This article makes a case that shouldn’t need to be made. It argues that NFTs will benefit musicians, which isn’t a huge surprise given the author is Matt Waters, founder of Unchained Music, a free music distribution project based on NFTs. NFTs will ultimately benefit all artists and collectors, not just musicians.
But while Matt discusses technological issues and how the politics of the music industry treat musicians unfairly, he fails to identify the two key issues that have crippled the majority of current NFT platforms. These include technology issue which are detailed in “Smart Contracts: New Contract Creation Tools Required to Ensure Contract Transparency and Trust”, but more importantly a platform management issue which is documented in “NFTs and Financial Institutions: Planning an Implementation That Manages the Risks”.
The major problem is that companies building the new web3 infrastructure tend to think anonymity is a critical aspect of the platforms they deliver, yet nothing could be further from the truth. There are three pillars required in any NFT platform that will scale and protect participants. First, anonymous participants must be eliminated, second, there must be a mechanism to assure the provenance of the NFT, and lastly there needs to be a license that spells out who owns what liabilities and how they will each be managed.
I expect many will argue that all of this is delivered by the smart contracts that automate the NFT environment, but smart contract technology and integration to the oracles that provide real-world inputs are not ready and can’t address these issues. For example, when anonymous actors are allowed to register, buy and sell NFTs, the platform becomes a magnet for criminal activity. Criminals will register items and then kite the value by buying and selling the item between themselves. This makes it appear to item is in demand. They then wait for an unsophisticated buyer to acquire that NFT. This was done in such volume that one NFT platform with an honest CEO suspended operations.
While I recognize the need to improve the technologies that operate NFT platforms, especially smart contract implementations, I am baffled by the resistance to implement real-world management functions that will create a safe environment for participants. This would include appropriate user registration, written contracts that spell out the liabilities of each participant, and then the implementation of a platform that is properly monitored and managed. When this happens, NFT usage will skyrocket, until then we’ll be reading about the criminal activity that these NFT platforms enable.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group