News: Chaos in Wonderland, celebs shilling Bored Apes, how VCs get rich on Web3

It’s the end of January 2022, and everything in crypto land keeps getting nuttier. The news is filled with so much crypto and NFT stuff, I can barely keep up anymore.

BTC is at $38,000, after losing nearly half its value since its all-time-high of $69,000 in November. Tether has yet to save the day. It is still hanging around 78 billion, with no recent prints. 

Shares of crypto exchange Bakkt (BKKT) are down 90% since the company went public on NYSE in October. Shares in Coinbase (COIN) are also at a low, down 50% since its debut in April 2020. (Bloomberg)

The VCs and insiders have already made their money. It’s the retailers getting burnt once again. Paul Krugman calls crypto the new subprime. (NYT)

Things are not so wonderland in Wonderland

It’s been a tough few weeks for Wonderland. The drop in crypto set off “cascading liquidations” in the DeFi project after its TIME token sunk to record lows.

Wonderland’s founder Daniele Sestagalli and its chief developer “Sifu” also suffered liquidations — $15 million and $1.6 million respectively. (Crypto Briefing)

Following the calamity, Sifu — aka 0xSifu — was doxxed. Lo and behold, it’s Michael Patryn, the fraudster who helped launch QuadrigaCX. Patryn’s been watching over Wonderland’s treasury. Don’t worry. Your funds are SIFU! I wrote about this, as did David Gerard. (My blog post, David Gerard

The Wonderland DAO voted Sifu out of the project. Now they are considering winding down the whole big silly mess. Once you’ve been uncovered, best to move on to another Ponzi. (The Block)

What’s up with celebs and BAYC?

Jimmy Fallon was hyping his Bored Ape Yacht Club NFT on national TV, along with Paris Hilton, who also owns a Bored Ape Yacht Club NFT. (LA Times)

In case you were wondering, Fallon and many other celebs get their Bored Apes via MoonPay.

Justin Bieber also recently purchased a Bored Ape, for $1.3 million. (Benzinga)

It looks like Bieber didn’t buy that Bored Ape himself. All of the ETH in his wallet came from a single transfer of 916 ETH from the @inBetweenersNFT project. (Twitter thread)

We’ve lost a bunch of celebs to NFTs — Tom Brady, Serena Williams, Edward Snowden, Tony Hawk, Matt Damon, William Shatner, and more. (Gizmodo)

The founders of BAYC are so far a mystery. Nobody knows who they are.

A blog post has been circulating suggesting that the BAYC was started by a bunch of Nazis. There are a lot of ugly things about BAYC, but this is not one of them. 

“That blog post trying to argue that the bored ape nfts are a Nazi project is the kind of thing no serious researcher of the far right should be sharing at face value. Getting bad QAnon-ish vibes from parts of the theory argued there,” Jared Holt said. Holt knows his Nazis, so I’ll take his word for this. He studies extremism at the Atlantic Council’s Digital Forensic Research Lab. (Twitter)

Twitter launches hex PFPs

Twitter will allow you to display your NFT in your profile pic in a hexagon — if you subscribe to Twitter Blue for $3 a month, you have an iOS device, and you use a supported wallet (Argent, Coinbase Wallet, Ledger Live, MetaMask, Rainbow, or Trust Wallet). (Twitter

The good news? You can easily mass-mute everyone with a hex-profile on Twitter. (PC Gamer)

For some reason, the Twitter PFP feature works with any NFT in a collection, not just verified ones. Justin Taylor, Twitter’s head of consumer marketing, encourages people to use unverified NFTs — plagiarize someone else’s work just to create an NFT and get a hex badge! (Twitter)

YouTube wants to capitalize on NFTs, too. It’s exploring new opportunities for revenue. YouTube’s CEO says she is looking to Web3 “as a source of inspiration,” noting crypto, DAOs and NFTs. (CEO’s letter, Verge)

OpenSea will refund, ask them

OpenSea is reimbursing users who lost money via an loophole on the platform. Hackers were buying NFTs previously listed for much less even though those listings didn’t appear active to the seller — if the seller neglected to delete the listing. The hackers then flipped the NFTs for huge profits.

OpenSea has so far reimbursed $1.8 million. However, many NFTs are still vulnerable, leaving the door open for bad actors, including one account named “opensee_​will_​refund_​ask_​them.” (Twitter)

On Jan. 27, OpenSea announced limits on free NFT minting — a feature that let you create NFTs without a gas fee, which you only had to pay if you sold the NFT — then reversed the decision hours later, after revealing that nearly all of the items created through the feature were either spam or plagiarized. (Vice)

Elsewhere in NFT land

MetaMask admitted last week that it neglected to patch an IP leakage issue that has been “widely known for a long time.” The issue exists in many wallets and NFT marketplaces, including MetaMask and OpenSea. (Alex Lupascu explains why this is so dangerous in a blog post.) Some researchers are now creating NFTs that grab a viewer’s IP and display it back to them, just to illustrate how NFT marketplaces like OpenSea allow attackers to load custom code when someone simply views an NFT listing. (Verge)

Neil Turkewitz interviewed “Bor,” a member of activist group @NFTtheft. The group hears from a lot of artists who claim they’ve made “life changing” money selling NFTs. But an inspection of those artist’s accounts on NFT marketplaces tells a different story. “Many times, they’ve only made a single sale. Most of the time, they haven’t sold any NFTs yet.” (blog post)

Another day, another NFT rug pull. Blockverse was a planned NFT Minecraft project, with access restricted to those who owned a particular NFT. The initial supply of 10,000 NFTs, priced at 0.05 ETH, sold out in minutes. A few days later, the founders deleted their website, Discord server, and game server, and took off with all the money. (PC Gamer)

Someone just came up with the idea of selling NFTs of colors. Why? Because you can. Behold the Color Museum, another example of how ridiculous some of these NFT projects have become. (Twitter thread)

LooksRare is a new NFT platform. It’s doing gangbusters! In fact, it’s the biggest rival to top NFT marketplace OpenSea. There’s just one thing — all of the buyers and sellers are the same people. CryptoSlam identified $8 billion sales on the platform that were wash trades. (Decrypt)

A German museum lost two CryptoPunk NFTs, worth $400,000 in crypto. Last spring, while trying to move them to another wallet, a cut-and-paste error sent the Punks to the wrong wallet address. Oops!(The Art Newspaper)

Melania Trump’s NFT auction didn’t go as planned. The sale came in under 30% of its starting bid, due to a crash in SOL, the token of the Solano blockchain. Sad! (NYT)

A disturbing trend is developing in the NFT world, wherein promoters seek to destroy physical art, so items only exist in the digital world. New Zealand auction house Webb’s is selling two NFTs of historic photos along with the glass negatives. If you buy the NFT, you get the glass negative along with a hammer to smash the artifact. (Webb’s auction portal, Newshub)

A French surgeon faces legal action after he tried to sell an NFT of an X-ray without the patient’s consent. The patient was shot in the November 2015 Paris attacks. The image was up for sale on OpenSea for $2,800. (Guardian)

Game developers have zero interest in NFTs, according to a survey by the Game Developers Conference. The comments at the end of the article are gold: “Burn ‘em to the ground. Ban everyone involved in them. I work at an NFT company currently and am quitting to get away from it.” (Kotako)

Crypto NFTs are rife with fraud. “We’re just seeing mountains and mountains of fraud in this area,” a special agent at the IRS’s criminal investigation division, said. (Bloomberg)

How VCs cash out on Web3

Fais Kahn wrote a blog post a few weeks ago on how VCs dump their shitcoins on retail by getting the coins listed on Coinbase. A16z is a Coinbase backer and holds a seat on the company’s board. Coinbase also has its own investment arm — Coinbase Ventures. Kahn’s post has gotten some attention! 

As a follow up, Ed Zitron wrote “Crypto, Web3 and The Big Nothing.” Most startups fail, and a liquidity event, if it does happen, can take years. “What Web3 allows founders to do is create companies that might do something and immediately capitalize on those promises. Instead of having to provide a service to users, you incentivize them by involving some sort of token — fungible or otherwise — that will theoretically increase in value as the company grows and does the thing it theoretically might do.”

Also referencing Kahn’s work, the FT wrote: “The Coinbase model, profit from companies it lists.” The FT did its own research. It found 20 tokens that Coinbase listed while holding an investment in a related project. Of those 20 projects, Coinbase disclosed only 12 as holdings on Coinbase Ventures.

“In the securities world, conflicts of interest have to be identified, disclosed and managed,” Tyler Gellasch, executive director of Healthy Markets, an investor focused nonprofit, told FT. “In crypto, it seems to be a free-for-all.”

Regulations

The SEC is taking a look into Celsius Network, Voyager Digital and Gemini Trust, companies with high-yield product offerings. These firms offer rates on tokens of 3% to as high as 18%. The question is whether these tokens are securities. The answer is, probably. (Bloomberg)

Alexis Goldstein has joined the Consumer Financial Protections Bureau, a federal agency created in the wake of the 2008 financial crisis. In her previous position as financial policy director at the anti-monopoly organization Open Markets Institute, she has been a vocal critic of crypto. (Read her Senate Banking Committee testimony on stablecoins if you haven’t already. It’s full of good info.) (Bloomberg)

Other news worth noting

Jennifer Robertson is getting criticized for “Bitcoin Widow.” Folks keep asking how she could have been so oblivious to Gerald Cotten’s shenanigans. Stephen Kimber, her ghostwriter, wrote an an entire article defending her. He points the finger back at Quadriga investors — the ones who actually lost money and are still waiting, three years later, to get a tiny portion of it back. “And yet no one asks them what the hell they were thinking, trusting this scam artist with their life savings?” (Halifax Examiner

FTX US gets a $400 million Series A with an $8 billion evaluation. Paradigm, Temasek, Multicoin Capital, and SoftBank led the round. The crypto exchange plans to use the funds to “accelerate its growth,” so it can leave Coinbase in the dust. (CNBC

Bermuda-based FTX also announced a $400 million Series C round, valuing the company at $32 billion. Existing investors included Japan’s SoftBank and Canada’s Ontario Teachers’ Pension Plan. FTX is one of Tether’s biggest customers. (FT)

The International Monetary Fund wants El Salvador to remove bitcoin’s status as a legal tender, dissolve the $150 million trust fund it created when it made BTC legal tender, and eliminate the $30 incentive for people to start using the digital wallet Chivo. It suggested there could be benefits to Chivo, but only if it uses actual dollars, not BTC.

The IMF warned President Nayib Bukele of the risks crypto poses — money laundering, corruption, etc. — and stressed that it would be difficult to get a loan from the institution. (IMF, Bloomberg 

Facebook Diem is having a fire sale, so it can return some money back to Diem’s investors. The project is officially dead. It’s just a matter of getting rid of the body. (Bloomberg, David Gerard)

Tether’s new accounting firm is the same as the old one. Moore Cayman is now operating under the MHA Cayman name. Also, the firm’s parent, MacIntyre Hudson, is under investigation in the U.K. (MHA announcement, Coindesk)

Texas Governor Greg Abbott thinks bitcoin miners can save the energy grid. (Decrypt)

In her latest blogpost, “Abuse and harassment on the blockchain.” Molly White says that in order to responsibly develop new technologies, we need to ask: “How will this be used for evil?” (Molly White)

Frances Coppola has returned to writing again after a break. She has taken a look at the Bitcoin ETF applications the SEC keeps rejecting. The problem isn’t the applications, it’s the market. (blog post)

This is fascinating. Ponzi schemer Stefan Qin was interviewed days before heading off to prison. The 24-year-old ran a crypto hedge fund until it imploded in late 2020 and lived in a posh $24,000/month NYC apartment — with extra bedrooms for all the sugar babies. (Youtube)

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News: Signal goes worldwide with payments, IRS sets sights on NFTs, Bukele’s bad bets on BTC

Encrypted messaging app Signal made its new payments feature, which uses MobileCoin (MOB), available to the world in mid-November. Signal made no big announcement at the time, but the stories are coming out now. (Wired)

I wrote about MobileCoin back in April 2020 — and so did David Gerard — when Signal first announced the feature. MobileCoin was a side hustle for Signal creator Moxie Marlinspike. He was an advisor to the project and then got Signal to integrate the token.

I suspect Marlinspike was paid in MOB — advisors to crypto projects typically are paid in shitcoins — and is now looking to dump his bags. (My blog; David Gerard

Other messaging apps, like Whatsapp and Facebook, have payments built in. What sets Signal apart is it wants to combine end-to-end encryption in messaging and a cryptocurrency with privacy features designed to make any transactions anonymous.

That has Signal employees worried. They’re concerned anonymous payments will attract criminals and thus draw regulator scrutiny, ruining everything that’s good about Signal. Signal supporters warned Signal this was a terrible idea. Signal went ahead with its plans anyway. (Verge)

Anyone can use MobileCoin via the Signal mobile app to make payments — the directions are here. The problem is getting MOB to put in your wallet. MOB is listed on Bitfinex and FTX, but it’s not available to U.S. consumers. You would have to use a VPN to get around that. 

Marlinspike wrote a blog post about Web3 that’s gotten a lot of attention. (Fortune)

The story is good; he blasts Web3. However, in it, he says he was “never particularly drawn” to crypto. That’s not quite accurate. He simply put his crypto into his messaging app.

On Jan. 11, only a few days after word of Signal’s shitcoin hit the whirling blades of the fan, Marlinspike  stepped down as CEO of Signal — with no notice and no replacement. Executive chairman Brian Acton will serve as acting CEO until someone new is found. (Moxie’s blog post)

Signal, which was introduced in 2014, gets its support via donations. With 40 million active users, the project is now poised to transition into a sustainable and profitable model, so it will be telling to see who steps in to take over.

In the meantime, Signal supporters are losing confidence in the app.  

Nicholas Weaver, an infosec expert and staff researcher at UC Berkeley, says that even by shitcoin standards, MobileCoin is “high on the fraud factor.” (Twitter Thread).​​

MobileCoin’s primary privacy mechanism is that the ledger runs inside the SGX enclave (a separate and encrypted region on the Intel chip for code and data), which means privacy rests entirely on the hardware — not the blockchain. You have to trust the nodes in the system. 

Marlinspike is a cryptographer and a computer security researcher. He should know better.

“Put bluntly, the only way as a security professional you would endorse this as a valid ‘privacy coin,’ let alone push it out to your huge user base, is if you were faced with a dump-truck full of money,” Weaver said. “I hope Moxie’s dump-truck was suitably large.”

Day trading is hard

El Salvador President Nayib Bukele has been day trading public bitcoin, and he is not very good at it. Bloomberg says he is probably losing money. (Bloomberg)

The country is about $1 billion in debt already. It doesn’t help that bitcoin took a nosedive recently, losing 40% of its value since its early November high of $69,000.

I know of someone else who gambled away other people’s money: Gerald Cotten, the CEO of failed Canadian crypto exchange QuadrigaCX. The exchange carried the seeds of its demise for two years before the Ponzi was exposed. Cotten died mysteriously in India just before things fell apart.

I don’t see Bukele disappearing, so who will he blame when things fall apart? Probably his adoring bitcoin supporters.

We know Bukele doesn’t like the press. Turns out he has been spying on them. Since mid-2020, dozens of journalists in El Salvador have been subjected to phone hacks using Pegasus software, according to Citizen Lab and Access Now. Pegasus is the spyware developed by Israeli company NSO Group for governments. It can infect phones running either iOS or Android. (Project Torogoz, Reuters)

If you can get past the bitcoin boosterism, this story in Bitcoin Magazine by Anita Posch has a wealth of information in it about Bukele’s plans for bitcoin in El Salvador. 

I wrote before about “volcano bonds” — bonds Bukele is using to lure $1 billion from outside investors he will use to buy more bitcoin and build a crypto metropolis. Bitcoin City is set to go near the Conchagua volcano, so geothermal energy can power the city. It is uncertain whether the volcano is even active. “I was told that the volcano is dead, and there is no geothermal energy left to be used,” said Posch.  

We don’t hear much from Strike CEO Jack Maller on El Salvador anymore. Rumor has it, the reason he didn’t build the government’s official Chivo wallet is because he wanted $300 million for the job, and because Algorand or Cardano or Koibanx paid the government $20 million to get the contract.

Mallers is now boasting about how Strike is going to save the poor in Argentina. “Today, we use the world’s open monetary network, bitcoin, to give hope to the people of Argentina,” he tweeted. Only he left out the part where it only works with tethers, not bitcoin. (Decrypt)  

NFTs collectors, the IRS wants your money

The NFT market ballooned to $44 billion in 2021, and the IRS is on the case. It wants its cut of the profits.

It’s not clear if NFTs are taxed as regular capital gains or as “collectibles,” which means you will have to pay slightly more — but that doesn’t mean you should put off filing. (Bloomberg)

Media outfit Dirt raised money selling NFTs. Now it wants to incorporate those NFTs into a DAO, so members can vote on the editorial process. What could possibly go wrong? (Verge)

CityDAO bought 40 acres of land in Wyoming for a blockchain city. The group is offering citizenship and governance tokens in exchange for the purchase of a “land NFT,” which gives you rights to a plot of land. Everything was going swimmingly until the project’s Discord server was hacked and members’ funds were stolen. So far investors have lost 29.67 ETH, worth about $92,000. (Vice)

The news industry is struggling. The Associated Press has found a solution: It is launching a marketplace for selling NFTs of its photojournalism. (Press release; Verge)

Arthur Suszko was into Beanie Babies as a kid and began collecting them again as an adult. His current project is to create NFTs of his Beanie Babies. “It’s a merger of my childhood dreams and modern passions coming together,” he said. (Vox)

The Seattle NFT Museum is charging $175 to $200 a ticket for opening weekend, for those who want to “explore the future of art,” ensuring only the most gullible will walk through its doors. (Eventbrite)

Did you read about the woman selling fart jars as NFTs? It turns out the farts-in-a-jar story was just a big publicity stunt. The entire thing appears to be made up. (Input Mag)

CZ wants to give it all away

Binance CEO Changpeng Zhao (aka “CZ”) has a net worth of $96 billion. This is impressive given that his company does not even have an official headquarters. (Bloomberg)

That’s okay because CZ told the AP he is giving it all away. When you are constantly on the move dodging regulators, it’s nearly impossible to buy a mansion and settle down anyway. 

CZ said the only coin he holds is Binance Coin because he doesn’t like a conflict of interest and he doesn’t want to do anything unethical. Binance never does anything unethical. (AP)

An undercover journalist applied for a job at Binance under a fake name with fake credentials. Four interviews later, he was offered the senior role in Binance’s futures business. (Disruption Banking)

Elsewhere in the news

Crypto venture capital firm Paradigm is investing in Citadel Securities. Sequoia Capital and Paradigm will invest a total of $1.15 billion in the stock trading giant at a valuation of about $22 billion. 

Citadel handles 27% of the shares that are traded in the U.S. stock market. A large part of that comes from processing trades for online brokerages such as Robinhood. (Press release, WSJ)

Citadel does not trade crypto. CEO Ken Griffin has been dismissive of crypto in the past — “I don’t see the economic underpinning of cryptocurrencies,” he told CNBC. But something changed his mind, probably the money.

After banning crypto mining in the country in an effort to deal with its energy crisis, Kosovo police seized hundreds of crypto miners. One crypto-miner admitted to paying 170 euros ($193) per month for electricity and getting 2,400 euros ($2,700) per month in profit. (Kosovo police, Balkan Insight)

Metamask is a popular browser plugin that serves as an Ethereum wallet. Matthew Green, a cryptographer and computer scientist, took a casual look at its code. He came back with “an uncomfortable feeling about the complexity and quality of MetaMask’s (current) crypto code, and some unhappy feelings about its dependency structure.” (Blog post)

Tesla now accepts dogecoin for accessories. It takes up to six hours for a transaction to go through. You cannot cancel an order. You cannot return or exchange an item bought with dogecoin. All purchases made with dogecoin are final. The future of finance! (Tesla website, Verge)

The disclaimer from Tesla’s merch store is worth a read. “..if you enter an amount MORE than the Dogecoin price, we might not be able to return the extra amount.”

Block (formerly Square) CEO Jack Dorsey is pissed off at Craig Wright’s legal nonsense. He is leading a legal defense fund for bitcoin developers, according to an email he sent to the bitcoin developers list. The fund’s first task will be to assist developers facing a lawsuit from Tulip Trading Limited, the firm associated with Wright. (Email, NYT)

Last year, Wright filed a lawsuit against bitcoin core developers after losing a pile of bitcoin in a hack, saying they refused to help him recover the lost coins. 

Dorsey manages a bitcoin exchange, a bitcoin development fund, a bitcoin L2 project — and now a legal defense fund. Bitcoin is decentralized. 

Cryptoland is a dream project to turn a private Fijian island into a libertarian utopia. After software engineer and Wikipedia editor Molly White made fun of them on Twitter, Cryptoland sent a cease and desist letter to her for making fun of them on Twitter. (Twitter)

They also sent a “cease and decease.” (Twitter)

After getting a lot of bad press, Cryptoland is fighting back! (FT)

As part of that, Cryptoland took down its cringe-worthy video. However, the Internet is decentralized. Someone uploaded a copy to Peertube. There is also an extended version if you really enjoy torture.

Celsius Network is a crypto lending and borrowing platform, whose former CFO was arrested last year. Network data shows CEO and founder Alex Mashinsky and his wife Krissy have sold approximately 20 million CEL since October 2020, netting at least $60 million. (blog post)

How Matt Damon thought we’d react to his crypto.com commercial. (Youtube)

Jamie Zawinski, the creator of Mozilla, who makes the Firefox web browser, wrote “Today on Sick Sad World: How The Cryptobros Have Fallen.”

Dave Troy, the creator of Mailstrom, has a great thread on the awful history of cryptocurrency. (Twitter)

(Updated on Jan. 17 to include how much money investors lost on CityDAO.)

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WTF is an NFT? Here’s a rundown of the basics

NFTs are all over the news lately.

Recently, I was having drinks with a friend, who knows zip about crypto, and out of the blue, she started asking me about “non-fungible tokens.” 

The next day, a musician friend posted an amateurish drawing of a guitar on Facebook, proudly announcing, “This will soon be available as an NFT.”

If initial coin offerings were the crypto grift of 2017 and decentralized finance (aka “DeFi”) was the grift of 2020, then “nifties” are the grift of 2021, and they do just what crypto grifters need them to do: lure more dumb money into crypto.

How do they do this? By convincing artists that by “tokenizing” their digital art, they can prove ownership and make oodles of money for their work. They just need to buy crypto first, and then sway their friends into believing that crypto and NFTs are the wave of the future. Also, by convincing investors that NFTs are the hottest new thing.

If you are trying to get up to speed on this nonsense, you’ll find answers to your most basic questions below.

What’s an NFT?

NFT stands for non-fungible token. Fungible means interchangeable. It’s the idea that one asset can be swapped out for another and nothing is lost.

Bitcoin and ether, the two most popular cryptocurrencies, are examples of fungible tokens. One bitcoin works like every other bitcoin; likewise with ether.

A non-fungible token is different because only one ever exists. Each NFT contains unique data, so NFTs are not interchangeable with each other. They are not divisible either, whereas fungible tokens are.

This is a wonderful play on bitcoiners’ idea of scarcity. There will only ever be 21 million bitcoin—and there will only be one NFT! Scarcity clearly means something is valuable. Grab it while you can.

Most of the ICO tokens in the 2017 crypto bubble ran on Ethereum and were based on the ERC-20 token standard, so exchanges and wallets would know how to integrate them. NFTs on Ethereum also have their own standard: ERC-721. 

Other blockchains, like Tron, Binance Chain, EOS, and Polkadot, support NFTs but Ethereum is by far the most popular and widely used.

Because NFTs are unique, they are hyped as “collectibles,” rare one-of-a-kinds that will only go up in value over time. 

What are you actually buying?

An NFT is only a pointer to something else on the web. It could be an image, a music or video file, or even a tweet. The object itself does not live on the blockchain.

In fact, the server holding the object could go away or it could change what is displayed at that location—and then your NFT would point to nothing or something totally different, like a rug.

Really, an NFT is simply proof that an object exists.

It doesn’t convey copyright, or for that matter, any legal rights at all. If anything, it is akin to a “certificate of authenticity,” which says this is where this thing is located. Unless you have a contract that specifically spells out you own the rights to this object, you literally just bought the pointer.

In addition to a slew of hitherto unknown auction houses where NFTs are sold, big-name auction houses are getting in on the game. Sotheby’s recently announced it will be selling its first-ever NFT on behalf of digital artist Pak in April.

And last week, Christie’s auctioned an NFT of Beeple’s “Everyday: The First 5000 days” for $69.3 million in ETH. Christie’s even made the unusual decision of accepting its premium in magic beans.

In its conditions of sale, Christie’s carefully points out that NFTs carry no rights:

“You acknowledge that ownership of an NFT carries no rights, express or implied, other than property rights for the lot (specifically, digital artwork tokenized by the NFT). You understand and accept that NFTs are issued by third parties, and not by Christie’s itself.”

Even if you own an NFT, that doesn’t mean you can restrict other people from seeing the object it points to. 

Jack Dorsey, Twitter’s billionaire CEO, is selling an NFT to his first tweet. The bidding is now up to $2.5 million. But you don’t need an NFT to see the tweet. (It’s worth mentioning that Dorsey is a big fan of crypto. His company Square invested $50 million into bitcoin last year, so it’s no wonder that he is shilling NFTs.)

When you buy an NFT, what you are buying is the private key to a crypto-token. The value is mainly speculative. You will only get for it what someone else is willing to pay—if you can find a buyer, and there is no guarantee that you will, when the time comes to cash out.

The problem is that people’s perceptions of what they are buying when it comes to NFTs don’t always mesh with the legal realities. And marketplaces involved in these sales are not always transparent about what they are selling. In fact, the more questions you ask about the real underlying value of an NFT, the vaguer the responses become.

How to create an NFT

If you are an artist who wants to create an NFT to auction, first you want to download a digital wallet that supports the ERC-721 token standard, such as MetaMask, Trust Wallet, or Coinbase Wallet, and put a little ETH in it to pay for “gas.” Plan on spending $50 to $100 worth of ETH to cover the costs of creating your token. 

After that, there are plenty of sites, including OpenSea, Mintbase, and Rarible, that will take your money and step you through the process of “minting” your NFT.

Connect your wallet to one of those sites. Write up a description of your artwork, upload your image, and voila, you’ve created your first NFT.  

Unfortunately, many struggling artists find their NFTs simply languish on these auction sites, and they’ve sunk $100 into nothing when they could have gone out and bought groceries instead.

A short history of NFTs

Where did NFTs spring from? Although the technology for NFTs has been around almost as long as bitcoin, NFTs hit the mainstream in 2017 with CryptoKitties, a game that allowed people to buy and “breed” limited-edition virtual cats with crypto. CryptoKitties was the first NFT to use the ERC-721 standard.

Last summer, game developers got into NFTs in a big way. NFTs enabled gamers to win in-game items (e.g., a digital shield, a digital sword, or digital skins), transfer their assets from one game to another, and then sell their in-game NFTs in blockchain marketplaces—sometimes for impressive sums.

Soon after, NFTs found their way into the art world, hyped by celebrities who weren’t always up to speed on crypto. Lindsay Lohan minted her own token on Rarible, based on an image of her face.

Hours after she put her NFT up for sale, she tweeted, “Bitcoin is the future, happening now,” even though her NFT lived on Ethereum. Lohan sold the image for over $17,000. It was quickly resold for $57,000.

Here are some NFTs making the news in the last two months:

Keep in mind, most of these NFTs don’t sell for real money, they sell for ETH, and the trick is then converting your ETH into fiat, so you can spend it in the real world.  

What are the risks?

NFTs open the door to fraud and general funny business. This is because 1) money is involved, usually in the form of crypto; and 2) regulators haven’t caught up with grift. 

Crypto bros promote NFTs as the ultimate stamp of authenticity, yet for many artists, the NFT market has done the opposite: it’s opened the door for swindlers. Here’s what can happen:

You can create an NFT of someone else’s work. There are no protections in place to ensure that an NFT you are buying was created by the actual artist. Digital artists, ranging from 3D renderers to pixel painters, have all discovered their art on online marketplaces. 

There are literally dozens of bots on Twitter that will allow you to create an NFT of a tweet simply by tagging it, and Twitter has thus far made no moves to block these accounts.

The problem got so bad that Corbin Rainolt, who designs detailed paleo art, had take down all of his dinosaurs and repost them with watermarks. 

“I tried to block all NFT accounts but it seems I can’t block everyone of these accs,” he said on Twitter.

Illustrator Chris Moschler doesn’t get the buzz around NFTs.

“Art theft has never been this aggressive and rampant ever before,” he tweeted, after blocking dozens of Twitter accounts trying to mint NFTs based on his tweets. “I cannot understand how this is still being called a revolutionary movement in the art world.”

It is also possible to create an NFT of a piece of work on one auction site, and then create NFTs on the same piece of work on a plethora of other auction sites. What’s to stop you?

Some NFT marketplaces do better due diligence than others, but they take a cut of anything sold and can easily wash their hands of it afterward.  

Your NFTs can also be stolen. Not your keys, not your crypto, as the saying goes, and when you leave your NFT on an auction site, they have control of the keys.

Recently, several Nifty Gateway customers reported a hacker breaking into their accounts and stealing their NFTs. Some of the victims also said their credit cards on file were used to purchase additional NFTs, which were then transferred to a hacker’s account. (Nifty said those users did not have 2FA turned on.)

Also, NFTs open up big-time opportunities for money laundering. Art is an attractive vehicle to launder money, to begin with. Transactions are often private, and valuations of art can vary widely for unexplained reasons. Art prices can also be extremely high, so there is no reason not to expect that NFTs will be used for the same purpose.

Right now, the NFT bubble is a big one. Crypto grifters promote NFTs because it’s a new avenue to bring fiat money into the world of crypto and to pump up their bags. The problem is, all bubbles eventually pop, and when this one does, retailers will be left holding the bag. 

Feature image: Beeple’s artwork from “Everydays: The First 5000 days.” Courtesy, Christie’s

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