NFTs benefit all artists, not just musicians. They are not ready yet

This article makes a case that shouldn’t be needed. It claims that NFTs will benefit musicians, which isn’t a big 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 problems that have crippled the majority of current NFT platforms. These include technology issues described in “Smart Contracts: New Contract Creation Tools Required to Ensure Contract Transparency and Trust”, but more importantly a platform management issue documented in “NFTs and Financial Institutions: Planning an Implementation That Manages the Risks”.

The biggest problem is that companies building the new web3 infrastructure tend to believe that anonymity is a critical aspect of the platforms they provide, but 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 ensure the origin of NFTs, and finally, there must be a license that specifies who owns which obligations and how they will be managed.

I expect many will argue that all of this is provided by the smart contracts that automate the NFT environment, but smart contract technology and integration to the oracles that provide real-world input are not ready and cannot solve these problems. 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 among themselves. This makes it appear that the item is in demand. They then wait for an unsophisticated buyer to buy that NFT. This was done in such volume that an NFT platform with an honest CEO stopped operations.

While I recognize the need to improve the technologies that power NFT platforms, especially smart contract implementation, I am baffled by the resistance to implementing real-world governance features that would create a safe environment for participants. This would include appropriate user registration, written contracts specifying the obligations of each participant, and then implementing a platform that is properly monitored and managed. When this happens, NFT use will skyrocket, until then we will read about the criminal activity that these NFT platforms enable.