If you ever needed reasons not to buy NFTs, here are a few. And remember, friends don't let friends bet on stock markets, currency exchanges, or NFTs.
What is "fungible"?
Firstly, here's a short version of what NFTs really are. I'm not going to go into details about the implementations of blockchains. There are plenty of other descriptions of that, already.
Suffice to say that the various coins are all "fungible" tokens – that is, each coin is a token representing a value which is equal and interchangeable with any other token of the same type – i.e. with any other of the same type of coin.
US $1 bills is an example of a "fungible" token – any $1 bill can be exchanged for any other $1 bill. They all have the same value.
NFTs are "Non-Fungible Tokens." What that means is that they are not valued equally to any other token. An example of a non-fungible token from the real world is a deed to a house. You cannot just walk up to any house and claim that you own it just because you have "any" deed – you need the deed to that specific house. Also, the value of your house isn't the same as the value of my house, so I'm probably unwilling to swap house deeds with you without some monetary compensation to match the price difference between our houses.
But Bitcoins have value...
Yes, Bitcoins have value, and they are based on blockchain technology, so anything based on blockchain technology must also have value, right?
If you buy a house, or a car, or a piece of art, then you want to have that appraised before buying it, and once you've paid for the house (or car...) then you get the deed for the house, proving that you actually own it, and nobody else can use it without your permission.
This works because we all agreed that deeds are legal documents that carry value, just like we agreed that US $1 bills are legal documents that carry value.
Like house deeds, NFTs don't have any intrinsic value. If the house is an old, broken down, mold-infested ruin, then the deed may not be worth the paper it is printed on.
The same goes for NFTs: If the NFT represents ownership of a tiny pixelated jpeg of a monkey, then it's probably not worth a lot of money. Ask yourself: How much would you pay for those pixels if there wasn't any buzz-word-factor?
Also consider the enforceability of the NFT. We all agree that a house deed is a legal document, that means that if someone squats in your house, then you can call the police, with the deed in your hand, and have the squatters removed.
If your NFT represents ownership of some pixels, then consider if the police is going to come running if anyone grabs a screenshot of your pixels and re-sells those pixels. Since no authority recognises the validity of an NFT then you have no legal ground to enforce it.
You might call copyright infringement, which is a fair point. We, as a society, agreed that copyright is legally enforceable. This means that we actually already have another digital means of representing ownership of digital assets. One that is actually recognised and enforceable.
In the end...
One might wonder, what problem does NFTs solve? Is it really a solution looking for a problem (like so many other things blockchain)?
So before buying any NFT, ask yourself:
- If this was a paper deed representing ownership of the asset (the house, or the pixelated monkey), how much would you pay for the asset?
- Do you foresee it appreciating of depreciating in value over time?
- Do the people you might sell the asset to recognise NFTs as proofs of ownership, or do you need some other form of proof?
... and if you do need some other form of proof of ownership, what good is the NFT then?