Let’s face it, the whole NFT thing was just a big marketing campaign for Ethereum.
Artists were enticed by the promise of royalty payments on all future sales of their blockchain-minted artwork and buyers were enticed to participate as the first wave of investor-collectors in the new genre of digital art. As part of this frenzy, relationships were formed, communities were established, and lots of creative experimentation ensued. While the creative results were mixed, the hype was successful and a market blossomed. Until Crypto predictably imploded.
When money is flying around and everyone feels flush, people start to take risks. Spending your new crypto cash on a emerging genre like digital art can be great because it helps the market grow in a new direction. But with lots of cash moving around, people are more likely to push the envelope and break the rules. If it wasn’t Sam Bankman Freid, it would have been someone else. What is left behind is a really clear view of the problems in this market that must be dealt with in order to secure a solid foundation to support future transactions and market growth. Cryptocurrencies are irrelevant to that.
Crypto is merely the currency used to pay the cost to write NFTs to blockchain and to purchase the NFT from the artist. Blockchain provides a secure authentication framework for an object that has highly specific identifiers. A creator makes an artwork and then pays the Mint to uniquely publish the art (token / block-stamp) to the blockchain. The creator pays the Mint for this process with “money”. Whether this money is Ethereum, Bitcoin, or chickens doesn’t matter, as long as the Mint gets paid with something acceptable to them. The point being that cryptocurrency was never an essential component of this transaction. Ethereum gets props for establishing such a solid foothold in the market but lots of exciting things are happening in different marketplaces outside of Ethereum. The current issues in the marketplace are less about money and more about the strength of smart contracts and interoperability between marketplaces.
As I have noted before, ( AN ARTIST’S PERSPECTIVE ON NFT’S..) smart contracts are extremely attractive for artists. This allows us to profit from future sales of our work. This encourages us to keep building our brand and growing the interest in, the demand for, and ideally the prices of our art. Every dollar made on a resale of a piece of art is a dollar we don’t have to earn at a “day job”. Alas, we are already seeing some marketplaces making the resale rights “optional” and that is causing people to question what the real enforceability is of these contracts and who enforces them.
As MK Manoylov, a reporter for The Block covering NFTs, blockchain-based gaming and cybercrime notes in his article about the enforceability of smart contracts, there are many ways the contracts are ignored or hacked. What is needed is a “Code of Conduct” that demands adherence to smart contracts by buyers and sellers on all marketplaces. This would require the individual marketplaces to reject any transaction that sidesteps the contracts. And for this to work, the system needs to work across all of the marketplaces in the same way. This is the “interoperability” problem.
Sellers deserve to be able to sell their NFTs wherever they want to get the best price. Being locked into the marketplace where they first bought the NFT is just inhibiting the potential growth of the overall NFT market itself. Until the marketplaces are better aligned to allow cross-platform purchases and sales, the market itself will remain fragmented. For the market to survive and prosper, all blockchain formats need to be exchangeable on all the marketplaces and those marketplaces need to adhere to the smart contracts no matter where they were minted.
Unless artists feel they are being protected they will avoid marketplaces that sidestep the resale rights. Buyers, of course, are more likely to move toward any marketplace that gives them greater flexibility to sell NFTs from other marketplaces. These are all typical frameworks that need to be planned and assembled for any new market. The sooner it happens, the faster the NFT market will mature beyond the Crypto hype.