Once a novelty, non-fungible tokens (NFTs) have taken the world by storm.
Behind these digital assets is serious money: trading in NFTs surged 21,000% from 2020 to hit US$17.6 billion in 2021, and the entire industry was worth an estimated US$15.7 billion by mid-last year. Luxury fashion houses, international celebrities, multinational brands, and even big banks all want a slice of the fast-growing pie.
But while NFTs are surging in popularity, not all is well with NFT marketplaces. Amid growing pains like rampant fraud and the sale of NFT sets that resemble securities, platforms such as OpenSea grapple with difficult decisions that may not align with user preferences.
The good news? Fixes are on the horizon. Some will take awhile to realise. In the meantime, it is up to trusted players to fill the gap.
| An unguarded sea of scams and fakes?
Chief among the many ills plaguing NFT marketplaces are the rampancy of fakes and scams.
As Cent CEO and co-founder Cameron Hejazi puts it, the three key problems NFT marketplaces face are people selling unauthorised copies of other NFTs, people making NFTs of content that don’t belong to them, and people selling sets of NFTs which resemble securities.
OpenSea, the world’s largest NFT marketplace, estimated in January this year that 80% of NFTs minted for free on its platform were plagiarised, fake, or just spam.
Many NFT marketplaces are also poorly integrated. By making it harder for users to understand where and how they can use their NFTs, the disjointedness of NFT marketplaces will create ambiguity that scams and fakes can thrive in. Buying NFTs and onboarding processes don’t occur on the same platform, and the need to communicate outside these platforms also exposes users to potential fraud risk.
Current solutions adopted by popular NFT marketplaces have achieved mixed results. In December last year, OpenSea’s decision to ban two Bored Ape ripoff NFT collections drew protests from users who saw the move as contradicting the organisation’s image as a Web3 champion. As platforms test decentralised solutions, users will still have to depend on current centralised marketplaces to combat the problems on their behalf for now.
| High gas fees
Another problem NFT marketplaces grapple with is high gas fees. Gas fees compensate blockchain miners for the computing power used to verify blockchain transactions, and when it comes to NFTs, these can reach exorbitant prices.
On average, prices would vary anywhere between US$5 to US$500 and above, depending on the nature of a transaction and the demand on the blockchain at the time of minting. When the Bored Ape Yacht Club minted new NFTs earlier in April 2022, Ethereum gas fees skyrocketed to US$3,325 for a US$25 NFT.
High gas fees can lock out a large swathe of users from participating in NFT sales, but signs suggest that this may not be as big an issue in the near future. OpenSea, for example, expects gas fees to be reduced by nearly 35% with its move to the new Seaport protocol. As more blockchains transition towards less energy-intensive proof-of-work systems, gas fees are likely to decline more significantly.
| A regulatory wild west
While steps towards addressing the former two challenges have already been taken, there has been almost no response to the absence of regulatory checks and balances on NFTs so far.
Because NFTs aren’t regulated, there’s little legal protection of individuals who create, invest, and trade in them.
This means that the responsibility to protect the interests of the wider NFT community often falls entirely to NFT marketplaces and users themselves. Just as it is up to NFT marketplaces to make clear to buyers and traders what an NFT stands for, buyers and traders should also do their own due diligence to understand what they’re getting into.
Because of this information asymmetry, opportunities for fraud and scams abound. If marketplaces fail to clarify processes, the complexity of NFT minting and transacting can also intimidate would-be creators and buyers, deterring them from participating in the NFT market.
Ultimately, NFT marketplaces operate in legal grey areas, and the only safeguards in place are the ones that they themselves decide to enact for their users.
| Skip the fuss and meet your fans with 2MR Labs
NFTs are still an emerging technology, and the issues faced even by major NFT marketplaces proves how difficult it can be to reap the right results with NFTs.
Here’s where 2MR Labs comes in.
Whether your organisation is new to NFTs or has previous experience interacting with them, 2MR Labs’ suite of solutions takes the speed bumps out of your NFT experience. Connect with expert voices instantly, onboard our one-stop shop from ideation to execution and pay only what you need.
Ready to create the future without the headaches? Set up a call with us today.