NFTs Are Ponzi Schemes
But is there any value to NFTs?
Many people liken NFTs to a Ponzi scheme..
A Ponzi scheme is a ploy to get investors to put their money on a scam or something intangible, with the promise of supernormal returns. The "guaranteed returns" are paid out using funds from the new investors, while the masterminds gradually drain the funds of its money. Eventually, when the pool of money is drained and no new money comes in, the scheme comes to an end. The notorious and infamous example of a crypto Ponzi scheme was Bitconnect.
NFTs Are A Perfect Ponzi Tool
It's hard to prove the value of an NFT. Is it the aesthetics? Is it the promised utilities that they will be developing in the coming years? Or is it the yields that you can farm from holding one of these tokens?
Even if the projects may be legit or have no ill intentions, the fact that value cannot be proven makes NFTs a perfect tool. Also, there are several other factors about NFTs and crypto that attracts Ponzi masterminds to come into the space:
Hard to accurately value an NFT
Insane returns of early adopters attract speculators and dumb money
Unregulated and uncertain space allows for ambiguity
Nascency of space makes it a perfect environment for elaborate scams
Just like any other Ponzi schemes, an NFT project can create valueless token. There, they can create anonymous accounts to hold up a big portion of the supply of NFTs. Through a series of clever and deceptive marketing, they can attract a lot of unsuspecting and greedy newcomers who come in and collectively drive up the prices of the NFTs. To cash out of their project, the masterminds have to slowly release their supply of NFTs to new community members, celebrating their entrance with a grand welcoming to the community. They have to be careful not to sell it too fast, and to release it accordingly with the increasing demand so it does not crash the market.
For the NFT masterminds, they'll have accumulated a decent sum of crypto and can move onto the next unsuspecting group of "customers". Having said that, just like any NFT project, the community might take on a life of its own. By then, the original project owners who drew up a roadmap may not bother to do any further enhancements – it then depends whether the community is strong enough to take up the project on its own, or left to die and crumble to oblivion.
The Community Value Of NFTs
While traditional Ponzi schemes leave holders with a useless bag, what is different about NFTs is that NFT holders can spark a community and interact with one another. Imagine if for whatever reason, the NFT Ponzi scheme attracted entrepreneurs as holders, when the original project creators decide to dump the project, can this network of entrepreneurs come together to start a new business? Is there a value to be associated with and be part of this network of entrepreneurs who "got scammed by the Ponzi scheme"?
The chances of that happening is small, and the fact is most NFT newcomers buy to speculate, and are not in it for the network. Hence, most NFT projects will likely wound up useless when the original creators dump the project. Having said that, the serendipity and possibility of a mutually benefiting community is what makes NFTs stand out from Ponzi schemes.
As I illustrated in my article about communities, seemingly useless and dumb NFT projects like Loot, can go on to become incredibly valuable if their community decides to build derivatives around it. During the launch, the NFT could have remained worthless too – the key is to not dismiss NFT too quickly because it is a tool.
Are NFTs A Tool Or A Weapon?
TNT was created to help blow up the terrains, but it also became a weapon. The Internet gave us the many conveniences today, but the early days were marred with online addiction. The thing about new technology is that it can be both a tool and a weapon.
NFTs have been an innovative application of cryptocurrencies and can likewise be used in different ways. As a social tool, it connects people. As a immutable ledger, it can be used to verify ownership and prove an asset's provenance. Yet, it can also be used for scams and cash grabs.
What I've learnt from my time in crypto is to not be confined by what our experiences present to us. A lawyer may see NFTs as a utility for facilitating legal contracts. A game publisher may see NFTs as a means of interoperating across game titles. A sports team or an influence may see NFTs as a means to engage with their fans. And frankly, all of them might be right.
Indeed, many NFTs could end up as Ponzi schemes or a speculative project. But keep yourself open to the possibilities, and don't see the innovation through a single lens. There's so much room for NFTs to grow, and with time, it will become more certain and defined.