Last year at the latest, interest in NFTs was booming. However, views on the notorious objects represented by blockchain differ widely: NFTs are polarizing. For some, they are developing great momentum and represent forward-looking disruptive development. For the others, they are gimmicks without any deeper meaning – or mere objects of speculation.
There are many among conventional financial investors, as well as among art collectors and crypto enthusiasts, who are not convinced of the usefulness of NFTs. You can’t blame them either: If you search NFTs on Google, you’ll see humanoid images of cats, penguins, and monkeys with bored or sleepy faces. Not anymore.
Development is then easily dismissed as a fleeting Gen Z phenomenon. People want to make a quick buck by converting their amateur JPEG files into NFTs. In reality, the players assume that the hype will soon die down and be replaced by another trend in the virtual worlds. They are confirmed by the huge price volatility of NFT art.
What is often overlooked is that NFTs are redefining the art world and opening up new possibilities for artists and collectors alike. Artists gain more influence and rights without endangering collectors’ property rights.
How has it gone so far? In the traditional art market, an amateur artist just starting his career will turn to various intermediaries such as art galleries and auction houses to sell their art at a profit. If he succeeds, he will probably never see his artwork again. Nor will he receive any commission if the value of his artwork rises to new dimensions. That may change thanks to NFTs. Artists can earn additional royalties on digitized artworks in the form of NFTs with every resale.
There is no doubt that much of the current NFT market is driven by speculation and fading hype. But that is not unusual for a young market and experience shows that this can change quickly. The potential is certainly there: the leading NFT collections are constantly adding extra benefits to their digital artworks. For example, the Bored Ape Yacht Club, currently the most valuable NFT collection, offers NFT owners access to exclusive clubs where like-minded people gather, participate in Discord community parties, and spark lively art exchanges.
The same NFT collection will soon also have its own video game. With Electronic Arts and Ubisoft, two of the most well-known video game publishers also rely on NFTs. Exclusive equipment or land can be purchased through NFT deeds. Likewise, the Panini albums of the future can be collected digitally and are extremely limited. For example, the NFT games in the future will not only be to look at, the gadgets will also have practical and functional value for the players.
Not only artists and the game industry, but also researchers and other enthusiasts are working on other use cases for NFT, such as NFT certificates of authenticity. There are already cases where individuals create NFT deeds to clearly certify their ownership of a particular property, commodity or even patent technology. Using NFTs to store data values almost eliminates the risk of manipulation and falsification of facts.
This does not mean that the industry is currently free of fraud and dishonest dealings. Caution and prudence are fundamental to the emergence of any new product or market, and NFTs are no exception. With the market still unregulated, many are trying to cash in on the NFT hype, especially fraudsters and scammers. Phishing scams or cyberattacks are now common in this area, as are wash trading and asset counterfeits.
On the other hand, there are the great benefits that NFTs bring, not only in the art world, but also in some industries:
For example, switching passports to NFT passports will lead to greater security at airports. Boarding or entry tickets can also be stored in the blockchain. This reduces identity theft and provides more transparency. For example, San Marino has made progress in the field of “digital vaccination card”: since July 2021, vaccination status has been recorded here using QR codes on the public blockchain “VeChain Thor”.
There could also be less fraud in the used car trade. Ownership history can be recorded on the blockchain from the moment a new car is sold. Due to the emerging decentralized internet data chain, fraud is hardly possible anymore. Public authorities such as the tax authorities, insurance companies and workshops can also be involved. And the automaker could also make money from resale through smart contracts.
The future benefits in logistics are even greater. Balanced information flows are just as important for suppliers, carriers and recipients of goods as they are for the government. We can experience the problems that can arise when supply chains are interrupted and transparency is lost. The basic accounting principle of the blockchain can help with this. Blockchain technology can be used to verify and track data about shipping, approval processes or container status. This helps against criminal activities, but above all ensures more transparency in the logistics processes. Efficiency increases, costs decrease and – most importantly – the sustainability factor is strengthened. Without any doubt, exporters and manufacturers can clarify and see where the origin of raw materials lies by storing them in the blockchain. Counterfeit products are also discovered more quickly.
Wash trading is an activity where traders create artificial demand for securities by buying and selling the same financial instrument multiple times. The motive may be to artificially increase trading volume to demonstrate how popular a product supposedly is, or it may be to generate artificial commission payments to brokers. Transaction activity is also artificially inflated for NFTs. In most cases of NFT wash trading, sellers repeatedly trade from one wallet to another to drive up the price of the asset.
Counterfeiting is another problem NFT artists face. There has been a proliferation of cases of scammers posting fake listings on marketplaces posing as stolen NFT artwork as their own. Some companies have recognized this problem and are using AI solutions to expose such scams. However, it is important that anyone venturing into an unregulated market such as NFTs do their due diligence before becoming part of this decentralized future.
The crypto scene is currently at an all-time low, the NFT market is taking a breather. However, the crisis is not due to a problem in the symbolic world, but to general global economic factors. In fact, metrics such as developer activity and the number of new users in the ecosystem are steadily growing. The market therefore remains dynamic even in uncertain economic times. Looking at the practical benefits of NFTs, there is much to expect in the future – NFTs will become part of everyday practice. (sv)