Centralization is Crippling — The Industry Needs Decentralized NFT Marketplaces
By Deepanshu Tripathi, founder of AssetMantle
Mike Winkelmann, a.k.a. Beeple, sold his NFT-artwork — “The First 5000 Days” — for a whopping $69.3 million in early 2021. Besides placing Beeple among the world’s most valuable living artists, this feat cemented NFT’s position as a digital collectible.
The average price of Bored Ape NFTs is around $150,000 currently, with some of them selling for a couple of million dollars. On the other hand, CryptoPunks, a collection of 10,000 unique NFTs sell for $350,000 to $500,000 on average while the most valuable one is over $23.7 million. And as many such innovative projects swarm the NFT market, collectors are willing to invest hundreds of thousands of dollars. Thus, in 2021, NFT sales topped $40 billion.
But despite the stunning figures, there’s one significant problem. Most existing marketplaces use centralized databases for the creation and storage of NFTs. Although these platforms appear highly accessible and sustainable, which is also partly true, they have various shortcomings. For example, collectors who spend a fortune to own NFTs usually don’t become the true owners of these assets.
Centralized NFT Marketplaces – Where Owners Don’t Own
The popular marketplaces mostly run on decentralized, public blockchains. The NFTs minted on these platforms are also stored on these networks, offering collectors a sense of decentralization and ownership. But what happens behind the scenes is a different story altogether.
NFTs represent artwork or music, for example, on the blockchain. These documents usually have large file sizes, making on-chain storage outrageously expensive. Thus, even when marketplaces store the actual NFT tokens on-chain, they are compelled to choose off-chain storage for the associated files and documents. In other words, while the representative asset remains on-chain and is decentralized, the real value remains off-chain and centralized.
In March 2021, Jonty Wareing looked deeper into this matter. He discovered that most existing NFTs either point to some Web2 URL or an IPFS hash, indicating centralized storage. For example, although Beeple’s $69 million NFT is represented on Ethereum, the actual image lives in MakerPlace’s Private Gateway.
Disguised centralization of this kind is alarming and poses severe threats. If, say, the MakerPlace gateway is ever shut down, the individual owning Beeple’s NFT will have their keys alright but not the actual image that gives the asset its value. Moreover, centralized databases entail several risks in general, including loss, theft and censorship. Interoperability is also limited, and so is transparency.
Every NFT marketplace existing today suffers from the above problems more or less. So, neither creators nor collectors enjoy genuine ownership when it comes to NFTs. They are merely at the mercy of centralized platforms and databases that can shut down at any moment. Moreover, these databases have a single point of failure which makes them easy targets for hackers. They also discourage cross-chain trades, confine NFTs to a single chain and fragment the global NFT market.
Popular NFT marketplaces are unsustainable in the long run because of their shortcomings. And in this sense, centralization cripples the prospects of NFT technology. Promoting decentralized marketplaces is thus the viable and necessary alternative, a permanent solution.
Towards Genuine Ownership, Through Decentralization
NFT marketplaces must find a way around centralized solutions for individual users to experience genuine ownership and security of assets. Considering the factors mentioned above, the obvious solution is to facilitate on-chain storage for the keys and files associated with NFTs.
We can achieve this purpose using application-specific chains. Each NFT marketplace can have an independent blockchain-based network. And by connecting these to a core chain, it’s possible to build scalable frameworks with on-chain data storage for individual marketplaces.
Besides enjoying genuine ownership, users can securely mint and trade NFTs across application chains. There aren’t any single points of failure, thus the risks of hacks and theft are minimal. Deplatforming is no longer a concern either since a globally distributed network maintains the files, rather than a centralized entity. The arrangement is also inherently interoperable, helping create a composable NFT market.
Moreover, application-specific chains circumvent the problems of network congestion and high transaction rates, allowing users to trade at minimal costs. Such architectures also enable developers to deploy chains and NFT marketplaces without extensive coding experience. And finally, NFT creators can go beyond art and media to tokenize real-world assets like real estate, commodities, debts, and precious metals.
Reality or Utopia? – The Practicality of Decentralized NFT Marketplaces
So much for how innovative architecture can transform NFTs and NFT marketplaces. But is this achievable in reality? Yes, it is. AssetMantle is already implementing it to provide a multi-tenant, decentralized marketplace where users can buy, sell, and trade NFTs. It also offers a toolkit or middleware helping developers build NFT exchanges and marketplaces.
The users’ community owns and governs this MantlePlace, giving individuals full ownership rights. It also supports interchain NFT trading. And the marketplaces built using the middleware are all connected to the core AssetMantle modules, allowing interoperability between chains.
Overall, marketplaces like these help overcome fears and problems associated with NFTs, unleashing the full potential of digital collectibles. NFTs started out as a way to tokenize art and multimedia, opening new doors for digital creators. However, recently, digital collectibles found various use-cases in industries like finance, real estate, healthcare, insurance, and supply chains.
In all these sectors, the value of the underlying assets is immense and users cannot afford to lose them to centralized authorities or cyber-attacks. Protecting users and their assets by providing decentralized solutions is the way forward. And platforms like AssetMantle will, in the long run, create the much-needed safe haven for individuals to mint, own, and trade NFTs.
About the author:
Deepanshu Tripathi is the founder of AssetMantle, a multi-tenant NFT marketplace framework that enables creators and collectors to securely mint, own, and trade digital assets on its fast-finality blockchain. He also co-founded Persistence and has been a key contributor towards the development of pStake and Comdex. Among his notable works is his contribution towards the development of interNFT as a metadata standard for NFTs. This is now being adopted by AssetMantle.