2021 has already seen a number of eye-catching milestones reached for the nascent non-fungible token (NFT) market, which has seen a increase by 2,100% as of the fourth quarter of 2020, with consumers spending more than $ 2 billion. While the headlines have been dominated by record sales, what is often overlooked is the growing demand from new investors. According to At NonFungible, which tracks NFT transactions, there were 73,000 NFT buyers and 33,000 NFT sellers in the first quarter. While these numbers may sound impressive, they are actually relatively small compared to the global art market, which was valued to $ 64.7 billion in 2018, with the United States, China and the United Kingdom accounting for 84% of the global market.
The traditional art market infrastructure, dominated by dealers and auction houses, already seemed outdated in an increasingly online and globalized world, where emerging market demand for this asset was growing. People are likely to view the COVID-19 pandemic as a catalyst to disrupt the existing infrastructure of the art market. Meanwhile, the NFT Marketplace provides insight into how smart contract technology can be applied to ensure that third parties and middlemen who would normally demand their cut can be removed. As it stands, however, the current infrastructure has too many flaws and too much potential for user error for it to realistically act as an alternative to current methods of verification, distribution. , auction and property certification.
Related: No more hype: how NFTs and art will benefit each other in the future
Today, there is no way to know for sure who the real human creator was by examining the data in an NFT. The result is an increasing number of NFT fakes and instances where a scammer creates an NFT and presents it as the work of a particular well-known artist. A quick Google search on this topic shows that NFT counterfeits are a rapidly growing problem. In some cases, crooks take an image of an actual work of art by the artist, turn it into NFT, and then sell it as if they are the artist themselves.
Additionally, when an NFT has significant associated content or data, such as an image, that data is not stored on a blockchain. Rather, the NFT contains a link to the data, most often via a hyperlink on the Internet. If the data (e.g. the image) at the end of this hyperlink were to change or disappear, there is no way to know or prove from the blockchain data what the actual image was that was. associated and purchased with the NFT.
So there is no way to protect the permanence of NFT data. Shocking, but true. This means that the actual image or data associated with the NFT could be altered or deleted, thereby destroying the value of the NFT. There is also a risk of user error, when people copy complicated long addresses or experience man-in-the-middle attacks that could potentially result in millions of dollars being sent to the wrong address or stolen for. always.
Validation of authenticity
In the physical world of art, the artist signs his pieces to allow validation of authenticity, and the owner of the work of art ensures its sustainability by storing it safely in a place of trust. For NFTs to be successful in the long term, blockchain technology must enable a similar capability and do so in a decentralized and sovereign way.
We don’t know what the long-term impact of the current COVID-19 pandemic will be on the art world. People can look back and see that this has been a catalyst for long overdue disruption and greater competition for what remains essentially a cartel of high-end auction houses and dealers of varying reputations. Smart contract technology has shown how NFTs can eliminate these middlemen; However, operational risks and the potential for fraudulent transactions make the current trading model too risky for it to scale, despite clear demand.
The prevention of counterfeiting and the continued protection of NFTs are essential to the continued growth of the use of NFTs in the blockchain ecosystem, ensuring a fairer, more transparent and more equitable system for buyers and sellers of art. The future art ecosystem is clear and we, as an industry, need to start building it.
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The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Luke Stokes is the Managing Director of the Foundation for Interwallet Operability. He is passionate about voluntary governance systems and has been involved in Bitcoin since early 2013. He has been a consensus witness for the Hive (formerly Steem) blockchain since early 2018 and a custodian for eosDAC, a community owned Eosio block producer. and a DAC facilitator, since its inception. He holds a computer science degree from the University of Pennsylvania.