In my most recent blog, I presented a brief introduction to the metaverse and attempted to explain why it matters. This week, I’ll be exploring the concept of ownership within the virtual realm, the practical ways in which digital citizens are using non-fungible tokens (NFTs), and how you can guard against online fraudsters.
Can you remember when the idea of ‘buying’ online media was still controversial? It may seem like a bygone era but it’s not that long ago, relatively speaking.
In the early days of paid-for online assets (think the rise of iTunes in the wake of illegal file-sharing platforms), there were countless discussions about physical versus digital media, and the respective pros and cons of each.
Back then, a significant portion of consumers still preferred the idea of owning physical assets rather than files on their computers or mp3 players.
Fast-forward to today and it’s easy to see how rapidly this landscape has changed. Over the past decade or so, most of us have become comfortable with the idea of purchasing digital media.
iTunes and similar platforms are still going strong, services such as Amazon Prime offer a choice of both physical and digital media, and some companies like Netflix have abandoned physical media altogether, enjoying immense success through the provision of subscription-based streaming services.
That’s not to say physical media has been completely confined to the garage sale of history. The resurgence of the vinyl record market, for example, demonstrates that many collectors remain passionate about tangible items.
Nevertheless, few would deny that there has been an overarching shift towards virtual entertainment. I still own CDs and DVDs, for example, but – in all honesty – I rarely play them.
Do we own what we are buying?
Although we’ve become used to buying online media, that still begs one very important question: what does it mean to own a digital asset? At first glance, this may seem relatively straightforward. Upon purchasing a piece of digital media, you are entitled to enjoy it at your leisure.
Similarly for subscription-based platforms, you are permitted to use their services for as long as you continue to pay your dues.
The question of digital ownership may not be quite as obvious as it seems, however. Take the world of videogames as an example.
If you’re a gamer, you may remember using a seventh-gen console to purchase your first ever digital titles. Try playing those same games today using ninth-gen hardware. A few may still work, but most of them probably won’t.
This issue comes into even sharper focus when you consider older online-only games whose servers have been closed, or digital titles that have been removed from online marketplaces.
The Hideo Kojima and Guillermo del Toro collaboration, P.T., is perhaps the most famous example of this trend. The only way to legally play this game today is by purchasing a second-hand PlayStation 4 with the original software still installed.
Verifying ownership in the metaverse
I’ve written primarily about entertainment so far to illustrate a point, but the question of online ownership is relevant across a far broader spectrum.
How can we ensure that our digital assets are unique and safe in the same way as our physical possessions?
Fast forward to non-fungible tokens (NFTs), which have the potential to help overcome challenges related to digital preservation while imbuing such assets with measurable value.
If you’re not familiar with NFTs, check out my most recent blog in which I go into greater depth about these tokens and the metaverse in general (link in introduction).
Simply put, ‘fungible’ is a synonym for ‘interchangeable’ so – as the term suggests – each NFT is unique. Think of them as certificates of authenticity that are next to impossible to forge.
Both virtual and real-world applications
Those who don’t follow this sector closely may be surprised to learn that NFTs have a broad range of applications, not only within digital realms but also in the physical world.
Of course, the majority headlines still tend to focus on the prevalence of NFTs in the metaverse, where they are increasingly being acquired as status symbols.
Take RTFKT Studios, for example, which has enjoyed tremendous success with the introduction of its Clone X avatars. In the future, digital goods such as these could well be viewed in the same way that high-end property, timepieces and supercars are today.
But this is only the tip of the iceberg when it comes to possible uses. Consider the potential for digital tokens to supplement or replace title deeds and proof-of-ownership certificates, helping to secure marketplaces and reduce fraud.
The use of NFTs for luxury watches, for instance, could reduce activity on the grey market and help to eliminate the ability of fraudsters to sell items using forged documentation.
Similarly, anyone who follows elite sport will be aware of the problems caused by scalpers and ticket touts, many of whom use bots to purchase items quickly and in bulk, and then charge exorbitant prices to people who were unable to secure tickets during the initial sales.
Despite the myriad measures that have been put in place by event organisers to deter such practices, it is usually the fans who lose out in the end.
Now, imagine a world in which NFTs are employed to stymie unscrupulous resellers, allowing organisers to monitor the market value of their tickets, as well as who’s buying and selling. In theory, this seems like a vast improvement on the current situation.
It’s also easy to see the potential applications of NFTs within the world of business. Using blockchain technology as the basis for legal contracts, for example, could help to irradicate the potential for illegal manipulation.
The fact that royalties can also be built into NFTs represents another a major advantage. If they were to be used in conjunction with Real Estate Regulatory Authority (RERA) and title deeds, for instance, levies such as the 4% Dubai Land Department (DLD) fee could be added and collected automatically.
The use of NFTs in the metaverse is well established and gaining more traction every day. Virtual worlds like Decentraland and The Sandbox, for example, enable users and partners to build, trade and monetise in-game assets.
What’s more, there are already some interesting crossovers between NFTs and real-world assets. Earlier this year, for instance, TechCrunch founder Michael Arrington sold his Kiev apartment for ETH 36 (approximately $93.5k) as part of the world’s first NFT property auction.
Findings released earlier this month by Chainalysis show that the past year has seen unprecedented activity within global non-fungible marketplaces.
The analyst’s 2021 NFT Market Report states: “So far in 2021, users have spent at least $26.9 billion worth of cryptocurrency to ERC-721 and ERC-1155 contracts, the two types of Ethereum smart contracts associated with NFT marketplaces and collections.”
Whichever way you look at it, NFTs already represent big business and the sector looks set to continue growing in 2022, along with consumer confidence.
Knowing the risks
At a fundamental level, NFTs are extremely secure. Built on the back of blockchain technology, each one is unique and encrypted, existing only as a series of digits on a blockchain ledger.
Tampering with blockchains, meanwhile, is incredibly difficult as making a change to one block requires all subsequent blocks to be altered too.
Add to this mechanisms such as ‘proof of work’, which sets minimum time limits on the creation of new blocks, plus constant peer-to-peer verification, and you’re left with one of the most secure systems on the planet.
But that doesn’t mean that the world of NFTs is risk free. Unfortunately, as with any market in which large sums of money change hands, these assets have become a lucrative target for fraudsters prowling the metaverse.
Spotting the scammers
In the world of NFTs, the most common scams involve attempting to access people’s crypto wallets to steal funds, and misrepresenting assets in a bid to sell them for inflated prices.
When it comes to safeguarding against the former, there are a few simple measures that anyone can take.
Do not respond to unsolicited messages about NFTs; don’t click on the links that these messages contain; and never, under any circumstances, share your seed phrase (the password that enables access and control of your crypto wallet).
Don’t even store your password digitally. Write it down and keep it in a secure location, and consider investing in a hardware wallet.
In terms of fraudsters trying to pass off ‘fake’ NFTs as the real deal, there are also a number of steps you can take to protect yourself.
If you’re using a marketplace like OpenSea, for example, always check the prices of similar assets. If you notice a significant disparity between the item you are viewing and comparable listings, the deal might not be legitimate. Don’t forget, whether online or in real life, scammers often try to lure potential victims with attractive price tags.
If the price looks right, it’s time to scrutinise the seller and the asset in question. For instance, is the seller’s name spelled correctly? Do they have a blue tick to demonstrate verification? Do the asset’s description, properties and accompanying text stack up?
Most importantly, take a moment to confirm that the contract is in order. To check this, copy the contract from the seller’s official website (the vast majority of legitimate projects will make their contracts publicly available) and check it against the version listed on the marketplace. If the contracts match, you’re probably good to go. If not, the chances are you’ve uncovered a scam.
Make sure you’re enjoying yourself
The main reason I follow NFT communities is because they’re fun, innovative and exciting.
I wouldn’t want to give anyone the impression that fraud is more prevalent within the NFT sector than in any other, whether virtual or physical. It’s a sad fact of life that whenever a new market emerges, scammers will be quick to take advantage.
The problem is that not all first-time traders do their homework, and so they can be easier to exploit.
As the popularity of NFTs continues to grow, community members will, no doubt, become more familiar with the associated opportunities and pitfalls. Ultimately, as the metaverse expands, NFTs could well become commonplace.
Who knows? Ten years from now, purchasing an NFT may feel as normal as buying a song on iTunes.