Scammers Dream: Yuga Labs Sees Backlash Amid Launch of Bitcoin NFTs

2023-03-20, 00:39

TL；DR

Keywords: Bitcoin NFTs, Yugo Labs NFT, NFT scam, scammers, NFT auction, NFT collection, Ordinal protocol, Taproot update, BTC NFTs

Introduction

The developments that take place in the blockchain sector do not cease to amaze many crypto fans and investors. New investment opportunities emerge every year, the creation of special non-fungible tokens on the Bitcoin blockchain being the latest development. Yuga Labs became the first mainstream non-fungible technology platform to launch Bitcoin NFTs. Sadly, Yuga Labs received much criticism for its auction procedure when it sold its collection of 288 Bitcoin NFTs.

Sale of TwelveFold Collection causes industry criticisms

On 6 March the blockchain tech giant, Yuga Labs, launched its popular TwelveFold, a Bitcoin-based non-fungible token (NFT) collection auction. This Yuga Labs collection of generative art projects exists on the Ordinals protocol, developed by Casey Rodarmor. There was much interest in this sale which closed at 6 pm ET on the same day.

Bitcoin Ordinals - Cryptotimes

In all, there were 288 successful bidders for these NFTs since Yuga Labs did not put the other 12 tokens on sale. According to Yuga Labs, some of the remaining NFTs will go to its contributors while it will randomly distribute the rest as part of its philanthropic programmes.

Yuga Labs also reported that there were a total of 3,246 bidders which raised 735.7 BTC worth $16.5 million on the day of the auction. As per the report, the best BTC NFT was sold for 7.1159 BTC, worth approximately $159,600. On the contrary the lowest accepted bid was for 2.2501 BTC, equivalent to about $50,400 on 6 March (NFT auction date).

Nonetheless, it is important to note that Yuga Labs promised to send the Bitcoin NFTs to the successful bidders within one week.

What caused industry criticism

In spite of the successful launch and sale of the Bitcoin NFTs, there was widespread condemnation of the auction procedure. First off, all bidders were required to send their BTC to Yuga Labs’ wallet then make the bid. The winners of the bids would pay for the NFTs using that amount. On the other hand, Yuga Labs promised to return the BTC for the individuals who lost the bids.
There was an outcry pertaining to this bidding process. Some critics said that the process of manually sending back the BTC for unsuccessful bidders would take a very long time which would infringe their right to use the Bitcoin as they wished at any time.

Secondly, some experts have accused Yuga Labs of setting bad industry precedent by asking interested bidders to send their cryptocurrency before winning the bids. Although the analysts do not doubt that Yuga Labs would send back the BTC to the losing bidders, they believe that scammers will use the same auction model to defraud unsuspecting users. This is the reason why one analyst, by the Twitter username @veryordinally, called the auction model a scammer’s dream.

Scammer’s dream - Twitter

Nevertheless, Yuga Labs had its reason for adopting this auction model. The main reason is that there is no existing supporting infrastructure for selling Bitcoin NFTs in the same way as other such non-fungible tokens. With other NFTs, people can place their bids on different NFT marketplaces such as OpenSea. However, that is not possible with Bitcoin NFTs since the marketplace does not support the Bitcoin blockchain at the moment, a factor that has prompted Yuga Labs to hold the auction in its own way.

Understanding the Bitcoin NFTs

The Bitcoin NFTs, also called NFT Ordinals, are a unique type of non-fungible tokens, developed on the Ordinal protocol. Basically, the ordinal writes the data or inion directly on the satoshi, the smallest unit of Bitcoin. These BTC NFTs are generative pieces of art which are embedded on the Bitcoin blockchain in a unique way.

As such, with the TwelveFold NFT, Yuga Labs has inscribed media on each individual satoshi. These NFTs combine 3D graphics and hand scribbled features that create unique artwork. Unlike the other NFTs whose data is stored on external storage facilities like IPFS and Arweave, all the related content exists directly on the Bitcoin blockchain.

3D graphics - Blendermarket
As mentioned, it is now possible to generate data directly on the Bitcoin blockchain following the introduction of the Ordinal protocol, launched by Casey Rodarmor, a software engineer, in January 2023. On the other hand, the development of the Ordinal protocol on the Bitcoin blockchain was possible as a result of the Taproot upgrade.

Already, the Ordinal NFTs have resulted in more user activities on the Bitcoin blockchain. For example, Glassnode reports that the Ordinals have resulted in an increase in Bitcoin addresses to an all-time-high of 44 million. Another research firm, Galaxy Research, predicts that the Bitcoin NFT market will be worth $4.5 billion in 2025.

What is Yuga Labs?

Yuga Labs is a blockchain technology developing firm that produces and markets non-fungible tokens (NFTs) and other digital assets. People know it for its popular digital assets like the Bored Ape Yacht Club (BAYC, the Mutant Ape Yacht Club (MAYC) collection and CryptoPunks.

How to avoid being scammed?

Since we have discussed how Yuga Labs’ NFT auction model can promote scamming, let’s briefly explore how to avoid being scammed.

It is important to research thoroughly about a project before investing in it. For example, read its whitepaper and engage with other community members. At all costs, avoid responding to unsolicited messages or opening hyperlinks from unfamiliar senders.

You should also use applications from reputable organizations. For instance, ensure that you are using the correct websites to download digital wallets such as MetaMask and Exodus. Also, avoid making investment decisions based on advertisements you find on social media platforms that promise you huge returns.

Conclusion

Although Yuga Labs successfully held its TwelveFold collection auction on 6 March 2023, it received many criticisms for its procedure. Some critics said that asking bidders to send BTC to its wallet before the bidding process sets a bad precedent which may lead to NFT scams.

Author: Mashell C., Gate.io Researcher

*This article represents only the views of the researcher and does not constitute any investment suggestions.

*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.