NFTs, or "non-fungible tokens", are all the rage and are being widely promoted, but are generally not well understood. Are they worth the hype? Some see the trend as a bubble that will inevitably pop (like the dot-com craze), while others call it a game changer in investing, and that it’s here to stay. Consumer watchdog Truth in Advertising is calling on consumers to exercise caution when considering celebrity-promoted NFTs in particular, in this market that is subject to speculation and fraud.
But first, what is an NFT? According to a recent article in Forbes: “An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
“Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. The market for NFTs was worth a staggering US $41 billion in 2021 alone, an amount that is approaching the total value of the entire global fine art market.
“NFTs are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
“This stands in stark contrast to most digital creations, which are almost always infinite in supply. Hypothetically, cutting off the supply should raise the value of a given asset, assuming it’s in demand.”
For more information on NFTs, look up ‘What Is An NFT? Non-Fungible Tokens Explained’ on Forbes.com.
Now on to the recent consumer alert. Truth in Advertising (TINA) is an independently-funded nonprofit organisation whose mission is to be the go-to online resource dedicated to empowering consumers to protect themselves and one another against false advertising and deceptive marketing.
This month, TINA issued an alert to the public on deceptively marketed NFTs, being promoted by celebrities.
“Celebrities, including, for example, popstar Justin Bieber, are deceptively promoting non-fungible tokens (NFTs) on their social media channels. While these endorsements may seem benign, there are several deceptive marketing issues that consumers need to know about before considering a purchase of these digital assets, which are, generally speaking, unique pieces of digital artwork recorded on a blockchain (i.e., a secure digital ledger) and often purchased with cryptocurrency.
“In some cases, the celebrities are failing to disclose their material connection to the NFT company and the assets they are promoting in violation of FTC law. This means that consumers may be unaware that the endorsements are not only biased, but also increase the value of the company and the NFTs that the celebrities own (known as ‘artificial price influences’).
“Further, some celebrities marketing NFTs and/or NFT companies in which they have a personal stake are not disclosing the risks associated with investing in such speculative digital products, and the financial harm that can result from such investments. As the U.S. Government Accountability Office has warned, ‘despite media attention and celebrity endorsements, [NFTs] are poorly understood, and the current market is subject to speculation and fraud. … NFTs come with financial risk and have exhibited volatile pricing.’
“TINA.org has taken steps to eradicate some of the deceptive marketing in this arena…
In short, much like the U.S. Securities and Exchange Commission has warned investors regarding celebrity-backed initial coin offerings, or ICOs, consumers presented with celebrity-endorsed NFTs should view such endorsements with caution. NFT investment decisions should not be based solely on celebrity endorsements. Consumers should always conduct their own independent research before purchasing these risky digital assets.
“Consumers are also encouraged to submit any questionable celebrity NFT promotions to TINA.org”
Image via TINA.org.
