I want to buy a piece of art, so I go to an art gallery. The art gallery provides two different services:
- They guarantee that this piece of art was actually made by the artist (not a fake).
- They guarantee that I am buying the piece from its rightful owner, which may be the artist or someone else.
An NFT marketplace attempts to be the analog of an art gallery in the digital world. Now they have to solve those two problems if they want to have a viable business. Here is where the differences with a traditional art gallery begin.
An art gallery is exclusive and selective. They have a limited amount of physical space, so they will be extremely picky about what they sell. On the other hand, OpenSea can list as many NFTs as people will upload. From their terms of service:
“YOU BEAR FULL RESPONSIBILITY FOR VERIFYING THE IDENTITY, LEGITIMACY, AND AUTHENTICITY OF ASSETS YOU PURCHASE ON OPENSEA. NOTWITHSTANDING INDICATORS AND MESSAGES THAT SUGGEST VERIFICATION, OPENSEA MAKES NO CLAIMS ABOUT THE IDENTITY, LEGITIMACY, OR AUTHENTICITY OF ASSETS ON THE PLATFORM.”
And this is a problem:
What happened here? A random person (Alice) minted an NFT of a digital image. Alice listed the NFT on OpenSea. Alice’s NFT is not verified, so in theory it should be worthless. However, if someone buys it then OpenSea makes money. This means they have no incentive to take down unverified NFTs.
There is another problem highlighted by the above tweet. The artist believes that Alice stole the art. Technically this is copyright infringement, in the sense that Alice is making unauthorized use of the artwork. However, this is different from posting a movie online. If I torrent a movie and watch it, I enjoy the full value of the movie for free (assuming no difference in quality compared to a legit streaming). On the other hand, if I buy the random NFT I do not get the same value as if I had bought the verified one. That NFT is not scarce, and I simply paid for the service of minting an NFT of a random image (which I could have done myself).
A savvy artist (Bob) would completely kill the market for fake NFTs simply by verifying the public key of the NFTs he mints. He would use several independent channels, the same way it is done for all software that deals with crypto. Bob would even enjoy the free publicity brought by all the fakes of his work. In his YouTube channel he could say “if you like me and see a fake, please report it. My originals are all signed by me, my signature is below, and on my site, and in my Twitter profile. Verify it always. Don’t forget to like and subscribe!” Bob could even make and spread fakes of his own work to make himself appear more popular than he is!
Of course most artists are not this savvy, and this creates an opportunity. Ultimately a reputable NFT marketplace must Know Their Customer. They should not sell art that for which they cannot make the two guarantees above. In theory artists should boycott OpenSea until they have no choice but to eliminate unverified listings, but again this is a matter of incentives. An artist who makes NFTs wants to list them somewhere, and OpenSea is the most prominent marketplace today.
I believe ultimately this will find an equilibrium: on one hand, almost nobody will buy the worthless unverified NFTs. On the other hand, other marketplaces will arise. Finally, more artists will understand that these unverified NFTs do not really pose a risk to the value of their legitimately verified art. Finally, buying a legit NFT from an artist must be linked to a good or service that is actually unique and scarce. Creating that uniqueness and scarcity is the real art in this matter.