If you have been involved in the NFT space then you have probably heard of the countless scams. The recent boom in this industry has attracted some unwanted attention.
In this article, I will be covering whether NFTs are Ponzi schemes and much more. So without further ado, let’s jump right in.
NFTs are not Ponzi schemes. They are legitimate assets that hold intrinsic value. Ultimately, they act as contracts in the digital world. Whereas, Ponzi schemes offer no value with unsustainable returns.
What are Ponzi schemes?
Ponzi schemes are a form of fraud that promise exorbitant returns. This is based on an unsustainable system whereby early investors are paid out by later investors. Consequently, when the pool of money runs out the scheme collapses.
Are NFTs Ponzi schemes?
Simply put, NFTs are digital contracts that enable scarcity. In most instances, these projects do not produce a yield and therefore would not be considered a Ponzi.
Instead, they are used as proof of purchase and they can represent anything from images to audio files. Moreover, thanks to the underlying technology of NFTs they help combat Ponzi schemes.
They utilize blockchain technology which is essentially an online database that is immutable. Each transaction on the blockchain is completely transparent and verifiable. This highlights any malicious activity.
Lastly, you may be thinking that royalties function like Ponzi schemes. However, they differ in that investors do not receive payments on secondary sales.
Instead, a portion is taken out of each transaction for the original creators. This is done transparently at their discretion.
Are NFTs Pyramid schemes?
NFTs are not pyramid schemes as there is no incentive attached to recruiting new participants. In a pyramid scheme, participants receive a commission for each member they recruit with a greater percentage given to those higher up in the scheme.
Similar to a Ponzi scheme they are sustained by funds from new investors. Additionally, they do not sell real products or have any utility. Whereas, NFTs provide real assets. For instance, intellectual copyrights or unique artwork.
Moreover, they can provide various forms of utility. Whether that be digital passports or voting rights there are plenty of use cases.
Are NFTs a con?
Although NFTs are not Ponzi or pyramid schemes they can ultimately be used to con unsuspected investors. For instance, phishing scams can imitate legitimate websites to gather sensitive information and steal users’ funds.
Moreover, fake NFTs are created and sold on the open market. OpenSea estimated that over 76% of NFTs sold on their marketplace were either faked or plagiarised. Overall, cons dominate the space and this is not likely to change anytime soon.
5 reasons NFTs enable scams
Unfortunately, the NFT space has proven to be a breeding ground for scams. Ultimately, the technology and the little regulation around it have facilitated various cons. In this section I will be covering 5 reasons they enable scams:
- Low barrier to entry – all that is required to create an NFT is an internet connection, a computer, and a small amount of crypto for gas fees. As a result, scammers can churn out countless collections and fakes.
- Hard to accurately value – like other forms of art, NFTs can be hard to value. At the end of the day, they are largely subjective. This can allow creators to overcharge investors through deceptive marketing.
- Unregulated – the NFT space has little regulation. For instance, there is little guidance on what is considered securities or not. This provides legal ambiguity that scammers take advantage of.
- Novel technology – as the technology is in its infancy, investors are often oblivious to common scams and how to protect themselves. Moreover, this can lead to developers writing poor code that can be exploited. On a side note, this is why it is vital to use a hardware wallet. The one that I recommend is the Ledger Nano X. Click here to check out my review.
- Anonymity – the creation of NFTs does not require the disclosure of your identity. As a result, the space is rampant with anonymous creators. This allows them to scam unsuspected customers with little repercussions.
If you want to view this article in a more visual format then please check out my video below:
Overall, NFTs are not Ponzi schemes or scams. They are simply a technology that can be harnessed for good or bad.
That being said, they facilitate scams in various ways. For instance, by providing anonymity while having a low barrier to entry to name a few. That is why it is important to do your own research to find reputable projects.
I hope you found this article useful and thanks for reading it.
Want to learn about derivate NFTs? Click here to read my previous article.