Bitefile From Bored Apes to Your Own Digital Artwork – The Opportunities and Risks of NFTs

The very first tweet on Twitter, Bored Apes, or your own digital artwork — nowadays, these can all be worth a fortune, but they can also lead to significant losses. This is due to the rise of NFTs: Non-Fungible Tokens. This form of digital ownership raises many questions and concerns. What exactly are NFTs? What makes them attractive? And what opportunities and risks do they pose for users? In this Bitefile, Bitescience outlines the facts.

The bitefile was made in collaboration with the Dutch Media Literacy Network. All consulted literature can be found here.

What is an NFT?

An NFT is a Non-Fungible Token, a non-interchangeable, irreplaceable digital proof of ownership. This digital certificate can be linked to a digital object (such as an image, collectible, or in-game item) and is registered on a blockchain (a public database). This allows anyone to see who owns it. NFTs can be purchased with cryptocurrencies such as Bitcoin and Ethereum. They are part of the new financial world, backed by advanced technology.

How Are NFTs Used?

The first NFT was sold in 2014, but they only became widely popular in 2021, when a series of NFTs were auctioned for record amounts. That year, the digital artwork Everydays: the First 5000 Days sold for $69 million. A week later, Twitter founder Jack Dorsey’s very first tweet was sold as an NFT for over $2.9 million. NFTs are now used in the art world, games, and marketing:

• The original idea behind NFT technology was to give artists and creators control over their digital works so they could easily sell and protect them. It would, for example, help prevent unwanted appropriation, when artists are inspired by others’ work without giving proper credit.
• NFTs are increasingly entering mainstream pop culture. The American platform NBA Top Shot offers digital sports cards that can be collected and traded using NFTs. The popular Bored Ape NFTs from the Bored Ape Yacht Club have also appeared in music videos by Snoop Dogg and Eminem.
• Many applications already exist in the gaming world. In breeding games, users can breed virtual pets and trade them as NFTs. In other games, NFTs are linked to in-game assets like weapons and skins, giving users more control over their purchases and creations. A commonly heard term is “play-to-earn” games, where earning money by playing becomes a major motivation, explaining the explosive rise in popularity.

What Makes NFTs Attractive?

• NFTs are highly accessible: there are virtually no barriers to use. Once registered, you can upload your digital object and create a digital proof of ownership (tokenize it).
• NFTs are seen as an exciting investment opportunity. Several multimillion-dollar sales - such as the first tweet and Bored Apes -  received heavy media coverage, reinforcing this image.
• In public debates, it’s often assumed that NFTs are particularly appealing to young people. Reasons cited include a break from old traditions (like the traditional art and financial worlds), the excitement of new possibilities (artistic freedom and cryptocurrency thrill), and the lack of regulations.
• There’s little scientific research to confirm these assumptions. In the only known study among youth - a survey of around 400 Turkish students - most were aware of NFTs. Over half knew of their existence, one-third trusted blockchain technology, cryptocurrency, and NFTs, and about six percent actively traded NFT art.

What Are the Risks of NFTs for Users?

• The NFT-hype is constantly fuelled by news and social media influencers sharing their successes. However, most people who create or trade NFTs never make a profit.
• The NFT-market is volatile: one year after its multimillion-dollar sale, Dorsey’s tweet was worth only a tenth of the original amount. Following a string of recordsales in 2021, the crypto market crashed in 2022. NFT trading is as risky as gambling, due to the near-absence of clear regulations, relevant legislation, or consumer protection.
• NFTs in games also carry risks, especially for users susceptible to gambling behaviours. There is also a moral question: what does it mean when earning money becomes a primary motivation for playing? American researchers have shown that games like NBA Top Shot - described as spaces for collecting, fun, and fandom - are increasingly driven by financial motives and strategic calculations.
• NFT-creators and buyers may (unknowingly) contribute to environmental damage, as the technology requires large amounts of electricity and storage. The CO₂ emissions of Ethereum - a widely used cryptocurrency for NFTs - are estimated at around 20 kilotonnes of CO₂ per day, comparable to 2 or 3 coal power plants.
• There’s still little knowledge about the technological and legal structures behind the NFT-market. Alongside multimillion-dollar profits, there are also significant losses. Legal experts continue to debate ownership rights and which laws apply.
• There is a risk of network attacks, where malicious actors make servers inaccessible — cutting off access to NFTs. While current blockchain technology somewhat reduces this risk, ongoing improvements are being developed.
• The rapidly evolving NFT technology, combined with user ignorance, poses serious cybersecurity risks. Hackers exploit these gaps. Fortunately, there are ways to mitigate them.

Five Tips to Prevent Misuse

An international group of researchers from Chinese, Australian, and British universities conducted a risk analysis of NFTs. They offer practical tips to reduce security risks:

1. Design smart contracts with formal verification
   This reduces the risk of spoofing (pretending to be someone else to obtain access keys) and prevents unauthorised permissions being granted.
2. Ensure strong privacy protection in smart contracts
   This reduces the chance of information being exposed or falling into the wrong hands.
3. Use multi-signature verification on smart contracts
   This reduces the risk that one party can later dispute the agreement.
4. Include both original metadata and encrypted data (hash) during NFT-transfers
   This lowers the risk of malicious modification of NFT data.
5. Use a “cold wallet” for transactions, which is not connected to the internet

Questions for the Future

There is still little scientific understanding of NFT use and its effects. From a media literacy perspective, there is important work to be done. Science must soon address key questions such as:

• What are the consequences of NFT use for users? And to what extent are they aware of the risks and opportunities?
• What knowledge, attitudes, and skills are needed to engage with NFTs in a safe and responsible way?
• How NFT-savvy are Dutch youth? And how resilient are they to abuse and deceptive temptations?
• What can media literacy professionals do to strengthen that resilience? How can education and awareness be effectively shaped? And how effective are current educational programmes?
• Where are the limits of NFT literacy among users? And what laws and regulations are needed to minimise the risks of NFTs and protect vulnerable groups?