NFTs may be the next big thing for art, but can they thrive in the lawlessness of the internet?
On September 14, 2021, OpenSea, a popular NFT marketplace startup, admitted to insider trading on their website. The event is unprecedented in crypto history. Within 24 hours of the incident, the company had put in new employee policies to regulate trading on their platform. OpenSea’s insider trading incident highlights the fact that while the popularity of digital items is on the rise, so are cybercrimes that seek to make a profit at the expense of genuine creators and buyers. The company’s actions promote the need for accountability and regulation.
Legality has been a major point of contention with most things crypto-related. NFTs and NFT marketplaces, like most digital assets, are largely unregulated by law. The insider trading incident at OpenSea brought to light the concerning lack of regulation around NFT marketplaces and the risk of malpractices in the ecosystems.
What is an NFT Marketplace?
An NFT marketplace is a platform where individuals can mint, buy, and sell NFTs. Marketplaces like OpenSea, MetaMask and Rainbow are some popular NFT marketplaces. Creators can use these platforms to put their NFTs up for auction. Some of them can fetch extremely high prices, depending on how rare and collectible the piece is.
Where is the problem?
NFTs, like most crypto assets, exist on decentralized blockchains. This means that they are not under the control of any central authority like a bank or a government organization. While this allows creators to have ownership and control over the distribution and monetization of their work, it makes imposing uniform regulations on crypto art extremely difficult.
As of the writing of this article, there are no laws regulating the sale and trading of NFTs around the world. This opens up Pandora’s box of NFT-related problems:
- There is a very real possibility of an artist’s work being made into an NFT without their knowledge or consent. If the NFT is then sold for a profit, the earnings would go to the NFT minter but not the original creator of the art piece.
- While creating an NFT with another artist’s work is considered theft of intellectual property and the infringement of copyrights, the nature of blockchain only allows the addition of data to the ledger. This makes deleting or altering the infringed piece of content nearly impossible.
- Unrecognized artists could be at risk of having their work stolen by larger NFT creators.
- Selling a digital piece of art without some recognition in the community is just as difficult as selling a traditional art piece. Well-known NFT creators may sell NFTs worth thousands of dollars off their reputation, while talented, yet unrecognized, artists struggle to make sales.
- There are no regulations around NFT auctions. The value of an NFT is not constant and keeps fluctuating.
NFTs and NFT Marketplaces are still in their period of technological infancy and are, as such, imperfect. Changes are required to facilitate the process of ironing out their faults in order to reach their potential. Gradual steps are needed to be taken towards putting better guidelines in place and, hence, making the ecosystem safe for artists and encouraging for businesses.
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