A new sensation in the blockchain world is so-called NFTs or non-fungible tokens. NFTs (non-fungible tokens) are very effective in representing the ownership of unique items for any assets. NFTs are going to exploit digital transactions in a bigger way in the future.
They are very prominent in the crypto world and also progressing in popularity in other portions. The future of NFTs and their applications are much greater and more brilliant than gaming and art. NFTs can depict proof of ownership, manage the license, give social status, grant complete access, and verify authenticity.
In this blog, we will go into more detail about what the future holds for NFTs? What are the challenges they would face, and risks associated with this new sensation.
What are NFTs?
NFT, which stands for non-fungible tokens, are unique digital assets that cannot be interchanged. You can turn anything into an NFT and their attributes can be immutably stored on the blockchain. developed by Parity technologies that enables software developers to build decentralized systems.
NFTs rely on blockchain technology to effectively track the digital possession of real-world assets and build scarcity to assure that they cannot be identically generated. NFTs allow the verification of the authenticity of digital artwork, real-estate, music, and much more.
Not everything is so good from the perspective of NFT. There are unique challenges and risks also related to them.
Future of NFTs
The current situation of the global NFT market and the relevant trends paint a favorable picture for the future of NFTs. However, it is necessary to understand the factors for the future growth of NFTs.
Document storage and ownership
Just like the essence of blockchain technology, NFTs have the potential for various business use cases. The business applications have to be appropriate for each use case alongside assisting the better digital transformation. For example, the storage of documents securely is a possible characteristic for improving future NFT applications.
Asset forgery safeguards
NFTs can confirm valuable assets in sharing with data transformation and duplication. NFTs do not accept just the basic functionalities of blockchain with robust encryption. On the contrary, they can also enable promising safeguards against data forgery and unverified interchanges.
Expanding the use of paperless transactions
Furthermore, the storage of all data considering signatures and the individual in an NFT gives the range for paperless transactions. Enterprises are no longer curious about following excessive paper-based documentation. In addition, NFTs can also be helpful for individuals with their ‘paper-less’ benefit. Individuals who don’t need to lend documents for confirmation could take them in digital configurations. At the same time, they don’t agree with authenticity while assuring confirmation in real-time.
Risks in NFTs
Non-Fungible tokens are carrying huge money for digital creators. There are a lot of artworks sold online every single day. It is just feasible for a creator to earn millions in barely a few seconds when their NFT is sold in the digital space. It is also apparent that people are more enthusiastically buying, selling, and investing in the digital market than working the same in the physical market.
This lends huge growth to the possibility of cyberattacks and online fraud. There are great chances of risk to the digital assets and the investors buying and selling NFTs in the market. Though there is a huge potential for the NFT market, there are certain harms that one needs to assume.
Smart contract risk and maintenance of NFTs
The risk in smart contracts and NFT maintenance is the well-known one nowadays persisting in the NFT market. There are many strategies where hackers attack a Defi (decentralized finance) network and steal huge amounts of crypto. Recently, the most famous Defi protocol called the Poly Network was attacked by hackers, and $600 million was stolen in this NFT theft. The reason for that theft was that smart contract security was not sufficient.
Hackers successfully used the flaws in smart contracts to carry out such massive attacks on the Poly Network. The poly network is very beneficial for dealing with tokens on different blockchain networks. This tells us that even if there is a small flaw in smart contracts, we cannot predict complete security.
The main challenge in the NFT market is the uncertainty in inferring the price of NFTs. Now, the price of any NFT will rely on creativity, exclusivity, lack of buyers and owners, and much more. The prices of NFTs differ a lot as there is no fixed standard for a specific type of NFT. People cannot determine the aspects that can drive up the price of NFTs. This keeps the price volatility stable and the evaluation of NFTs as a major challenge.
There is no legal definition of NFT that is known in the whole world. Different countries such as the UK, Japan, and the European Union are proceeding with different approaches to classify NFTs. This makes it necessary to come up with an international body of non-fungible tokens to establish regulations and legalization all over the world.
The NFT market has seen considerable growth, and this is why it is important to have a regulatory body. The use cases of NFTs are showing huge growth. Now, it demands a regulatory body compatible with the rules and regulations of NFTs.The existing laws related to NFTs are still in the process of finding their correct definition. As the market and diversity of NFTs continue to grow, it is becoming increasingly difficult to come up with a solid basis for compliance in NFTs.
The popularity of NFT has also enhanced the possibilities of cyber threats to the NFT market. A lot of cases are visible where models of the original NFT stores are put up on the internet. These stores look accurate because of the original logo and content. These fake NFT stores are a vast risk because they might sell NFTs not even present in the digital world. On top of that, there are chances of false NFTs being sold on a fake NFT store.
Online fraud attacks
Another risk is where someone is imitating a famous NFT artist and selling fake NFTs. The risk of online fraud is vast due to copyright theft, fake airdrops, fake NFT giveaways, and replication of outstanding NFTs. Some people even facilitate such giveaways on social media to attain more interest. While they are facilitating NFT, some people are cheated at such fake stores.
Intellectual property rights
There should be a principle where artists can only show NFTs they own. It is not apparent to combine the NFT Marketplace with the traditional laws of property. There have to be new intellectual property rights such as the right to publicity, trademark, copyright, and moral rights for decentralized blockchain technology.
Challenges of NFTs
NFTs can be an important barrier for new entrants to the NFT market. While NFT marketplaces are user-friendly, content creators must pay a fee for the outcome and maintenance of NFTs. These charges are usually to be paid with cryptocurrencies in a digital wallet. NFT marketplaces are also popular for only certain types of digital content; Currently, for example, there are very few authors who sell their work in the form of NFTs.
Another grief point of using NFTs is the consequence of the cryptocurrency industry on the environment. Current mining practices for the most popular cryptocurrencies use proof-of-work procedures, which expect large amounts of energy from a powerful computer.
Use cases of Non- Fungible tokens
It tokenizes real-world artworks to facilitate authenticity and appeal ownership to the artist.
It allows validating the ownership information of luxury gadgets and accessories digitally to deduct counterfeit.
Licenses and certifications
It tokenizes licenses and certification to validate and protect the ownership of these documentations.
It offers various unique collectibles that feature unique algorithms and identities with added value.
It offers tokenized sports game tickets issued on blockchain and prevents counterfeit merchandise.
Name services and domains
It offers crypto addresses as Nfts where users can buy and sell Ethereum Name service.
It allows users to own, create and monetize virtual land and various virtual world elements.
It allows in-game elements or items to be tokenized and exchanged with other peers.
To Wrap it all up,
It is always important to know about a platform properly before using it. So by having some knowledge of the risks and challenges associated with non-fungible tokens, people can better understand the market and can buy or sell or make better NFTs. NFT experts say that although there is some risk in this platform, there is a lot of demand for NFT tokens.
Soon the market will rise and everyday new use cases are arriving. The NFT market is fascinated by the several benefits and the great profits that can be made. This outgrowth could have a huge impact and will be strong for the future of NFTs.