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NFT Pros and Cons
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NFT. Pros and Cons

Like any project, NFTs and their usage have their advantages and disadvantages. For example, loyalty programs and rewards are very important, attracting new purchasers and rising member acquisition. On the other hand, NFTs are quite ‘young’ and still have vulnerabilities, which, being ignored or overlooked, can lead to huge losses. Understanding pros and cons can help to make a correct choice.

NFT Benefits

There are several most well-known benefits which make NFTs so attractive.

  • Uniqueness. NFTs are unique and limited in number. Being rarities, they grant their owners not only pride and the air of exclusivity, but also the right to ownership of something which does not have a copy. Owing to their uniqueness, NFTs can be used as identity tokens (they can even be used as an equivalent of an ID, AD or even a digital passport). They have their own unique characteristics, which help their owners to simplify the ‘entry and exit’ for different jurisdictions.
  • Investment policy. First of all, NFTs are all about investment due to their inherent market efficiency. People can invest in, for example, unique in-game objects, which they can purchase and later sell at special marketplaces, or expensive commodities (like pieces of art, real estate or land). These greater assets can be split into smaller shares, which enlarges the number of owners.  As for their cost-efficiency, while being unique, NFTs have quite low entry cost. They are relatively easy to create and raise their value over time.
  • Experiential value and hype. People always want to be a part of something new, exciting and attractive and also to talk about it (and be talked about). NFTs are a part of a huge blockchain movement and they give their owners opportunities to stand out. A common person gets the opportunity to own a masterpiece, even if not physically.
  • Brand equity. NFTs help their owners to get direct access to brands, take part in social programs, collaborate with other brands and become members of a community, which persuades and encourages customers to follow the brand.
  • Rewards. NFT owners get specific privileges (goods, event tickets, etc.) and get rewarded not only in games, where rewarding is a part of the gameplay, but also for participation in special programs, such as saving tropical forests. On the other hand, if a person invests in a piece of art through NFT, they can get profit in case this object is sold.
  • Fractional ownership. It is supposed to be one of the most exciting benefits. It allows NFT owners to buy parts or shares in real estate projects, pieces of art, etc. That property can be either digital (in-game, for example) or physical.

Soul-bound NFTs

Soul-bound NFTs serve a different purpose than regular NFTs and are somewhat much more complicated. They can not be traded, exchanged or used in any transactions after receiving them. They are ‘bound’ to the wallet from the very beginning and represent the user's identity and achievements in Web3. These tokens are stored in a special ‘Soul’ wallet and each soul can store only one particular NFT, which can not be transferred anywhere else. Owing to this, NFTs keep reputation and history and help to solve the problem of trust, which is very important in Web3.

There are several main use cases of Soulbound NFTs:

  • Unbiased loan scoring. It helps users to combine their regular and crypto accounts and make a decentralized credit report in the shape of a soulbound token. It helps people with a positive credit rank get access to financial products, such as decentralized credits.
  • Protection from bot manipulation. Bots are spamming people all the time, but users can access a special ‘botproof’ media platform (which only real people are allowed to subscribe and enter) with the help of a soulbound NFT. A token is created on the basis of an IRL (in-real-life) ID and the number of user accounts are limited to one per user.
  • KYS realization. Some soulbound NFTs can be used to verify users’ identities. They can also help to prevent bots’ access to financial products. They do not show sensitive information and are simply stored in their wallets, while a third party can use them as a part of the identity verification process.
  • Tickets and POAPs. A small number of projects (mostly gaming) launch POAPs and tickets in the form of soulbound tokens. Players finish quests and receive soulbound tokens in return. Tokens prove a player's achievements and their visits to a certain tutorial.

NFT ‘challenges’

Not only does NFT ownership simplify users’ life, but also creates some issues. Users face some challenges, which may make their life a bit more complicated. Some of them are:

  • Execution. The success of NFT projects depends on the community, interest and engagement relies on users, not only on the creator, who provides genuine utility. If a brand fails to find purpose for digital ownership or tries to take off based on NFT hype, the success would be short-lived. 
  • Accessibility. Since not many blockchain technologies are user-friendly, specific measures should be taken to make NFT more accessible for the audience.
  • Volatility. The crypto market is very volatile and changes of price can affect the demand for NFTs drastically.
  • Perpetuity. There is still no exact case law in relation with NFTs and the situation with tone treatment is not exactly clear in this meaning. Owning an NFT does not mean automatic copyright. So intellectual property and copyright is still a big challenge and a source for arguments.
  • Fraudulence. Actually, anyone can mint a token, even having no property rights for an  object or asset. Intellectual property, which is already owned by its creators, can be found on the internet and fraudsters can create NFTs and sell the ownership of something they had never owned themselves. The process is carried out anonymously and thus it is often rather difficult to identify which one is fraudulent. It is also hard to track down and remove these ‘fakes’.
  • Threat of loss. No owner is completely secure from being hacked and losing their assets as a result. Another scenario of losing access to a token may happen if the platform which hosts certain NFTs goes out of business.
  • Cost. Minting can appear more costly than expected. Fees do vary and the total cost of minting can turn out quite high. Also, the customer usually needs the exact type of currency to buy a token in their wallet and currency values are volatile.

Conclusion

The NFT ecosystem grows fast and becomes more and more mainstream. Hopefully, soon the majority of vulnerabilities and risks will be cleared out (however, it is obvious that it is hardly possible to clear them all out. There is always something out there). So to buy or not to buy (or mint) remains everyone’s free choice. One should risk to be ahead of the game, but the advice is to make any choice sensibly and check out for the latest information and trends. 

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