Balancing the money sheets, enhancing the security, following every possible regulation, and still losing millions of dollars, The NFT industry has been proven one of the most volatile sectors that deals with a plethora of technical, non-technical and legal problems. There are some problems that can be eradicated using simple yet effective solutions, However there are some rare risky challenges that affect the performance, operational efficiency, and scalability of a NFT platform. We will have a look at those challenges and risks shortly but first let’s shine some spotlight on the fundamentals of the NFT marketplace.
What is a NFT Marketplace?
The Blockchain Industry has been seeing a lot of attention since the day it was unveiled how profitable it could be for daily life operations. From transactions to enterprise mobility, blockchain has led numerous innovations that have surfaced from the past few years.
There are two types of blockchain networks or you can say platforms if we are talking about NFTs: Private and Public. The NFT was introduced in late 2014s but the topic got its spotlight of practicality in the early 2017s. We all know NFTs are non-fungible tokens that can be used as digital assets and can be traded between two parties. The trading platform here is known as a NFT marketplace, a public or private blockchain based platform that allows the artist to showcase their digital assets and buyers can place the highest bid to buy and trade those assets for a particular price.
The reason for explaining the above topics was that more than 70% of Americans have no clue regarding NFTs. Instead the top 5 nations that have the highest adoption rate for NFT are all Asian countries. And the collectible market as well as the community is expanding at an explosive rate. In the month of February, 2023 the NFT sales saw a profitable phase with an increment of 41.96% and sales reached an all time high of $1 billion. There are NFTs worth $69 million being bought and sold on the platforms. Every point of interest signifies that the NFT market has seen its fair share of ups and downs.
One can say the NFT marketplace is an amalgamation of numerous things, factors, and aspects. These things are efficiently divided into particular technical, non-technical and creative categories. Developing and running a marketplace requires the implementation of business strategies, researching scaling ideas, and adapting sustainable methodologies. They assist through various stages and enable the growth of your NFT business to reach global audiences.
Here we have created a list of technical and legal issues that one may face while running an online marketplace for NFTs. The list goes through some of the common and few rare problems that could disrupt your business maturation.
What are the Technical Challenges for the NFT Marketplace?
The platform deals with a plethora of money and digital assets, hence there are features and functionalities that need to be addressed to enhance security, increase the operational speed, and allow a seamless user experience.
Cyber Threats and Security Concerns
From infiltrating cloud storages of NFT platforms to steal token amounts to even setting up a dummy market place to lure huge investors, hacktivists have been able to disrupt the growth of these NFT platforms through numerous ways and against-the-law movements.
NFT tokens became popular in 2021 and so their platforms were seeing millions of daily visitors. This put extreme pressure on the handlers of the platforms to make it secure and avoid any sorts of thefting practices. But in 2022 it was recorded that the NFT industry has seen around 182 heists and a whopping $100 million dollars of NFT has been stolen from various platforms. This was all due to poor security fundamentals. Despite being created on blockchain platforms the site founders and owners have failed to resolve issues that could jeopardize the data of users.
This creates a massive reliability gap that is hard to fill. There has been a massive surge in general tech and massive tech too. The 21st century has seen some of the most innovative advancement, some of it being simple yet effective i.e. multiple factor authentication, two-part copy detection system, anti-fraudulent monitoring system, etc. Yet the difference between the skill and technology is massive according to some experts which eventually results in poor quality and standards of software solutions.
Price Evaluation and Payment Problems
One of the most overlooked challenges is determining the price of the particular digital asset. The highest bidding practice is currently a downfall to the overall financial ecosystem of the NFT market. The price of any NFT depends on the uniqueness, the technology used, skills of the artist and even fame perhaps. Each parameter affects the price in distinctive ways and hence evaluating the price is a major problem. There is no equality and by market manipulation scammers are getting away with millions of dollars in hands.
Talking about money, each crypto asset and digital currency has its own unique feature which creates a loop hole to establish a comprehensive mode of payment. During the Covid-20 period due to physical limitations the global payment revenue reached $1.9 trillion dollars. This made a clear freeway for NFT to establish a robust financial system but was it robust enough? I mean sure it helps to monitor bank frauds, money flow, and act as an anti-money laundering system, but on the fundamental basis it is just a digital system. Not to overlook the UN office of drugs and crime reported that the money laundering cases increased after the pandemic reached an all time high of $800 million to $2 trillion dollars on a year-on-year basis.
Maintenance and Monitoring issues
Lastly, one of the most common and toughest challenges to overcome for every IT development company is maintenance of the marketplace. Closely associated with the cyber threats it is not quite easy to maintain an NFT marketplace. There is massive flow of data, money flow, graphically intense visuals, and users which require high standard software systems for storing, processing, and monitoring that meta-information.
If you have a poor blockchain development framework and irresponsible experts who are irresponsible, chances are you might get that data on your NFT marketplace compromised. DeFi (Decentralized Finance) is still in its development phase which clearly indicates that there are vulnerabilities that could be exposed to hackers. Poor contract protection, lack of expertise in Quality assurance, and insubstantial features could lead to massive NFT scams. These unrecognized issues can result in the downfall of your NFT and Crypto business.
What are the Legal Obstacles NFT Marketplace?
NFT is a distinguished concept which has its own share of uncertainties and ambiguities. There is no particular definition for NFT as it has numerous scaling qualities. Sure we consider art, music, gifs, memes, videos, collectibles, and virtual avatars as an example for NFT in today’s world but the future is unknowable and the list could go on forever. Did you know that Jack Dorsey sold his first ever tweet as an NFT for $2.9 million dollars. Fundamentally it allows us to explore some of the legal problems such as ownership, intellectual property rights, taxation, and even Anti-money laundering.
Intellectual Property Rights
There has been a diversity in opinion when it comes to adopting NFTs marketplace. Few countries are ready to implement their strategies and go full berserk with the industry, However there are some countries who are still forming regulations to categorize it. The rules are likely to be subjected to impersonation and fake NFT marketplace. Yes! Scammers are able to create an entire dummy NFT marketplace or an impersonation of a unique NFT. One of the examples is 2021: Evolved Apes scam where scammers stormed the market with 10,000 unique digital collectibles. After successfully selling the unique apes the developer disappeared with 789 Ether which is roughly equivalent to $2.7 million dollar.
An unregulated space is the worst enemy for buyers and sellers that does not verify intellectual property rights. Every NFT needs to be transferred on a unique ledger that is governed by smart contracts. Using a separate platform for illegal NFT sales is becoming a trend as the security regulations for the dedicated platforms tighten. Counterfeiting the NFT falls under the same category of scams too as it allows the scammer to sell a no-value digital asset at a premium price, here the buyers are not aware of the consequences as they are being attracted towards the promoters by lucrative methods of discounts, premium membership, and other eye-catching features.
Taxation and Money Laundering
Acknowledging the rise of NFT marketplace and digitizing of intellectual properties there are countries who have decided to impose tax on them. The tax deduction on cost of acquisition ranges from 12%-30% depending on the countries you are operating. But there is an issue: the center authorities have not made it clear about the taxation policies which puts the buyers and sellers in a state of confusion. Due to the taxes the prices skyrocket leaving no choice for the buyer and seller but to withdraw from the platform.
Money laundering and art have had a robust correlation with each other since ancient times. Wash trading is a concept introduced by launderers to destabilize the financial ecosystem for the NFT market. They increase the price by getting involved on both sides of the deal. Making a dummy wallets that is associated with the NFT marketplace even increases the reliability. The seller executes a repeat of increasing the price of the NFT through multiple methods resulting in an unexceptionally higher value.
Imagine using a wallet that does not require the verification, not make multiple wallets and increase the selling price of the NFT, buy it from another wallet the price you want to wash, Voila! Now you have clean digital cash but the platform has to deal with magic money. Magic money on layman’s terms is just digital money that does not add up with the whole transaction and balance sheet of your platform. It makes you the perpetrator and holds you on the account of a money laundering case.
How can you overcome them?
We talked about all the legal and technical issues that could disrupt the performance of your marketplace. Do not worry we are not going to be the devil here and leave you with those explosive facts and information. Here is the small dose of copimum (Coping Mechanism) for you:
Representing ownership of unique digital assets requires rigorous technologies and scalable tools. The technologies identify every major and minor setbacks to overcome technical problems such as:
- Poor Maintenance
- Unfair data trading
- Cyber Threats
- Low quality responsive designs
- Non-secure security systems for payments
There are many more issues which need to be addressed for increasing the flexibility and scalability of your platform. Points such as:
- Figuring out the number of features and functionalities to include.
- Prioritizing the security of the user and their data through multiple signatures, smart contracts, high-standard multi verification.
- Deciding a business model, choosing between tokenization with cryptocurrency or minting with flat currency.
- Increasing and creating awareness for the community to create a sustainable model.
- Establishing a R&D as well as Support and Maintenance service to let the user rely on you for scalability and tech expansion.
The experience and legal expertise these legal consultants bring to your table make a huge impact on what is your brand perception. Experts in NFT related business helps you to revamp your business model and prioritize your users secure experience too. Providing service to eradicate problems with below mentioned services:
- Intellectual Property planning
- Taxation and Wealth management
- Virtual Real Estate planner
- Copyright problems
- Defending NFT fraud victims
- Data protection and Legalization services.
Look it ain’t a wonderful world made of peaceful people sitting on their computer and breaking bread. Running any business requires an impenetrable POA and robust development standards just like a Blockchain, well that’s interesting. Including a team of blockchain developers or consulting a blockchain development company is the best way to assess the technical challenges and legal issues. These challenges are like malicious codes altering the way your NFT marketplace operates and hinders your possibility of growth.