According to Wikipedia, the first known non-fungible token (NFT) was created in 2014 and the first NFT project started in late 2015. It would take a few more years and more projects for the concept to seep into the general public’s consciousness, and then a few more for the massive investments in NFTs that will follow.
Hundreds of millions of dollars were spent on NFTs in 2020 and 2021. The boom was obvious, but baffling to many, as buying an NFT of a digital work of art — a song, photo, video, in-game collectible, etc. — doesn’t mean you own any copyright, intellectual property, or other legal rights to it the digital asset that the NFT represents.
What then is the appeal of NFTs?
We asked Satnam Narang, Research Engineer at Tenable, to shed some light on the matter for the uninitiated and provide safety advice for those who have already invested in it.
What are buyers using NFTs for?
“Most commonly associated with digital art, NFTs are considered the modern day equivalent of an art collection. Only a certain number of NFTs are made for a project, and they have a variety of characteristics that can add to the value of an NFT from a rarity perspective,” explains Narang.
“Most of the popular NFT projects are so-called PFPs projects (profile pictures) like CryptoPunks or Bored Apes. Buyers purchase these and use them as their social media profile pictures because social media has become our digital art gallery. While it is true that anyone can right-click and save and claim a PFP from any of these projects, since they are blockchain-based projects, there is a way to provide verifiable proof of ownership. Twitter has recognized the value of NFTs as PFPs, which is why they have started offering cryptocurrency enthusiasts the ability to verify ownership of their NFTs on the blockchain in a more transparent way.”
He attributes the recent popularity of NFTs in part to the fact that NFTs have become another investment vehicle and potential earning opportunity for many cryptocurrency enthusiasts and investors who missed the early days of Bitcoin and Ethereum.
Several notable projects have seen their NFTs skyrocket in value over the past year, even as the broader cryptocurrency market entered a bear market, he pointed out.
However, it must be noted that the NFT market has cooled off somewhat since then.
How are NFTs secured?
NFTs are bought and sold on NFT marketplaces (e.g. OpenSea).
“NFTs are typically stored in hot wallets: cryptocurrency wallets that are easily accessible across the internet via browser extensions like MetaMask. This allows users easy access to their NFTs for sale purposes,” says Narang.
“Some advanced users may choose to store their NFTs in cold wallets, which are offline wallets (physical devices) that are not connected to the internet. Cold wallets include hardware wallets like Ledger or Trezor, which require a user to securely store a private key offline in order to access their funds or NFTs in their cold wallet.”
NFTs: A scammers treasure trove
As software engineer Molly White documented in her project Web3 Is Going Great, NFT project compromise has become almost a daily occurrence, and dubious NFT projects have also been known to be turned upside down.
It’s difficult for those who want to buy NFTs or have the ability to mint some to be absolutely sure they won’t be scammed.
“Scammers often have an opportunity to target NFT projects that seek to add value to their owners. These projects will offer things like airdrops of tokens only granted to NFT holders, or plan to transition into things like the Metaverse, where holders of those NFTs can get initial shares of a piece of digital land in the project’s Metaverse,” explains Narang.
“If users miss these airdrops or opportunities to acquire digital land deeds, they are more vulnerable to being scammed by unexpected offers. The scammers also really use the urgency factor and say that an NFT project will only reopen airdrops or grant access to procure digital land charters for a limited time or for a certain number of users.”
Beware of phishing
Scammers can go through owners of NFTs Imitations of the various projects or through general cryptocurrency phishing, giving an attacker control of the victim’s wallet.
Skepticism is an NFT collector’s best friend, Narang notes. “Unsolicited messages on social media claiming you can participate in an airdrop or NFT coin are more likely to be scams. If you are unsure you should check the social media accounts of the respective NFT projects or Discord to confirm these claims but I can assure you that 9 times out of 10 it is simply a scam that aims to steal your digital wallets.”
It’s better to miss out on a potential burgeoning NFT project than stealing all your cryptocurrency and NFTs from your wallet, he says, advising NFT owners to consider using cold storage for their NFTs and other digital assets.