NFTs in 2021: The Challenges & Opportunities

NFTs have been the rage worldwide and are foreseen to steal the spotlight in 2021. The non-fungible token (NFT) industry, with over 25x increase in trading volume and costs over $2 billion for specific marketplaces, can be said to have successfully stolen DeFi’s thunder.

In case you aren’t very familiar with the concept of NFTs, here’s a trivia. Non-fungible tokens or NFTs are artwork, real estate, or collectibles-basically the non-fungible assets, in a tokenized version.

NFTs hold distinct characteristics that make them exceptional and invaluable. In other words, NFTs consist of everything rare and unique in the world.

As mentioned above, NFTs have individual characteristics that set them a class apart, unlike Bitcoin, which has a stock of 21 million identical coins.

Creators or artists of all kinds are using NFTs as methods to monetize and digitalize their works. The Kings of Leon, a musical band, created ripples when its new album hit the floors as a limited edition NFT. That’s not all; it came with six NFTs, granting lifetime passes to front row seats for the band’s concerts. Artists like Beeple, who sold an NFT representing a collage for $69 million, or Pak, whose work sold for 17 million, have taken the NFT world by a storm.

Opportunities

NFTs offer four significant opportunities for investors, with a lot of untapped potentials coupled with obstacles to cross.

Environmental impact

Evident enough, an extensive network of computers runs the blockchain infrastructure, which consumes an enormous amount of power. This makes the process considerably costly. Therefore, artists must pay a special fee to “mint” their art before their artworks are encrypted on Ethereum.

Some supporters state that the power employed is at the perimeters of power grids and not the best type of electricity. In that case, the carbon footprint of NFTs has to shift toward carbon negative or carbon neutral.

Gaming and AR

By now, we don’t need to reiterate that NFTs are unique, limited in supply, and can be verified only in the blockchain. This raises questions about the artists creating unique digital assets collected and stored as NFTs on the Ethereum blockchain for gamers.

The video game industry, rated at around $160 billion, is set to grow over $200 billion by 2023. The heightening popularity of NFTs in the gaming industry offers encouraging and profitable prospects for NFT growth and its investors in 2021.

Platforms that invest in curation and education

Most of the top shots in the NFT industry have websites that offer the good, the bad, and the ugly, all in one. This certainly doesn’t help the collector.

Hence, editorial content that can assist people in comprehending what they are buying, introduce the new artists, depict who they are and what they do would draw a larger number of collectors.

Showcasing galleries

There are undoubtedly ample places to mint, purchase and auction the digital NFTs, but not enough to showcase. The amount of finesse in these platforms and the number of features they can offer depends on the investors who have a keen eye for the trend. We need efficient NFT marketplaces!

Challenges

While NFTs continue to be the talk of the town, their journey has hurdles. Today, all common NFT platforms depend on companies to validate their art or the old-fashioned pre-blockchain internet, where artwork would disappear if you forget to renew a domain name.

Moreover, most start-ups and platforms selling NFTs today are similar to tons of random websites that sell posters. Many art pieces being sold as NFTs aren’t even digital artworks; they’re just digital images of creations of general media.

The current NFT market is not only drawing art lovers but also tons of spammers. NFTs of artists’ works are being created without the artist’s permission or even preliminary information.

Data Hosting and Storage

A particular NFT and the digital asset it outlines are saved individually. The NFT is deposited on the blockchain and includes information on the digital asset’s location. NFTs are connected to the digital asset via a link. In case the digital asset is destroyed or the server hosting it crashes or goes offline, the link breaks. The NFT left will be worthless since it won’t be linked to the digital asset; you cannot back up the NFT.

This can lead to business interruptions, regulatory record-keeping violations, and loss of data.

Royalties

Smart contracts inscribed in NFT codes allow the fund distributors to pay royalties to the producer every time the work is resold. However, these automatic resale royalty payments might not happen unless the NFT is resold through the same platform.

Data Protection Laws

Some data protection laws provide people the right to delete their data. Still, the nature of the blockchain acts as a barrier to this right’s execution. Data protection laws also equip individuals with the right to correct errors in their data, and blockchain technology might make this right, too, difficult to apply. Additionally, NFTs that contain personal information stand a chance to violate data protection laws.

Intellectual Property Rights

Many people participating in the NFT market are not familiar with the legal restrictions relating to copyrighted work, which makes them liable to possible infringement.

The original producer is the copyright owner with the sole right to copy, distribute, modify, openly perform, or publicly display the art. The NFT buyer only receives the token and the right to use the copyrighted art associated with the NFT for personal use.

A purchaser who thinks the underlying art’s rights were misrepresented might become or create litigation liability for the NFT seller.

Lack of Infrastructure: Adoption & Affordability

While some experts are confident about the mainstream adoption of NFTs, believing it’s just a matter of a couple of months, some are hesitant. For NFTs to develop, proper infrastructure is an indispensable requirement. Scalability and transaction fees have a major impact on the pace of NFT development. Along with this, NFTs pose accessibility challenges.

For people just dipping their feet into the NFT or crypto waters, the transaction fees, managing private keys and setting up a wallet, etc. are all herculean tasks. There still exists a huge divide between the online and the offline world.

Mainstream adoption of NFTs means millions of people across the globe interacting with NFTs. But before that, NFTs have a long way to go, implying that NFT adoption could take years.

NFTs are also increasingly seen as expensive and almost ‘elite’. The NFT market needs democratization, via fractionalization. This would enable an efficient price discovery model and lead to true adoption. It’s something we at Fusible are working on (more on us, below).

Solution

Fusible, a price discovery protocol for NFTs offers you a pricing mechanism you wouldn’t want to not have a look at. A curve-based pricing mechanism helps attain equilibrium between the supply and demand for NFTs. And fractionalization enables a more liquid market!

In other words, Fusible not only lets you own a fraction of the NFT you like but can’t afford or are unsure of, it also brings better liquidity to the market overall for NFT artists! As Fusible lets you fractionalize NFTs into FT tokens, you get a shot at earning increased prices on your creations.

Conclusion

NFTs have, without a doubt, sparked new ways and means of monetization of astounding creations worldwide. The world of NFTs makes collectors and artists uncertain, excited, and skeptical, all at the same time. It demands dedication, investment, and knowledge.

If you are an ardent fan of NFTs, join us on the Fusible blog to get an inside scoop on what’s hot in the NFT town!

Price Discovery Protocol for NFTs