In recent years, cryptocurrency and cryptoassets have exploded in popularity, with talks of mining, blockchains, and crypto wallets bursting into the mainstream financial scene. Most notably, Non-fungible Tokens (NFTs), a type of cryptoasset, have caught the attention of investors.
Despite being around for quite some time, NFT as a service had only grown in popularity during the COVID-19 pandemic. This is in part due to people spending more time on the internet as well as the prospect of owning significant digital collectibles with big investment returns. Recent market volume suggests that there was a 2,100% increase in NFT spending during the first quarter of 2021 compared to the fourth quarter of 20201.
This unprecedented interest in NFTs shows the need to further understand its economic and cultural impact to maximize its full potential.
What is an NFT? NFTs or Non-Fungible Tokens are digital assets bought and sold online using cryptocurrencies. Unlike fungible assets such as the physical bills and coins in our wallets, NFTs, with their digital nature, are encoded with unique digital properties that make them distinct from one another. They can also be used to digitally represent real-world items such as digital artwork, music, or video, among others. This separates non-fungible tokens from online files that can otherwise be easily duplicated, as NFTs provide exclusive ownership to those who acquire them.
The transparent distribution of NFTs is possible because these tokens are supported by blockchain, the same technology used to record transactions made with cryptocurrencies like Bitcoin or Ethereum. This digital ledger allows for the decentralized distribution of digital assets instead of copying or transferring them, with changes being recorded in real-time for everyone to access. This subsequently makes trading valuable data such as NFTs and other cryptocurrencies safe and secure.
Much like owning a valuable piece of art in the real world, NFTs have made it possible to own and authenticate digital artwork. This, in turn, paved the way for the creation of NFT art marketplaces, where these digital assets are sold, bought, and traded.
In a report made by ConsenSys, NFTs account for 10% of the global art market sales2. This undeniable growth is attributed to the pandemic eliminating revenue activities for most artists and sparking them to monetize their work, tapping into the NFT market and NFT platform services.
Aside from generating revenue, the allure of NFT marketplaces lies in the removal of traditional middlemen. Artists now have sole control over the sale, display, and transfer of their work. Collectors also see the potential of supporting budding digital artists, creating a sense of ownership of early works that may grow in popularity in years to come. Some of the most popular NFT marketplaces include OpenSea, Rarible, SuperRare, Async Art, MakersPlace, and Nifty Gateway3.
NFTs have reached the gaming space as well, as video games in play-to-earn and player-owned virtual spaces, also known as “metaverse,” become more popular.
Just this year, a crypto-based game project called Axie Infinity has fueled the blockchain gaming craze, most notably in Southeast Asian countries, particularly Vietnam and the Philippines. Developed by Vietnam-based company Sky Mavis, the game lets players participate in turn-based virtual battles with teams of cartoon monsters called “Axies” that the players collect and look after themselves. By winning these battles, players get to earn in-game currency, which can be sold on open markets in exchange for real money.
The game is now trading at a $7.8 billion market cap and $34 billion diluted market cap, while its native token AXS catapulted to $29.5 billion, making it one of the top NFT games today4. This all led to the rise of other NFT games following the play-to-earn model such as the highly-anticipated Kryptomon, which launched in October 20215.
Play-to-earn has fueled the gaming craze most notably in Southeast Asian countries like Vietnam and the Philippines
As NFT games grow in popularity, apprehensions surrounding policy and the player experience remain, especially among mainstream gaming platforms. Steam, a leading PC gaming software distributor developed by Valve, completely banned gaming software using blockchain technology from its catalog, following a recent change in the platform’s policy. Meanwhile, one of its competitors, Epic Games, has since expressed that it is open to introducing NFT games on their platform6.
Travel and Tourism
With NFTs making a buzz in the art and gaming world, it’s only a matter of time before other industries take notice of its wonders. While the potential of NFTs and the blockchain technology has not been fully embraced in the travel and hospitality space just yet, experts believe that it will soon be incorporated into the traveler experience.
Travel companies are now looking into utilizing NFTs to provide vaccination proof for travelers during the pandemic. Meanwhile, airline and sports companies are exploring the idea of using NFT tokens as “digital keepsakes” for travel destinations7.
With NFTs’ capability to authenticate one’s ownership, it poses a huge potential to possibly address security and theft issues—problems that have long been prevalent in the industry.
User-generated content now accounts for a significant volume of the internet’s content. Social media has allowed creators, brands, artists, and any other user to share their content and connect with their network. NFTs are breaking barriers in the user-generated content economy as content creators gain more control and ownership over their work. Generating $10.67 billion in trading volume in Q3 2021, the NFT space increased 704% from the previous quarter, according to DappRadar’s Q3 2021 Overview Industry Report8.
From Grimes earning $6 million from her WarNymph collection to Eminem making his mark on the NFT industry when he released his Shady Con NFT—more social media influencers, artists, and brands are using NFTs to better connect with their audience and deliver the content that they are looking for9.
Blockchain technology, which is the backbone of NFT as a Service, is known for its inherent security challenges. Reports of fraud and data breaches show the vulnerabilities of NFT art marketplaces and the need for strengthened trust and safety measures on these platforms.
Several artists have taken to social media to express their frustration on some NFT service platforms. Many claim that their digital artwork had been minted as NFTs and listed for sale without their permission. Since anyone can mint any digital content without owning copyright, NFTs can also be listed in marketplaces without actually being the owner. This act of modern-day theft makes this market ripe for fraud.
NFT platforms work based on a “trust” system in which the people minting are the actual owners of these pieces without the extra layer of verification. Since NFTs are not highly regulated, most platforms do not have the policies and capabilities to authenticate users and verify ownership10. This makes it easy to steal artworks from unsuspecting artists.
Individual accounts are also prone to data breaches and hacks. Just recently, several users of a digital art online auction platform for non-fungible token art reported that their accounts have been compromised, leading to fraudulent purchases and stolen NFT tokens11. While most of the hacked items were returned, questions of data security surfaced for these platforms.
To buy and sell cryptoassets, one must first have a crypto wallet. Some NFT marketplaces already have their built-in crypto wallet, making it easier for users to buy and sell crypto-collectibles. However, this user-friendly feature also poses a threat. As providers, NFT platforms have a record of all private keys, which essentially act as a password to open the crypto wallet. Anyone who gains access to these private keys can potentially open the wallet without being the actual owner of the account.
To combat these fraud and data breaches, constant content moderation and strong trust and safety policies must be implemented. As financial criminals become more creative with their methods, so should the innovation behind the system and processes of these NFT service platforms.
Artificial Intelligence (AI) and Machine Learning (ML) are streamlining the process for creators’ use of NFTs and selling of their digital artwork. They give artists more room to express their creativity with various virtual assets, more unique design features, or exclusive accessories which aren’t available elsewhere12.
Fetch.ai, an AI lab based in the British city of Cambridge, announced the launch of its new NFT platform, Colearn Paint, which will allow creators to automatically generate NFTs using an ML algorithm. The platform uses a trained ML model to create randomly generated abstract art that would be collectively owned13.
NFTs are usually made through a two-step process: First, the creators carefully design their digital artwork, then they mint it through the help of their preferred NFT marketplace. But with Fetch.ai’s Colearn Paint platform, it can automatically generate NFTs for creators using its advanced ML algorithm.
Groundbreaking Alethea AI, the creator of intelligent NFTs or iNFTs, has created a virtual being named Alice using AI technology. She can have rich conversations with people, and they use NFT technology, which is based on the transparent and secure blockchain digital ledger, to ensure that she is a one-of-a-kind creation14.
But with numerous digital artworks being released every year, it’s almost impossible to trace the original artist of a particular artwork. Even though blockchain technology can help identify those who bought and sold it, how do we verify that the replications being made are worthy?
With the emerging challenges in the space, platforms need partners who can go beyond execution and help to set policies and processes to keep their customers safe. At TaskUs, we understand the importance of safeguarding platforms and their customers’ assets and data. We believe that many of the best practices that we have developed through a decade of Trust & Safety work for leading social, dating, gaming and retail companies can be adapted for the unique needs of NFT marketplaces:
We believe in the importance of humans and technology in driving excellent results, and we ensure that the humans behind our processes are knowledgeable, competent, and empowered through comprehensive training and wellness programs.
TaskUs has been in the crypto space since 2017, when we began our partnership with one of the largest cryptocurrency trading platforms in the market. And we have a strong pool of Teammates globally supporting four of the world’s most disruptive crypto companies.
Our agility, flexibility, and commitment to quality have been key to providing world-class support for the world’s most disruptive FinTech businesses. Reach out to our team of experts today.