In 2021, a number of noticeable milestones have already been reached for the nascent non-fungible token (NFT) market, which is up 2,100% in value from Q4 2020 and consumers are spending more than $ 2 billion. While record-breaking sales have dominated the headlines, growing demand from new investors is often overlooked. According to NonFungible, which tracks NFT transactions, there were 73,000 NFT buyers and 33,000 NFT sellers in the first quarter. While these numbers may seem impressive, they are relatively small when compared to the global art market, which was valued at $ 64.7 billion in 2018, with the United States, China, and the United Kingdom accounting for 84% of the global market.
The traditional infrastructure for the art market, dominated by dealers and auction houses, seemed already out of date in an increasingly online and globalized world where the demand for this asset in emerging markets would only grow. People will likely look back on the COVID-19 pandemic as a catalyst for disrupting existing art market infrastructure. In the meantime, the NFT market offers some insight into the application of smart contract technology to ensure that third parties and middlemen who would normally ask for their cut can be removed. As things stand, however, the current infrastructure has too many flaws and too much potential for user error to realistically function as an alternative to current methods of verifying, disseminating, auctioning, and certifying property.
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Nowadays there is no way of knowing for sure who the real human creator was by looking at the data contained in an NFT. The result is an increasing number of counterfeit NFTs and cases where a scammer creates an NFT and presents it as the work of a certain well-known artist. A quick Google search on the subject reveals that NFT counterfeiting is a rapidly growing problem. In some cases, the scammers take a picture of an actual work of art from the artist, turn it into an NFT, and then sell it as if they were the artist themselves.
In addition, if 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) changes or disappears at the end of this hyperlink, there is no way to know or prove from the blockchain data what the actual image that was connected to the NFT and purchased was .
So there is no way to protect the durability of the NFT data. Shocking but true. This means that the actual image or data associated with the NFT could be changed or deleted, destroying the value of the NFT. There is also the possibility of user error where people mistakenly copy long, complicated addresses or suffer man-in-the-middle attacks that could potentially result in millions of dollars being sent to the wrong address or stolen forever.
Confirmation of authenticity
In the physical world of art, the artist signs his pieces to verify authenticity and the owner of the work of art ensures its permanence by keeping it in a safe place of their trust. For NFTs to be successful in the long term, blockchain technology must enable a similar capability and do so in a decentralized, self-sovereign manner.
We don’t know what long-term impact the ongoing COVID-19 pandemic will have on the art world. People may look back and find 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 turn these middlemen off. However, the operational risks and the potential for fraudulent transactions make the current exchange model too risky to scale despite the clear demand.
NFT counterfeit prevention and permanent protection are critical to the continued growth of NFT usage across the blockchain ecosystem to ensure a fairer, more transparent and more equitable system for art buyers and sellers. The future art ecosystem is clearly visible and we as an industry need to start building it.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
Luke Stokes is Managing Director of the Foundation for Interwallet Operability. He is passionate about voluntary systems of governance and has been involved with Bitcoin since early 2013. He has been a consensus witness for the Hive blockchain (formerly Steem) and administrator of eosDAC, a community-owned Eosio block producer and DAC enabler, since the beginning of 2018. since its inception. He holds a degree in computer science from the University of Pennsylvania.