that is given to the validator of the transaction block.
The price of gas fluctuates based on the number of people trying to transact using Ether at a given moment. Currently, the Ethereum network can support around 15 transactions per second. If less than 15 people are trying to transact, gas will be very cheap. If more than 15 people are trying to transact, gas will be more expensive. This system is a classic case of supply and demand. As mentioned previously, Ethereum is undergoing a transition. This transition will enable additional layers to be added to the level 1 base layer that can support many more transactions (e.g., 50,000 transactions per second). I will discuss this in a separate post.
What Are Cryptocurrencies Used For? What is an NFT?
So, back to NFTs. Ethereum can be used to purchase an NFT. Other cryptocurrencies, such as Solana can be used to purchase an NFT. Why is this important?
To understand the interoperability between cryptocurrencies and NFTs, it helps to break down what an NFT is. NFT stands for non-fungible token. Non-fungible means that the token is not exchangeable with something else. It is 1/1 unique. An NFT can be used to represent anything that is unique that requires a proof of ownership, e.g., real estate, art, in-game purchased items, etc.
In contrast, fungible means that one thing is exchangeable for another of the same thing. For example, a $5 bill is exchangeable for another $5 bill. Technically, each bill has its own unique serial number, but for all intents and purposes, we treat them as identical. Bitcoin and Ethereum are the same. Technically, each coin has a unique identifier, but they are, in practice, treated the same.
So, an NFT is a non-fungible, in other words unique, token. A token is a digital representation of the non-fungible object. The digital representation comes from a smart contract, a piece of computer code, that includes a unique identifier that enables a person to recognize the authenticity of a specific NFT. Accordingly, I can tell that one NFT is different from another NFT. Most people do not need to get into the specifics of smart contracts to understand how to buy and sell NFTs, so if you find this confusing, you’re not alone.
Another interesting aspect of NFTs is that the creator of the NFT owns the copyright and the reproduction rights, the buyer just owns the specific NFT. In other words, I can mint an NFT of a photo and still sell the photo as a physical print because I, as the creator, own the copyright to the photo. The owner of the photo NFT has the right to sell the NFT since they own it. The intellectual property rights can be modified with additional contracts, but we do not need to get into that here.
Are All NFTs The Same? What Is A Smart Contract?
No. Some NFTs are truly non-fungible, while other NFTs are not. This difference is confusing, since they are both called NFTs. The type of NFT depends on the smart contract that was used to create it. A smart contract stores the unique properties of the digital file, including where the file is stored, keeps track of the current and previous owners, and keeps track of how much they were sold for. Some smart contracts allow for only a single token to be created (minted) onto that smart contract, while others allow for multiple tokens to be minted to that smart contract.
What Is Minting?
The two main standards of NFTs (at the time of writing) are ERC-721 (non-fungible) and ERC-20 (fungible). Each of these standards allows for the minting of a single token. Minting single tokens can be inefficient, so there is also the ERC-1155 standard that allows for multiple tokens to be minted to the same contract. Most people do not need to know or understand how the standards work, but it is helpful to know how they can practically affect the process of minting NFTs.
Some NFTs are considered semi-fungible. In other words, they are a limited series of the same digital file. For example, if you wanted to mint (create) 10 editions of the same photo, you can mint 10 copies of that photo to an ERC-1155 smart contract. You would be left with 10 NFTs that are identical. Technically, you can mint as many NFTs of the same file as you want, but the number of the NFTs of the same file can impact how much people are willing to spend on depending on how they value scarcity. It is up to the creator to decide on their own strategy.
In contrast, if you mint to an ERC-721 contract, each NFT is uniquely identifiable. Technically, you can mint the same file (e.g., jpg, mp3, mp4, etc.), multiple times, but each file would get a different number associated with it. Again, this is up to the individual’s strategy.
Why should I care about Web3 and NFTs? Who should care?
This answer to this question will depend on each unique person, and that’s kind of the point of Web3. I’ll provide a few examples below. If you have a reason that I didn’t list on why you’re interested in Web3, I am happy to update my posts with more examples, so please leave a comment below.
Convenience
Some of you will care because you’re tired of remembering 1,000,000 usernames and passwords. Most online companies require you to sign up using your email to create a username and password so that only you have access to that account (though they are often very easily hackable, make sure you have two-factor authentication turned on). These usernames add up over time, making it annoying to keep track of more and more accounts.
With Web3, you only need to create a single account with one username and password, allowing you to use that account to log in to all Web3 apps. This account can be considered as a digital signature that only you have the power to use. The signature is stored in what is a called a wallet. The wallet does not store money, it stores your signature. There are two kinds of wallets: a hot wallet (e.g., MetaMask) that is connected to the internet, and a cold wallet (e.g., Ledger, Trezor) that is not connectable to the internet. I should note that the creation of multiple wallets is a good practice for security purposes. I will deal with security of wallets in another post.
I know that some companies allow you to use the same account across multiple platforms (Facebook, Google, Apple, etc.). I’ve listed issues with this model below.
Royalties
Some of you will care about NFTs because they allow content (fine art, poems, music, etc.) to have perpetual royalty system that provides royalties for every secondary sale. A royalty is a portion of a sale of a product that goes back to the owner of that product.
Imagine an author writes a book and sells it at a bookstore, such as Indigo. The author gets a portion of that sale when Person A buys that book. After reading it, Person A sells the book to a used bookstore so that someone else can read it and so that Person A can get some money back. The used bookstore buys it from Person A, and Person A gets all the money from that sale. The used bookstore then marks up the price of that book and sells it to Person B. The used bookstore gets all of the money from that sale. The original author was left behind after the first sale.
With NFTs, there is a royalty that is built into the NFT itself (into the smart contract, more on this below). Accordingly, returning to the book example above, the author lists a book NFT on a marketplace (an online bookstore). The author sells the book to Person A and the online bookstore takes a commission for selling the book on their platform (e.g., 2-15%). The author gets the other 85-98% of the original sale. Once Person A reads the book, they decide to sell the book to Person B. The author has built in a royalty of 10%, so when Person B buys the book from Person A, the Author still gets 10% of the sale. This royalty continues forever, so the Author will always get a royalty from the secondary sale of their book.
This concept applies to other forms of art as well. After an artist has become more popular and successful, the value of their art increases. That means that the secondary sale of the art can continue to provide more and more royalty money to the artist, providing them with a way to make a living off their art despite selling the original piece.
A Trustless System
Some of you will care because you’re tired of paying intermediaries for things like purchasing unique physical objects, such as a house. To buy a house, you have to go through many layers of relying on third parties to verify the proper ownership of the house, including checking the identity of the person selling the house, checking the title against liens and other legal constructs. Effectively, paying more to have someone else authenticate that the sale of the house is legit and that the owner selling it actually owns the house.
With NFTs, the authenticity is inherently built into the document itself and the ownership can be tracked on the blockchain. I am oversimplifying this concept, as it would require coordination with the government to provide a trustworthy platform to view the NFT deeds, but the sale of each house would be trustless.
Another trustless example is crowdfunding. Kickstarter was wildly successful because it allowed people to invest in what they believed in, different products that they thought would bring good to the world or themselves. Kickstarter is a third party that allowed a creator/inventor to propose a product to the world. If someone was interested in their product, they could donate money to the cause, held in trust by Kickstarter. If enough money was raised, i.e., the threshold was reached, Kickstarter would give the money to the creator/inventor and the project would be funded. The creator/inventor would then use the money to build the product and the original investors would get the first prototypes.
With smart contracts, the threshold can be built into the contract itself. In other words, there could be a period of time for the contract to execute, such as a week. If enough money is raised in a week, the transaction would complete, and the money would be sent to the creator/inventor. If not enough money is raised in a week, the money would be automatically returned to the donors.
Investing In What you Believe In
Some of you will care because you haven’t found a true investment portfolio in the stock market that you feel aligns with what you believe in. NFTs provide a way for an individual to tokenize some aspect of their life and sell that token to their fans. For example, the NBA has done this through NBA Top Shot. Basketball highlights throughout the season are minted as NFTs and sold to fans. The players can then choose to interact with the fans that own their NFTs. Accordingly, if you believe in a rookie, and think that they are going to do great things in the NBA, you can buy NFTs of their rookie year. If they perform very well, the value of those NFTs will likely go up, and you can make money off of your investment should you choose to sell.
Similarly, you can buy NFTs from a creator whose work you enjoy. If I sell my photography NFTs and my popularity increases (which I hope it does) then the value of my work will increase over time. Accordingly, my fans can invest in my art, helping me to afford to continue making art. In turn, I can invest in my fans, by providing them with more works that increase the value of their initial investment, discounts on future works, physical prints, etc. The value associated with owning the NFT of a particular creator will vary depending on the imagination and success of each creator.
This concept is best summarized as the 1000 true fans concept. The original article can be found here. If you have 1000 fans who believe in your work, as an artist, athlete, etc., you can make a decent living by selling your product to your fans. The more fans, the more comfortable you will be. Traditionally, the world has struggled with this concept since the only way to get fans was to find people in your same geographic location. With the advent of the internet, and more recently, social media, you can now reach a far wider fan base, allowing you to find more people than ever before who believe in your work.
NFTs take this concept one step further by providing a way for fans to confirm the online credibility of the person selling the product. The immutability and transparency of the blockchain allows fans anywhere in the world to check the credibility of the product before purchasing it. Additionally, since NFTs are built onto an economic platform (e.g., Ethereum or Solana), there is an inherent monetization aspect built into the good itself. Thus, NFTs make it possible for creators to connect with fans anywhere in the world, each supporting the other on a trustless and economic platform.
Effectively, NFTs allow for the investing of people around the world into a community of shared interests.
Community
Some of you will care about NFTs because they provide you with an opportunity to find a community of like-minded people that you can interact with online. The art world has begun doing this through what are called profile pictures (PFPs). In a PFP project, there are often 10,000 generated images that are each slightly different in style and rarity. Individuals can buy a PFP, giving them access to a community of others that have also bought into the project. CryptoPunks, Bored Ape Yacht Club, Cool Cats, Doodles, Coolman’s Universe are just some examples of PFP projects.
Individuals can also use NFTs as a way to connect with their true fans and foster the development of a community where they can interact with people who love their works more than anyone else. For example, I was at a conference this week and Raine Maida from Our Lady Peace was talking about how he has thousands (if not millions) of fans from all over the world, but it has traditionally been very difficult for him to bond with his top fans. By releasing music NFTs in a smaller quantity (a few hundred or thousand), he is able to identify the people that truly care about his work as an artist, enabling him to build a community of people that bond over their shared love of music.
At this same conference, Josh Hart from the Portland Trailblazers was talking with Ridhima Kahn from Dapper Labs about NBA top shots. Josh mentioned how excited he was to be able to identify his true fans and use NFTs as a way to show off his personality and interact with people who truly supported him as an athlete.
People from all over the world are using NFTs as a way to connect with like-minded people, demonstrating and sharing their passions. What are you passionate about? Personally, I have purchased NFTs from artists I believe in and PFP projects that demonstrate a concern over equality and mental health.
Privacy And Data Control
Some of you will care because you hate that all companies these days track us and use our data for financial gain. Have you heard of the concept, if the product is free, then you are the product? This concept, when used online, is often referred to as the business model of surveillance capitalism. Instagram, Twitter, Facebook, YouTube, etc. all use this business model to mine user’s data and either sell targeted products to the user or sell the information directly to advertising companies.
The issue with such large pools of data is that, knowingly or not, the data can be used to control the flow of information to each individual user. This data control is done through algorithms. An algorithm is a piece of computer software that responds automatically to different situations. For example, if I like a picture of a gorilla on Instagram, the next time I refresh my screen, there is an increased chance that I will see another gorilla. The algorithm has learned that I like gorillas and so, to keep me on the app longer, it will show me more gorillas. The longer I spend on this app, the more money Instagram makes, since there is an increased chance that I will see an advertisement and spend money to buy the product or service advertised.
Even if you don’t spend money, you are still spending your attention. In a day and age where we are constantly over-stimulated by information, time and attention are your most valuable resources. The social media companies know this, and use algorithms to keep you stimulated so they can mine more of your time and attention. There are reasons that go beyond money as well.
Social media companies also have the arbitrary power (you don’t have to agree) to delete your social media account. For some people, this doesn’t seem like a big deal, but imagine if you have spent years building a following on Instagram, and Meta decides to delete your Instagram account because they want your username. I wish I was kidding.
In November 2021, an Instagram user with the handle @metaverse had her account deactivated. This occurred around the same time that Facebook rebranded as Meta. There was a clear relation to the deactivation of her account and the newly-named Meta trying to confuse users into thinking that they were the creators of “the metaverse.” @metaverse had no recourse to get her account back, Instagram’s automated services stayed silent despite her requests for a review. She managed to get her account back after the New York Times picked up the story. The NYT effectively used social pressure on Meta to get Meta to reactivate her account.
In Web3, the only person who can control the movement of your data is the person in control of the crypto wallet.
Stemming The Flow of Mis and Disinformation
Personally, I became interested in NFTs in 2017, before I even knew they existed. I was looking into blockchain as a potential solution for stopping the spread of false information. I will upload this paper as another blog post soon.
I was researching a way to stop the spread of fake news across the internet. The Cambridge Analytica scandal with the U.S. government scared me. Long story short, advertisers used data collected by Facebook to influence voters by showing certain voters in swing states (AKA the persuadables) information that would likely make them vote the way the advertiser wanted them to. In this case, the advertisers were a political party or someone with a political agenda.
Being able to influence the outcome of a democratic election using social media scared me, especially considering that the tools being used, the algorithms, were not fully understood by the people using them. “With great power, comes great responsibility” – Uncle Ben. I do not think that the responsibility that comes with controlling information flow was properly considered when creating companies that influence the way people think all around the world.
I think that all of these reasons can be, for the most part, summarized in a single concept: self-sovereignty.
What is Self-Sovereignty?
Self-sovereignty is the concept of being in control of your life, of having ownership of the property of yourself. Traditionally, this right has been granted in some countries in the world in real life (IRL) over their physical being. What we are talking about here is applying that concept digitally (online).
One way that I see self-sovereignty progressing is through the use of independent smart contracts, such as through manifold.xyz. An independent smart contract is a smart contract that is tied to your digital signature (wallet) in a way that lets you interact with Web3 platforms. You can learn more about how to mint with independent smart contracts here.
The right to digital self-sovereignty has yet to be determined. Governments around the world are trying to figure out how to regulate crypto, and by extension, NFTs. I think there is a real chance that we will not be able to retain digital self-sovereignty, instead having our online presence controlled by internet companies and governments.
The only way to become self-sovereign is to educate yourself and others on how the new form of the internet can operate. Only once we have enough people onboarded to Web3, people who understand the technology and the implications of that technology, will we be able to have the power to change the way that society has been heading.
What Do NFTs Have To Do With The Metaverse?
I wrote an intro article to the metaverse here. Effectively, the metaverse is the ability of people to interact online. We are technically already living in one form of the metaverse, and have been since web2 was started.
We are starting to see the development of a more virtual version of the metaverse, more 3D. NFTs will become more and more important in the metaverse because they enable an individual or company to demonstrate that they actually own the file that is being presented in the metaverse. For example, if I start a virtual art gallery with my art in the metaverse so that people can walk through and view my art similar to how they would IRL, I can prove ownership of my photos through NFTs.
Ownership of cars, houses, swords, gold, etc. in the metaverse will be demonstrated through NFTs. In other words, since more and more people are joining the internet and interacting online, NFTs provide a way for people to authenticate who and what they are interacting with.
Am I Too Late To Get Into NFTs?
No, absolutely not. NFTs are a technology that will revolutionize the way we deal with digital files online. The ability to own a digital file and prove that ownership has never been done before. It was previously not possible to instantly demonstrate the ownership of a digital file.
This ownership means that, as more and more people begin using NFTs, both traditional social media platforms and decentralized social media (DSM) will begin to recognize the use of NFTs across the internet. For example, Twitter enables you to connect your wallet so that you can use an NFT as your profile picture. The profile picture is shaped as a hexagon, so anyone who sees your profile can immediately tell that you are the owner of that NFT. Instagram has announced that they are introducing NFTs to their platform. They have already begun testing the digital collectible concept with select creators.
Accordingly, we will see more and more platforms beginning to recognize the value of NFTs. Some of these platforms will try to capitalize on what they see as a fad, without recognizing the change to the creator economy that we are seeing here. Effectively, NFTs allow for the evolution of the creator economy into the ownership economy, an economy that prioritizes the individual creators that allows them to monetize off of their works without giving away their photos, music, or videos for free to platforms that commoditize people’s attention span.
Are NFTs A Scam?
No… and yes. Anytime there is a new technology introduced to the world, there are bad actors that are interested in preying on people who are ignorant on how to safely use that technology. When people refer to NFTs scams, they are often referring to what is known as being “rugged” in the NFT space, or having the rug pulled out from under you. Effectively, an unknown creator will release a large project and hype the project up so that people buy into the project. Once people buy into the project, the creator will take all of the money and run. To me, the solution to this type of scam is DYOR, do your own research. Before spending money on NFTs to invest in a creator, research the history of the creator. Did they just start their account last week? Are all of their followers bot-looking? Has their crypto wallet been used to purchase NFTs, or is it empty? The benefit of Web3 is that you can check the economic history of a wallet to determine if it seems real or not.
People get scammed in real life with products and companies, just look at Theranos. There was a regulation system in place that was, theoretically, supposed to prevent people from being scammed in the medical community. Due to corruption and manipulation, millions of dollars were invested in a project that did not work in the way Elizabeth Holmes said it did.
There are other ways to scam people in the NFT space, such as through phishing links, but this is the same as being scammed on Web2 platforms. Remember, with great power, comes great responsibility. If you are interested in getting involved in Web3, it is worth understanding how to operate safely online. Aside from doing your own research on NFT projects to see who operates them, you should never click on links that you do not know where they came from. This applies to both Web2 and Web3. Cybersecurity is, unfortunately, a skill that is not well understood by most users of the internet.
Are NFTs Bad For The Environment?
This question is a difficult one to answer and depends on the type of blockchain that is being used to operate the NFT. I explain more about Proof of Work and Proof of Stake in my intro to Web3 article. I’ll summarize briefly.
Proof of Work (PoW) operates by mining transactions to confirm their authenticity. If Person A wants to give Person B a Bitcoin, an equation (hash) is produced that needs to be solved in the transaction block. Everyone in the world mining BitcoinBitcoin can try to solve the equation. The person who succeeds gets a reward for mining that block. Since no one knows who will solve the equation, the transaction becomes effectively impossible to scam. However, having thousands of people using computational power at the same time to solve the same equation is very energy intensive. This energy cost is why many Bitcoin mining pools are being set up in regions with renewable energy. The environmental impact of Bitcoin is reducing as more people look for ways to sustainable support cryptocurrencies.
In contrast, Proof of Stake (PoS) is an alternate method of validating transactions. Solana uses PoS and Ethereum transitioned to PoS in September (also called The Merge). In a PoS blockchain, validators can stake some of their own, e.g., Ethereum as a security deposit. Depending on how much they stake, they get put into a pool of potential validators who try to bid to win the ability to validate a block. Whoever wins the bid is able to validate the transaction block and they receive a reward for doing so. Since not everyone is trying to solve the equation at the same time, the energy cost is drastically reduced. The security deposit, the staked Ethereum, is held for a period of time until it is confirmed that the transaction is authentic. If the validator tries to falsify the transaction, they lose their security deposit.
I will note that traditional forms of banking and transacting also use a large amount of energy. Think of the energy cost of running thousands of banks around the world. Electricity cost, pollution from commuting, etc.
I do not profess to be an expert on the environmental aspect of cryptocurrencies. I researched for months trying to find a definitive answer to this question, to no avail. I suggest doing your own research to see if you are comfortable with getting into this system. If you are not comfortable with Proof of Work chains, perhaps you can get started with a Proof of Stake blockchain such as Solana and Ethereum.
Conclusion
I hope that this helped you understand Web3, NFTs, and their potential impact on the world. Please leave any questions you may have below in the comment section and I will continue to update the FAQ.
