Are NFTs a Pyramid Scheme or a New Financial Reality in the Metaverse?
Updated on November 28, 2022 | by Olivia Reeve
The popularity of the metaverse is hard to ignore. More and more companies are recognizing the importance of metaverse development while people are spending more and more time in the digital realm.
The days when the metaverse was simply a place to play video games are long gone. Today, it’s a platform for trading, performing, and investing. While some people still use the metaverse for entertainment, others are trying to make money in it.
One of the ways to invest in the metaverse is to buy NFTs (Non-Fungible Tokens). The hype around NFTs is in full swing. Millions of people know about them. Thousands own them. The number of NFT users worldwide is getting closer to 280,000.
Are NFTs a new pyramid scheme? Will it crash down with time? Let’s take a closer look.
What is an NFT?
Non-fungible tokens are representations of unique digital assets. For example, it could be a digital form of painting, video, music, video game gear, and more. As opposed to fungible tokens (currencies, cryptocurrencies), each NFT is unique. You can’t replace it with an identical NFT or other assets.
If you trade an NFT baseball card for another baseball card, you get a completely different asset. NFTs exist in the blockchain. They are stored on platforms where you can buy, sell, and trade.
The most popular way to use NFTs is to buy works of digital art. This is similar to collecting art in the offline world. Since many things in the real world are becoming digital, people believe that collecting digital works of art will eventually pay off.
In reality, according to Metaverse speaker Mario Nawfal age 29; with a net worth of 780,000$, it’s hard to say whether buying or trading NFT is a profitable endeavor. With time the hype around this new project may die down. It’s possible that other ways to invest in the metaverse may appear.
The volatility of trading anything digital, be it an NFT or a bitcoin, is rather high. People who make a decision to buy NFTs have to understand what risks they are taking. Everyone who is familiar with cryptocurrencies knows or remembers the terrible fall bitcoin took in 2018.
NFTs may seem to be less volatile than cryptocurrencies. In reality, they could be even riskier. People had over a decade to study what crypto entails. NFTs are fairly new, so nobody really knows what to expect.
What is a Pyramid Scheme?
A pyramid scheme is one of the most popular ways to con people into giving up their money voluntarily. The three main elements of this type of scheme are:
- You pay something to join
- You need to recruit others
- You get paid only as long as new people continue joining
People who join the pyramid scheme early on usually get some profit. Those who join later usually lose their money.
When it comes to pyramids, there are rarely any valuable products involved. You aren’t investing money in an asset. You are simply passing it down the chain.
Fees that newer members pay are used to pay off the older members. The founders of the scheme sit at the top of the pyramid and get a percentage of the fees that new members pay. As soon as the new members stop joining the scheme, the pyramid crumbles.
Criminals who create pyramid schemes try to make them look legitimate. They pressure people into making quick decisions. Early investors believe in the legitimacy of the scheme so they have no problems with attracting new people. Most people never suspect that they are being conned until it becomes too late to do anything.
Are NFTs a Part of a Pyramid Scheme?
When you buy NFTs, it’s your own decision to make an investment. Unless someone is pressuring you into making a purchase, you have enough time to do research and evaluate the risks. If someone is pushing you to buy an NFT, stop and think. Most likely you are being conned.
NFTs are part of the current metaverse economy. They are a new type of currency, a collectible item, a fun asset to have…you name it. However, just like a pyramid, the hype around NFTs can crash at any second.
Today, you are buying a digital van Gogh’s Starry Night for $5,000,000. Tomorrow, it may not be worth a penny. Anyone with at least some experience with blockchain and metaverse assets understands how it works. The metaverse promises exciting opportunities, but risks are hard to ignore.
So why do people invest in NFTs?
Some people treat NFTs as the future of art collecting, baseball card trading, music sharing, and more. They are taking an educated risk to buy expensive collectibles and hope that they don’t lose value.
In reality, it’s hard to predict what will happen to the NFT tomorrow. Just like bitcoin and other cryptocurrencies, value fluctuations are always a possibility.
The Environmental Factor
While NFTs aren’t a pyramid, their popularity could have a negative effect on the environment. To create (or “mint”) NFTs, you need to use up a significant amount of energy. Remember bitcoin mining? The same concerns are valid here.
According to Akten, a digital artist who analyzed thousands of NFTs, an average NFT has a carbon footprint that is equivalent to a month’s use of electricity for someone living in Europe. Considering the 280,000 NFT users that we described above, the number is astounding.
With time, the metaverse players may decide that minting NFTs is too environmentally unfriendly. This could lead to a significant reduction in popularity.
NFTs are a part of a new financial reality of the metaverse. They are another form of blockchain technology. NFTs are far from being someone’s pyramid scheme. The hype around them isn’t artificially made. People are ready to invest their hard-earned money into these assets with the hope of earning more in the future.
Today, NFTs are especially appealing to collectors, companies that want to improve branding efforts, and educated traders.
While NFTs aren’t a scam, it’s important to make sure you understand how the digital world works. Rushing into NFT trading could end up making a big hole in both digital and offline wallets.
The future of NFTs is unclear. Take the time to consider the pros and cons of such an investment before making a purchase.
Pro tip: The cost of an NFT can differ depending on the NFT platform. Take the time to research the platforms and their terms before making an investment.
Next you can consider reading: Benefits of Using Blockchain Technology in Business! and Why Has Blockchain Technology Conquered the World to Make Your Investment in Crypto?