The NFT market is already centralized
One of the problems that non-fungible tokens (NFTs) claim to solve is the idea of “platform risk”. Buy an in-game add-on for a video game and your purchase really only exists on the publisher’s platform; the files are hosted on the company’s servers until the game is retired, at which point everything disappears into the ether.
In contrast, NFTs interact directly with a blockchain, which means that every computer on the network keeps a full record of what is actually happening with the files. No company is responsible for data storage; the idea is that if one front end collapses, another can intervene.
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But there is a difference between how decentralized systems are supposed to work and how they work in practice. In fact, the market is already very centralized.
Take NFTs on the Ethereum Network: Foundation, KnownOrigin, Nifty Gateway, Rarible, SuperRare, and Zora are some of the major markets vying to become some sort of eBay Web 3, but as any NFT enthusiast will gladly admit, it doesn’t. There is only one site that is even close to getting there.
That would be OpenSea, the site backed by venture capital firm Andreessen Horowitz which was valued at $ 1.5 billion last summer. According to blockchain data aggregator DappRadar, OpenSea has facilitated more than $ 600 million in transactions since last Monday. SuperRare, the next comparable market on the list, recorded a trading volume of $ 6 million during the same period.
Part of the reason for owning OpenSea is that it is more of an ad aggregator than a gallery. While platforms such as Foundation and SuperRare only support exchanges with specific, organized NFT collections, OpenSea supports a much wider range of projects. You cannot trade NFT SuperRare on Foundation or NFT Foundation on SuperRare, but you can trade both on OpenSea. (Rarible has the same kind of flexibility between projects, but is not as popular.)
OpenSea is also a bit more lawless than Foundation and SuperRare, both of which are trying to build a reputation as a digital art trade. OpenSea is where you go for your Lazy Lions, your Bored Apes – the more artistic stuff tends to start on other platforms before it finds its way to the OpenSea aftermarket.
As a few posts pointed out last week, OpenSea briefly hosted a collection of Hitler-themed NFTs, which were created using the Marketplace’s own model. (Sophisticated developers can code their own NFTs, but anyone can just opt for OpenSea’s “Shared Storefront” smart contract, which simplifies the process with a convenient interface.) And while the site has done away with the tokens, the smart contract remains online on the Ethereum Blockchain.
That’s the other side of the platform risk issue – the prospect of “uncensored” news. Because this data lives on the blockchain, not on OpenSea, any developer in love with Hitler could simply create a front-end that specifically supports these tokens. Hitler tokens haven’t even disappeared from all major markets; they are still available to view on Rarible, along with their accompanying original description, which refers to Hitler as an “anti-hero”.
Two major centralized crypto exchanges, Coinbase and FTX, just announced their own NFT markets last week, which will undoubtedly bring more moderation to the market. But top-down moderation is controversial in the more libertarian corners of crypto. We can probably all agree that Hitler-worshiping NFTs shouldn’t be sold on the open market, but is giving individual platforms that kind of stealth a slippery slope?
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To that, I would say, the reality is that these platforms already have that discretion. The vast majority of NFTs go through OpenSea, a private company that is clearly prepared to make these kinds of calls. Open markets tend to become centralized in technology. This is true for Web 2, where Amazon and Microsoft have come to dominate, and it is true in the NFT market, at least so far.
I think there is a good chance that the Coinbase and FTX marketplaces will accelerate this trend, attracting more potential traders to centralized systems. Over 2.3 million people have already joined Coinbase’s NFT platform waiting list, no doubt thanks to the company’s cachet in the crypto sector. And FTX has the advantage of working with the Solana blockchain, which does away with Ethereum’s prohibitive fee system.
Decentralized computing doesn’t require a decentralized market structure, as Coinbase, FTX, and others have proven. The trajectory of the NFT market could also confirm this.