Non-fungible tokens (NFT) have burst onto the scene as a new asset class that creates new value in games, art, virtual reality, and more – but they also have side effects. Will NFT be able to create sustainable value?
“Someone sold my work as an NFT”
Recently, copyright theft has emerged as an issue on the NFT market.
NFT give exclusive ownership of objects that exist in real or digital form, thereby creating new value. Thanks to this function, their use has increased, especially in the art world. However, there have also been cases of works being turned into NFT without the creator’s consent, casting doubt on the success of NFT. Due to their decentralized nature, NFT exchanges claim that they cannot deal with the theft issue, and instances of theft are on the rise.
There was a great controversy in February of this year, when the NFT token ‘Non-Fungible Pepe’, a parody of globally famous frog character ‘Sad Frog Pepe’, was issued and traded without the consent of the original creator Matt Fury. In the end, NFT sales were stopped due to Fury’s protest, but Pepe NFT had already sold 1,069 copies without his consent. There is currently no way of stopping NFT such as Pepe from being sold, regardless of who might hold copyright claims in the physical world.
Copyright issues also arose in January on the decentralized NFT exchange ‘Cross’. At the time, the artist group ‘BCA (BlockCreatArt)’ demanded that a total of 58 NFTs be taken down from the exchange, saying: “Many of the works listed on Cross were taken without permission.” However, Cross responded by emphasizing its decentralized operations and claiming that it did not have the right to delete works uploaded by individuals.
In such an event, famous authors might resort to international litigation, but new creators have few options to pursue copyright disputes. So, while creating tokens through NFT has provided a route for unknown artists to sell their works, it has also brought the issue of infringing on their copyright.
Along with copyright theft, movements towards blockchain regulation have also increased uncertainty around NFT. Currently, under the leadership of Chair Gary Gansler, the U.S. Securities and Exchange Commission (SEC) has defined most cryptocurrencies as securities and US authorities are working to regulate the entire cryptocurrency industry.
If cryptocurrencies are interpreted as securities, then NFT – that can create ownership tokens for real estate and securities – would also be considered securities and are likely to be regulated. By controlling the process of creating and trading NFT, regulation could be beneficial in resolving the copyright theft issue, but also poses the risk of shrinking the industry.
The future of NFT
So, what is the outlook for NFT? What is clear is that the NFT market is continuing to grow in tandem with the overall cryptocurrency market.
According to Nonfungible.com’s Q1 2021 report, the NFT transaction volume exceeded $2 billion in the first quarter of the year. This figure is more than 20 times higher than in the fourth quarter of 2020 and more than 131 times higher than the first quarter of 2020.
According to the Blockchain Services Global Market Report 2021, the global blockchain services market will show a compound annual growth rate (CAGR) of 52.8%, growing from $1.06 billion in 2020 to an estimated $1.62 billion in 2021 and reaching $10.45 billion by 2025.
Brian Cheong, CEO of Atomrigs Lab, predicted in a column that “NFT will go through the hype cycle, the life cycle of technology. Together with the metaverse, their use in more diverse fields will further increase their value.” However, he pointed out that in order to support this digital transformation, “a sustainable NFT ecosystem needs to be formed by establishing clear regulations for all processes including copyright protection of digital artworks, the creation of NFT tokens for real assets, and NFT transactions.”
Other observers predict that the NFT market will grow as they become the main profit source for the metaverse. Here, one should bear in mind that tech giants such as Facebook and Apple are all eying entering the metaverse.
In a September 9 interview with Bloomberg, Tether co-founder William Quigley remarked: “The revenue model of video gaming today is based on virtual items, which generates yearly sales of $175 billion. Through the Metaverse, NFT could become even bigger because it wouldn’t just be limited to games but encompass various industries and applications.” “From a consumer-product standpoint”, he added, “what’s interesting to me is not one NFT selling for $1 million, but a million NFTs being sold at $1 each. A brand-new business for digital collectibles. That seems to me to have longer legs and overall a bigger market.”