Last year, NFTs (non-fungible token) hit an inflection point in growth and popularity. Spending on these digital items hit $25 billion, up from a mere $94.9 million in 2020, according to a report from DappRadar.
Some of the prices for NFTs have been jaw dropping. Consider the example of digital artist Beeple—real name Mike Winkelmann. In March 2021, he sold one of his works in the form of a JPG file for $68.3 million at a Christie’s auction.
Some of the biggest adopters of NFTs are celebrities and athletes like basketball star Stephen Curry, Justin Bieber, Reese Witherspoon, and Snoop Dogg. But businesses also see the value of NFTs, especially for marketing. For example, Mattel launched digital assets for its collectible Hot Wheels brand.
“NFTs have proven to be useful in creating new and exciting experiences for users, offering them access to exclusive drops, product launches and other perks that were not previously available,” said Anthony Georgiades, Co-founder of Pastel Network. “Additionally, they allow brands to connect with their customers because of the strong communities they forge, making their customers feel valued and appreciated.”
Yet there are nagging issues with NFTs that have become more prevalent—including fraud— that could stunt their growth.
What are NFTs?
Think of an NFT as a recording system. It shows that a digital item—which could be a photo, video, album and so on—is unique. This is done by specifying details of it on the blockchain, which is usually based on Ethereum. The information cannot be changed and it is transparent to anyone. As a result, this provides a way to authenticate the digital item.
NFTs are a game changer since it has been difficult to sell digital content. After all, you can just copy and paste an image or video. But with an NFT, you have proof of provenance.
Minting your digital items as NFTs is not difficult. There are a myriad of marketplaces, such as OpenSea and Nifty Gateway, that allow you to upload and sell them. However, a major problem with minting NFTs is the rising costs. Heavy computations for the Ethereum network can be more than $70 per NFT; this is called the “gas fee.”
Also read: What is the Metaverse and How Do Enterprises Stand to Benefit?
NFTs and the Enterprise
NFTs are not just for consumer markets. The technology has the potential for creating powerful enterprise applications and systems.
Consider IBM. Last year, the company partnered with IPwe to create a platform to represent patents as NFTs. The goal is to make it easier to monetize and protect intellectual property.
Another example is Icecap. This startup is the first company to use NFTs to improve the buying and selling of diamonds, which are stored in a vault and insured. There is less friction in the transactions because investors do not have to track the diamonds. The investors can also take delivery.
“NFTs have many benefits for enterprises,” said Nir Kshetri, Professor of Management at the University of North Carolina-Greensboro. “On the product offering front, NFTs can help create a one-of-a-kind and exclusive product, a new product for niche markets as well as new ways for distributing and monetizing digital products. Other benefits include enhancing product quality with supply chain visibility, preserving value of products in the distribution network, addressing product-related deviance such as fraudulent returning and fighting against the threat of illicit products such as counterfeits.”
The Threats to the NFT World
HitPiece is a marketplace for music NFTs. However, various musicians and labels alleged that the startup sold unauthorized digital items (this was done by using the Spotify API). Musician Jack Antonoff tweeted: “Any Bleachers NFTs are fake. At the moment I do not believe in NFTs so anything you see associated with me isn’t real.”
But this was not a one off. Many problems have emerged with NFTs, including wash trading—a process where investors will buy and sell NFTs to each other to drive up the prices.
“Most issues related to fraud and theft are less relevant in NFT solutions developed and offered by enterprises,” said Kshetri. “However, companies need to be vigilant about potential infringement of their trademarks by others that offer NFTs.”
Kshetri points to a recent case involving Nike. The company sued StockX, an online reseller, for selling unauthorized NFTs of its shoes. “Nike complained that StockX’s NFTs infringed its trademarks and may confuse consumers,” said Kshetri. “The lawsuit asked for unspecified money damages and an order blocking their sales.”
Then again, there will be opportunities for startups, such as Pastel Network, to develop systems to help detect fraudulent activities.
“Unfortunately, due to the high price many of these assets carry and the immutability of the blockchain, NFTs have become a popular target for theft,” said Jim Holcomb, who is a security consultant. “In this regard, it is imperative that organizations help educate users regarding best practices for securing their assets, such as using a hardware wallet, prior to purchasing high value NFTs.”
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