At the latest last year, interest in NFTs really took off. However, the views on the infamous blockchain-represented objects are very different: NFTs are polarizing. For some, they develop great momentum and represent a forward-looking disruptive development. For the others, they are a gimmick without any deeper meaning – or simply 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 for NFTs on Google, you’ll see humanoid images of cats, penguins, and monkeys with bored or sleepy faces. Not anymore.
Development is so easily dismissed as a fleeting Gen Z phenomenon. People want to make a quick buck by converting their amateur JPEGs to NFTs. In reality, players assume that the hype will soon die and be replaced by another trend in the virtual worlds. They are confirmed by the huge price volatility in NFT art.
What is often overlooked is that NFTs are redefining the art world and opening up new opportunities for artists and collectors alike. Artists gain greater influence and rights without compromising the ownership rights of collectors.
How has it been so far? In the traditional art market, an amateur artist just beginning their career will approach various intermediaries such as art galleries and auction houses to sell their art for a profit. If successful, he will probably never see his artwork again. He also does not receive any commission if the value of his artwork rises to new dimensions. That may change thanks to NFTs. Artists can earn additional royalties from digitized artwork in the form of NFTs with each resale.
There is no doubt that much of the current NFT market is driven by speculation and waning hype. But this is not unusual for a young market, and experience has shown that it can quickly change again. The potential is absolutely there: the leading NFT collections are constantly adding additional benefits to their digital artworks. For example, 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 exchanges about art.
The same NFT collection will also soon 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, Panini albums of the future can be collected digitally and are extremely limited. In the future, the NFT games will thus not only be something to look at, the gadgets will also have practical and functional value for the players.
Not only artists and the gaming 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 confirm their ownership of a particular property, commodity or even patent technology. By using NFTs to store data values, the risk of manipulation and falsification of facts is almost eliminated.
This does not mean that the industry is currently free of fraud and unfair dealing. 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 cyber attacks are now common in this area, as are money laundering and asset counterfeiting.
On the other hand, there are the great benefits that NFTs unfold not only in the art world, but also in some industries:
Changing passports to NFT passports, for example, will lead to more security at airports. Boarding or access tickets could also be stored in the blockchain. This reduces identity theft and provides more transparency. San Marino, for example, is advanced in terms of “digital vaccination card”: since July 2021, vaccination status has been recorded here using QR codes on the public blockchain “VeChain Thor”.
There may also be minor fraud in the used car trade. Ownership history can be recorded on the blockchain from the time a new car is sold. Due to the new decentralized internet data chain, fraud is hardly possible. Public offices such as 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, transporters and consignees as for the authorities. We can experience the problems that can arise when supply chains are disrupted and transparency is lost. The basic accounting principle of blockchain can help here. 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. Exporters and producers can undoubtedly clarify and see where the origin of raw materials is by storing them in the blockchain. Counterfeit products are also detected more quickly this way.
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 is or to generate artificial commission payments to brokers. Transaction activity is also artificially inflated for NFTs. In most cases of NFT washing, sellers repeatedly trade from one wallet to another to drive up the price of the asset.
Counterfeiting is another problem NFT artists face. There is a proliferation of cases of fraudsters posting fake ads on marketplaces and impersonating stolen NFT artwork as their own. Some companies have recognized this problem and are using AI solutions to detect such scams. However, it is important that anyone venturing into an unregulated market like NFTs does a thorough research before becoming a part of this decentralized future.
The crypto scene is currently at a low level, the NFT market is taking a breather. However, the crisis is not due to a problem in the token world, but to general global economic factors. In fact, metrics like developer activity and the number of new users in the ecosystem are growing steadily. The market therefore remains dynamic even in economically uncertain times. As a look at the practical benefits of NFTs reveals, there is still much to expect in the future – NFTs will be part of everyday practice. (wh)