As digital investing is growing in popularity, a new type of digital asset known as non-fungible tokens (NFTs) are entering the market. An NFT is a cryptographic asset that is presented as artworks, music, videos, and in-game items, with many other new ideas coming up each day. Having made their debut in 2014, NFTs have been increasingly in-demand as a method to purchase and sell digital works of art in our current day of age.
In January 2022, one of the monumental NFT marketplaces, OpenSea, reported a trading volume of 5 billion USD. Popular public figures have also hopped on the NFT craze such as pop singer Justin Bieber, rap artist Snoop Dogg, and football legend Lionel Messi.
With the increasing popularity of NFTs, this raises a new question: Are there any disadvantages to using NFTs? In this article, we discuss the current challenges NFTs are facing, and discuss whether NFTs possess the potential to grow even bigger in the blockchain industry.
Challenge 1 – Plagiarism and Ownership of NFTs and underlying works
NFT ownership does not equal “complete” ownership, to some extent. NFTs can be duplicated and downloaded by thousands of people on the internet with a simple screenshot. Although buyers technically own the NFT on the blockchain, digital art thieves can easily steal them — as a complete digital replica.
With the upsurge of NFT theft, artists gradually noticed that their artworks were being turned into NFTs and sold without consent on various online marketplaces. For example, in 2021, Russian artist Weird Undead discovered her recent artwork up for auction on OpenSea.
The artist tweeted, “I don’t give any permission (ESPECIALLY to random jerks) to make tokens from my content and I feel so angry.” The non-fungible token has since been taken down from OpenSea after Weird Undead filed legal notices against the online auction site.
(Twitter user @WeirdUndead’s tweet garnered 21.9K likes)
NFT theft is, unfortunately, rather common. Although profit loss will occur when plagiarising an artist’s work, there are currently no preventive measures for those who mint another person’s art and sell it as an NFT. It may also prove difficult for the artist to claim any compensation or seek remedies against the person who plagiarised them since they are most likely anonymous and living in another country.
Challenge 2 – NFTs are bad for the environment?
Most NFTs use the Ethereum blockchain which also operates on the Proof of Stake (PoS) algorithm. Transaction verification requires the PoS to perform multiplex calculations — where a stupendous amount of computers is vital.
The issue is that it takes a great toll on electricity to mine Ethereum. Each transaction on Ethereum takes 48.14 kWh, which is comparatively a lot more than other average computational tasks. The substantial use of this algorithmic power and electricity results in the increase in consumption of fossil fuels and leaving an even bigger carbon footprint on our planet.
These NFTs are largely to blame for the massive amounts of greenhouse gas emissions emitted by cryptocurrency transactions and a lot of people don’t believe that the recommended solutions are possible.
A digital art marketplace called ArtStation withdrew plans to develop a platform for NFTs within hours after receiving criticisms from people who believe that dealing in crypto art is unethical. ArtStation’s proposals for carbon credits have been equated by artists on Twitter as “setting a house on fire then placing a single potted plant on the burned property.”
(Twitter user @Bleaaeach is among many who strongly disagrees with the NFT phenomenon)
Fixing the challenges faced by NFTs?
With the right protocols that can protect the artist’s work and also the environment, NFTs can potentially thrive for generations to come.
Copyright protection for NFT artists?
Artists should be protected by intellectual property laws when selling their artwork in the NFT space. In the US, their copyright laws state that only the original holder has the right to turn their artwork into an NFT. To illustrate, consider the lawsuit brought against Foundation, an NFT platform, for showcasing artwork created by another NFT project called Cryptopunk which was promptly called out by claimed creator Ryder Ripple.
Essentially, artists still have the potential to have their art protected and respected for their original and exclusive value in the form of NFTs. NFT creators can also take the opportunity to earn royalties on the resale of their work — a feat that is comparatively much more difficult to achieve in the traditional market.
Environmental strategies for NFTs?
For environmental concerns, NFTs are still relatively new and were not expected to consume a tremendous amount of electricity when being mined. There are potential sustainable methods that can be adopted to protect the environment when exploring the NFT space. A renewable energy strategy would be a practical method as PoS mining can utilize emission-free energy. In recent years, solar power is a common practice when companies take on an environmental approach, but other alternatives, such as wind-generated electricity can also be considered.
Another environmental strategy would be to purchase carbon offset credits. “A carbon offset credit is a transferable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric tonne of CO2,” explained by the Carbon Offset Research and Education. Although NFT investors who purchased offsets will not directly reduce carbon dioxide emissions, it can bestow a financial motivation to lessen total emissions on an annual basis.
Will NFTs survive?
Despite the disadvantages of NFTs mentioned earlier, NFTs won’t be seeing the finish line anytime soon. NFTs’ most evident advantage is their capacity to improve market efficiency. Digitization improves efficiency and safety by removing the need to handle physical assets. With the ability to store and protect sensitive data and documents, they might be the next biggest beneficial tool for both individuals and businesses.
NFT is also transforming art, music, and sports by allowing digital assets to be sold and providing a range of revenue streams for digital artists. Upcoming trends, such as play-to-earn is providing users with the opportunity to also earn while gaming with their NFTs. Seems like going forward, the utility concepts in NFTs will only continue to drive the sector, instead of ruining it.
With the rapid growth and popularity of NFTs, there is no doubt they will have a significant impact on the global economy in years to come. It is not a matter of how, but when.