NFT Has Entered The American Dictionary, Yet Many Unknown Pain Points Prevail

Photo by Mikael Blomkvist from Pexels

A few weeks ago, I came across several articles and blog posts about Merriam-Webster not only defining the word NFT in its dictionary but also auctioning it. It was a productive and fun approach by Merriam-Webster.

One of the Business Insider articles noted that the money earned from the auction would go to the nonprofit organization Teach For All, “a network of organizations in 60 countries working to ensure all children have the education, support, and opportunity to fulfil their potential”.

When I checked the website of Merriam-Webster, I noticed that the acronym NFT as “NON-FUNGIBLE TOKEN” is defined in the dictionary. Here is the screen capture of the definition.

NFT DefinitionScreen capture from Webster dictionary

Interestingly, I did not come across the auction details in the press, but this word is now owned by AOI (Art on Internet) as linked to the word entry in the online dictionary. So I assume AOI won the auction. It looks like the word was sold for $15.

So my first point is you can even own and sell a word as an NFT. It is good that the word is in the dictionary, but the problem is the lack of a single source serving as an NFT body of knowledge. However, the Internet is full of ideas, opinions, and aspirations that keep public interest and vitalize the market.

NFTs are exciting. In a nutshell, an NFT (Non-Fungible Token) is a unit of data stored in a blockchain, most commonly on the Ethereum blockchain. This ledger certifies the uniqueness of the item. When a unique item is created as an NFT, blockchain establishes a record with a cryptographic hash. Thus, it verifies identifiable data blocks as unique.

The infrastructure and operating principles are transparent. In theory, the use of NFTs sounds easy and quick. However, we seem to experience a hype cycle. It is a hot topic in the press. We hear the term NFT frequently. If you search NFT in the search engines, you will come up with millions of entries.

Many creators are interested in the process, but most of them are intimidated by unknown points. Hearing about a few mavericks who gained business advantages makes it compelling to the public. However, these early adaptors are exceptions.

In reality, NFTs pose many societal challenges and business risks. Assessment of risks is not straightforward as they are multinational and span across multiple disciplines.

While discussing the challenges of NFT, some sceptics believe that the bubble can burst soon. Some resemble it to the dot.com burst.

I want to briefly touch on societal and psychological matters that affect the market. For example, a tweet created by Jack Dorsey in 2006 was sold for $2.9 million.

Here is the screen capture of the tweet, which is available in the public domain. I provide a link so that you can enjoy this million-dollar tweet.

First tweet by Jack Dorsey in 2006 Twitter

We cannot see the owner of the tweet in the actual tweet. However, this tweet shows in the public profile of Sina Estavi on this site.

Here is the screen capture showing how it looks like.

Image screen capture on V.cent.co

Many people are asking what the point is to spend this much money for a single tweet. Like many of those people, I have no idea. I don’t know about you, but if you ask me, I would rather spend $2.9 M on purchasing a comfortable house or a self-driving car than owning and watching a one-line tweet. It is a personal preference.

Discussions in social media associate this kind of purchase with human psychology in Maslow’s hierarchy. Some call it social proof at the middle layers of the hierarchy. It could be proof showing that one is capable of spending a certain amount of money to own digital products without financial worry.

NFTs seem to revolve around human emotions. We are yet to understand the rationale behind these psychological constructs. There is no established research on these constructs within the NFT context. At this stage, what we read are all opinions reflecting feelings and observations.

In addition, more challenges are spanning multiple disciplines. Two critical concerns are frequently mentioned. One of them is about legal problems relating to copyright and ownership of digital products. The second one is an environmental problem as minting NFTs in Blockchain causing excessive power consumption posing environmental implications.

The relationship among artists, purchasers, and sellers are not clearly defined. There is no single governing body. How will artists ensure they are not exploited?

As the market grows, some scammers start showing up. A scammer took posed as an artist and sold one of his paintings. From the article, “Because the NFT system doesn’t require people to actually own the copyright to something to mint it, it’s a market ripe for fraud.” How will we deal with these scammers?

The security tokens and original products are saved in different locations. There is a link between the storage of product and the storage of tokens, such as implementing and using the InterPlanetary File System (IPFS) protocol to store and share data securely in distributed file systems.

However, if the original digital product is deleted, it is unknown how the purchasers could declare their rights. The question is: who will compensate for the lost product? Furthermore, how will they be compensated? And what are the legal rights of creators, sellers, and purchasers?

International laws also raise some concerns about NFT usage. For example, if an NFT is from North Korea purchased by an American citizen, how do international laws protect the purchasers and sellers? We don't have answers to these questions yet.

Another big issue relates to tax matters. A commonly asked question is who will be paying the sales tax for multiple million-dollar transactions? The tax rules for NFTs are not transparent to the public.

Furthermore, when I search the web, I haven’t come across an authority’s resource laying out and covering legal, business, and ethical conduct for NFTs.

Related to the second issue I mentioned earlier, Ethereum is believed to consume a substantial amount of energy. This is about the amount of power in minting NFTs in digital ledgers. The electric power that crypto transactions consume is globally discussed in many online forums. It is undoubtedly a massive global concern now.

Some web resources believe that the Ethereum infrastructure consumes as much electrical power as a whole country like Peru. As shown in digitonomist.net site, the electrical energy consumed by Ethereum is 50.28 TWh.

Ethereum FootprintsImage digiconimist.net

There are many unknowns and persuasive questions raised by stakeholders of NFT communities.

From an artist’s perspective, copyright rules are concerns as they are not integrated with NFT transactions yet. Some communities propose the creation of an appeal process for proving copies and copyright in case of fraud.

Investors approach with caution due to unknowns; hence they believe they can lose a lot. New competitions can emerge. For example, Ethereum is currently running the show as a primary ledger, but new blockchains are expected to appear.

Many enthusiasts have ideas. However, no one has satisfactory answers yet. There are simply no readily available solutions. So who will determine the rules? More precisely, who will govern the NFT processes? The good news is that Blockchain removes all the middlemen in the governance process.

It is good to have the word defined in a dictionary. Now it is time to create a universal NFT book making it crystal clear for all parties. Unless we have a universal digital book available to the public, many obscurities will proliferate.

The question is whether communities can create a common ground and produce a universal digital book. If they can, how soon could it be? And who will govern the whole process?

Thank you for reading my perspectives.

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