What will it take for NFTs to go fully mainstream?
NFTs are here to stay, what will it take for the market to expand outside the crypto realm
By Vanessa Malone
Non-fungible tokens, or NFTs, are digital tokens that represent ownership of a unique digital item. Think of NFTs like the digital counterparts of one-of-a-kind trading cards. NFTs can be tied to any digital asset including music, artwork, virtual land, sports highlight videos, or even physical objects like Nike’s CryptoKicks.
Each NFT is unique and can’t be duplicated, which is what the term ‘non-fungible’ defines. When you buy an NFT, you gain ownership for that virtual or physical asset represented by a token on the blockchain, typically the Ethereum blockchain, which you can choose to hold or trade.
Many of the leading NFT platforms, including OpenSea, Axie Infinity, CryptoPunks and Rarible have seen record volume in the last few weeks. According to data from DappRadar, OpenSea has generated over $1.8 billion in sales volume in the last month, a large jump from January 2021 when the monthly volume on the platform was around $8 million.¹ DappRadar also recorded 32 known NFT sales above $1 million in the past 30 days.²
While NFT platforms are showing record growth, there are some common roadblocks that may be keeping the NFT market from expanding outside the crypto realm.
1. Blockchain barrier of entry
Most NFT platforms cater to existing crypto traders. They require users to 1. connect their digital wallets from a third-party platform like MetaMask and 2. purchase NFTs using Ether or another form of cryptocurrency.
For those in the space, connecting a digital wallet or purchasing Ether from their typical digital currency exchange isn’t much of a hassle.
But for a new NFT buyer unfamiliar with blockchain, each third-party step adds a new layer of uncertainty. Creating a new digital wallet on MetaMask, purchasing Ether or other digital currency from another digital currency exchange to fund the wallet, and connecting this new wallet to the selected NFT platform requires research and time.
2. Buyer and seller protection
Many existing NFT platforms operate as a free-for-all.
The identity verification process for NFT sellers isn’t consistent across NFT platforms, and some don’t require it at all. This means the responsibility falls on the buyer to ensure the NFT is truly from the seller. Further, buyers and sellers may never know who they’re transacting with, even after a sale.
For example, the buyer of the $600,000 Nyan Cat flying Pop-tart meme was anonymous, appearing only as “oxy7eb2…3f6b” on Foundation’s site.³
This type of open market invites fraud and may have serious implications as the market matures.
3. Incoming regulation
The entire NFT market and the platforms that support it operate in a legal gray area without the safeguards that regulated financial institutions have.
This may be changing. NFTs are mostly associated with art and collectibles which could mean regulation could be coming to the NFT market in the near future.
On January 1, 2021, Congress passed the Anti-Money Laundering Act of 2020 as part of the National Defense Authorization Act, with the biggest changes to the Bank Secrecy Act (BSA) in two decades. This includes a new law requiring antiquities dealers to comply with the requirements of the Bank Secrecy Act. Art dealers will now have to adopt AML programs designed to combat money laundering and fraud.
The AML Act also extends the scope of the BSA to crypto exchanges, maintaining that virtual currency businesses are money services businesses, and therefore, subject to BSA requirements.
If NFTs get filed into either of the above categories, it could mean NFT platforms would need to make big changes to comply with KYC and AML regulations.
What types of platforms we could be seeing in the future
We believe NFT platforms that address the above roadblocks will invite an entirely new group of NFT participants. A platform that creates a one-stop-shop for users to create a wallet and fund their accounts without third-party integrations would remove the blockchain educational hurdle.
While accessibility and anonymity are key values in the blockchain community, we believe buyer and seller protection should take precedence, especially when authentication of ownership drives NFTs. Adding in identity verification measures in a way that doesn’t hinder the NFT experience is possible, and we believe these steps will bring a level of trust to new NFT participants.
We also believe that forward-looking platforms who take a proactive approach when it comes to the potential incoming regulation will entice new users.
Our team is taking all of the above into consideration as we approach the launch of our upcoming digital stock exchange and trading app, Upstream.
Be sure to stay tuned for exciting news and updates surrounding the revolutionary marketplace for investors to trade shares in IPOs, crowdfunded companies, US & Int’l. equities, SPACs, celebrity ventures and more.
Sources:
3 NY Times
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