Non-fungible tokens (NFTs), which are data units stored on the blockchain network and digitally representing physical assets—have witnessed a significant rise in demand and become a major talking point worldwide. According to Google Trends, consumer searches for NFTs were greater in Asia and Oceania than in Africa, Europe, Latin America, and the Middle East from December 2021 to May 2022. Despite their rapid ascent, NFT scams and other drawbacks are a good reason for investors to pause and assess their options.
While it took time for the United States and the United Kingdom to adopt NFTs, interest has been increasing due to a search for viable investments and the buzz created by high-profile sales of crypto art, such as artist Beeple’s Everydays: The First 5000 Days artwork. NFT adoption in Southeast Asia is highest in Thailand, which stands at 5.65 million users in 2021. According to research from Statista and Milieu Insights, 50% of the respondents from Thailand expected the NFT value to grow in the next five years, whereas only 18% expected it to drop or stay the same.
We take a closer look at NFT adoption in Southeast Asia
One of the reasons for high NFT demand and adoption in Asia is the introduction of GameFi—a combination of gaming and decentralised finance, which enables gamers to earn money while they play. Games like Axie Infinity make it possible to create digital game assets that are tradeable for cryptocurrency. The continued innovation in blockchain technology has also led to the use of NFTs, as the technology provides enhanced and seamless transferability of crypto among users.
Additionally, NFTs have become investment options, collectables, data records and contract authenticating solutions. Market efficiency exists because blockchain technology removes the middleman and focuses only on the buyer and seller. Moreover, owning a fraction of an asset is possible, giving people access to expensive resources that may otherwise be out of reach.
Regardless of the pluses, there are several NFT threats that people in Asia and beyond may be unaware of and should understand.
The dark side of NFTs
NFTs suffer from three main challenges: cyber insecurity, scams, and environmental degradation. A Cambridge University study reported by MSNBC last year stated that new blocks of data on the blockchain network, minted through crypto mining, involve a process which endangers the environment. Cryptomining uses high-powered computers that use a great deal of energy and emit carbon emissions that could raise the earth’s temperature.
Secondly, many online scams have taken advantage of unsuspecting investors due to a lack of understanding of how the NFT technology works. The Squid Game cryptocurrency scam, based on the acclaimed Netflix Korean drama, is an example of fraud. People were lured in by a “play-to-earn cryptocurrency”, only for the developers to escape with the money raised from sales—an estimated USD $3.38 million.
Singaporean rapper Yung Raja lost about SGD $100,000 when he clicked on a fraudulent link on Twitter, and criminals drained his cryptocurrency wallet. Taiwanese pop star Jay Chou also lost his Bored Ape Yacht Club (BAYC) NFT to a phishing scam. The Cent platform that sold former Twitter CEO Jack Dorsey’s first tweet NFT had to shut down its marketplace because users were fraudulently selling NFT content that did not belong to them.
Creating and selling digital assets for thousands of dollars appears to be a perfect example of wastage in society. Condemnation has been that people buy unnecessary things instead of using the money to address societal wrongs and inequalities. Some consider the use of NFTs elitist as they are unavailable to the poor.
The possible future of NFTs
NFT adoption in Southeast Asia will continue as the region integrates blockchain technology into their digital transformation strategies in government, business, and society. The technology can provide value in multiple sectors, such as healthcare, by tracking digital records and finance, whereby digital transactions can be protected and authenticated.
The development of blockchain-based games shows the potential for creating startups and job opportunities for the growing population in Asia. The games have provided an alternative revenue source through the play-to-earn model, which has helped people adapt to the loss of employment brought about by the COVID-19 pandemic and the subsequent negative impact on the economy.
Investors should be careful of rushing into the purchase of NFTs and bitcoin as investment possibilities since the dangers of financial loss from NFT scams are high. NFT investments are also highly speculative, and the overall cryptocurrency market is too volatile to be a reliable investment source. With much of the world focused on climate change, environmental pollution is one of the NFT threats that needs urgent addressing.
Ultimately, blockchain technology retains value, and its application in many sectors offers hope for the future. Governments in Southeast Asia and beyond should support, fund, and encourage environmentally-conscious startups to emerge and bring innovative solutions to the region.