Non-fungible tokens or NFTs have been a concept since 2012. For example, the introduction of “Colored Coins” in 2012 could have laid the foundation for today’s NFTs, as this project demonstrated how the Bitcoin (BTC) blockchain could be used as a transaction mechanism for real assets.
Fast forward to 2017, a time when CryptoKitties became one of the most popular decentralized apps, or DApps, ever built on Ethereum. CryptoKitties was described in 2017 by Ryan Hoover, founder of Product Hunt, as “the first decentralized game based on Ethereum similar to Pokémon, in which users can collect and raise digital kittens”.
Unsurprisingly, as the adoption of cryptocurrencies increased, so too did the concept of non-fungible tokens. NFT sales exceeded $ 2.5 billion in the first half of 2021, demonstrating the potential of what appears to be a new business model for digital creators. As 2021 progresses, however, some in the industry believe that the original intentions behind NFTs have been blurred by the financial gains often associated with these digital collectibles.
Johannes Wolpert, TreeTrunk co-founder and head of research and development at ConsenSys Mesh told Cointelegraph what is doing NFTs are as exciting as they are problematic because people market them on financial terms. “There is a lot of money to be made from NFTs, but we have to wonder if we are talking about NFTs as stocks or if we really care about artists and their artwork,” he said. Although it’s impressive that artists like Mike Winkelmann, aka Beeple, won Million dollars in a single sale of NFT, Wolpert wonders how long these cases will last:
“What if a million dollar NFT sells for less than $ 1,000? There is no evidence that we are in a pattern that does not have the displacement effect. This leads us to the question of whether there is a model for real and sustainable business beyond the NFT hype. “
A license stream as a permanent business model for NFTs
According to Wolpert, there is currently no enduring business model behind NFTs as he believes most of them are financial projects that are likely to fade as the hype about non-fungible tokens subsides. Therefore, Wolpert believes in a structure based on a tiered marketing approach that will ensure a steady stream of income for NFT artists around the world.
Known as “Tree trunk base”, Wolpert stated that this will ensure buyers are selling a stream of income while eliminating the problem of “Double Spending” which occurs when digital media is played indefinitely without any variation. For example, although non-fungible tokens are considered immutable records on a blockchain, Wolpert found that they can be easily replicated. “If an NFT is an image, I can copy the token’s IPFS and put it on another blockchain. Double spending is alive and well in NFT land. ”However, by making an NFT a” log, “Wolpert stated that each owner or reseller of the artwork will have a unique and exclusive version that cannot be copied until sent to someone is sold to others.
Although it hasn’t been released yet, Wolpert announced that these will be created with the “Cryptolithography”, a mechanism that leverages privacy-focused zero-knowledge evidence: “With zero knowledge testing, NFT files are never viewed by anyone, not even the owner, but what an NFT looks like and whether the images were created from an original NFT artwork can be demonstrated.” . Similar to a family tree, Wolpert refers to the original NFT images as the “parent file”, while copies based on the original are referred to as “child files”. There can even be “grandchildren” files if enough copies are made.
Any artist can go through the verification process. This tool is important, according to Wolpert, because in the digital world, when the 1 and 0 of a work of art are revealed, it can be easily copied. That way someone else can claim to own the original work.
NFT Copyright Challenges
As for revenue, Wolpert mentioned that TreeTrunk NFTs could be sold in secondary markets like OpenSea, which explains that any reseller – including the original creator – receives copyrights when selling an NFT. “There is now a tree-like stream of income with the original artist acting as the trunk,” said Wolpert. While the concept behind NFT TreeTrunk is fascinating, several problems can arise. In particular, the idea of offering copyrights to the buyer can lead to legal problems.
Brett Harrison, The chairman of the crypto exchange FTX.US told Cointelegraph: Although the FTX-NFT market allows creators to receive royalties from secondary sales, the complexity arises when an artist makes an NFT look like an investment product. As such, Harrison noted that FTX will not endorse an NFT that may have a securities regulator: “We believe that when an NFT pays out a portion of the secondary royalties to all holders, it is more like a commercial agreement. Investment”.
Although the FTX-NFT market has chosen not to endorse buyers’ rights, it is important to note that the regulations remain unclear. In March, Hester Peirce, an agent for the Securities Commission, also known as “Crypto Mom,” warned that issuers of fractional non-fungible tokens and baskets of NFT indices could sell investment products.
However, it is too early to tell if the NFTs will convert into securities immediately. Dan Simermann, Iota Foundation chief financial officer told Cointelegraph that Most likely, what you need now is a lightweight framework that is as robust as current securities laws but does not hinder innovation:
“With blockchain technology it is possible for all digital ‘things’ to receive returns and rights, so we may need to rethink what it means to be a security at all or to acquire rights at all.”
Current NFT business models to ensure integrity
Cannons aside, Ensuring the integrity of NFTs is an important problem that needs to be resolved before defining the structure of an enduring business model. While TreeTrunk’s NFTs use zero-knowledge proofs based on the Baseline Protocol standard to ensure authenticity, other markets are pursuing different approaches.
For example, Harrison stated that the FTX-NFT market is taking certain steps to ensure that the NFTs being traded on the platform are authentic: “When the NFTs are generated, they are shipped with a number of creator addresses that ensure that the original creator is the one check his work can, for example, sign a transaction in Solana. “ And he added, “Unless you are a creator and you have control of another creator’s wallet, you cannot authenticate as that user. Nobody can pretend to be someone else’s wallet. “
While they do, Harrison is aware that people can still make copies of JPG images. To solve this problem, Emily Poplawski, The COO of Metaplex Studios (a wallet solution from NFT) told Cointelegraph that some platforms use human verification for NFTs. Poplawski, for example, noted that DigitalEyes’ NFT Marketplace for Solana allows verification of NFTs with a blue check mark, similar to Twitter’s. However, Poplawski noted that these solutions are not yet perfect and are prone to liability errors:
“The NFT business model is still emerging and we are experiencing a lot of experiments. Today, however, has marked a turning point for thousands of people, canceling student loans or writing $ 100,000 checks to charity are quite common in this brave new world of financial empowerment made possible by decentralization.