How AI is changing the NFT market: opportunities and risks

by James · May 30, 2023

An increasing number of innovative use cases are contributing to the exponential growth of the global non-fungible token (NFT) market. According to BlueWeave Consulting, this market is set surpass $20 billion by 2028, compared to $4.36 billion in 2021.

The versatility of NFTs has been instrumental in their adoption, with new use cases emerging rapidly. Originally conceived as tokenized works of art, NFTs have now become popular in gaming and real estate, among other fields. They are even used to create educational certificates by institutions such as the University of Nicosia.

In fact, the NFT market continues to expand as new standards, such as BRC-20, are implemented. The BRC-20 standard allows the creation of Ordinals, NFTs built on the Bitcoin network, which was unthinkable before. To add to this, AI has made its way into the NFT world, opening up even more possibilities for the future.

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Artificial intelligence and the NFT market

The impact of AI in the NFT market cannot be overlooked. The technology enables artists to create unique and valuable NFTs by generating images, videos and even music. Authentication is also made easier with AI, which can quickly verify the origin of NFTs and ensure that buyers are investing in authentic digital assets. With its ability to effectively analyze trends and data, AI also opens up new possibilities and opportunities for NFT creators.

Platforms such as Crayon and Midjourney are being used as generative AI tools to create NFTs in today’s world. NFT projects created using AI tools include Entropy Cards by NA1, The Artsy Monke Collectionand Bottom project.

Opportunities arising from AI in the NFT market

The intersection between AI and NFT offers many opportunities to create improved products for end users. Below are just a few examples:

AI-based recommendation for a better user experience

NFT discovery and the user experience can be transformed through AI-based recommendation systems. How? By suggesting NFTs that match the user’s taste for starters, they save time and eliminate the need for manual searching.

In addition, these recommendations can be linked to trending NFTs and those with the most favorable floor prices, resulting in cost savings for the user. The integration of AI-based recommendation systems offers a huge opportunity to elevate the NFT discovery process.

AI-powered valuation and price discovery

NFT valuation and pricing can be significantly improved with the use of artificial intelligence (AI). By analyzing sales data, AI can recognize valuable insights and patterns that can be translated into accurate AI models that help predict future prices of NFTs.

By streamlining and automating the valuation process, AI can greatly benefit NFT owners and investors in making informed decisions. Although it does not use AI, is an excellent example of this Rarity toolwhich analyzes historical sales data to identify patterns and trends in NFT prices.

AI-powered content creation

Artists can now automate the process of creating and selling NFTs using AI. By training models on datasets of images, videos or music, artists can generate new content similar to what they were trained on. A similar approach is utilized by the platform Art blocks, which simplifies the process for artists to create and sell generative art. Generative art refers to art created by AI algorithms. With the potential to save artists both time and money, the inclusion of AI-generated content has the potential to revolutionize the NFT market.

AI-enhanced security and authenticity for NFTs

AI can improve the security, authenticity and trustworthiness of NFTs by using fraud detection algorithms. By analyzing vast amounts of transaction data across blockchain networks, machine learning can identify patterns or anomalies that indicate fraudulent activity, and protect users from fraud such as fake auctions or unauthorized reselling. In addition, AI-powered systems can flag suspicious behavior related to user accounts or stolen digital wallets containing valuable assets such as rare artworks sold as NFTs, and alert owners if someone tries to access these wallets without authorization.

Increased revenue generation

One way is to track market trends and customer behavior so that artists can exploit popular patterns. This can range from analyzing the most sought-after collectibles to supporting artists in designing unique, one-of-a-kind NFTs that will drive sales. Traders can also leverage this to make better trades and earn more profit. Another use for artificial intelligence involves the use of image recognition models to improve design, which can increase sales while expanding into new markets such as gaming assets.

Risk associated with artificial intelligence in the NFT market

While AI can greatly benefit the growth of NFTs, there are equally legitimate concerns to keep in mind. Consider the following potential drawbacks:

Bias in AI algorithms

The development and use of artificial intelligence (AI) faces a major obstacle in the form of bias. AI systems rely heavily on the data they are trained on, and biased data will inevitably result in biased decisions. This also affects the creation of NFTs, which can also be biased.

The bias in AI algorithms trained on a particular race, such as Caucasians, translates into the type of NFTs produced, which may not appeal to other races such as Asians and Africans.

Different access to AI technology

The rapid integration of AI technology and NFT platforms has the potential to widen the gap between the haves and have-nots. While AI offers an exciting opportunity to create unique NFTs, its uneven distribution may mirror the uneven access to the internet worldwide.

In addition, the necessary infrastructure, such as a stable power supply, is often lacking in many developing countries. This further exacerbates the situation, preventing creators from these regions from utilizing the full capacity of AI-based NFTs, which could further strengthen the dominance of privileged individuals over the NFT creation space.

Copyright and plagiarism issues for AI-generated NFTs

As AI systems continue to become more sophisticated, there are growing concerns about potential copyright infringement. If an AI system is trained on copyrighted data, it can unknowingly violate copyright laws, putting companies at risk of legal action. Although there is still legal uncertainty surrounding this new issue, new laws may soon be implemented to address these concerns, underscoring the need for companies to stay current on their legal obligations.

AI-based market manipulation

Unfortunately, some unscrupulous market participants may attempt to exploit AI to manipulate the NFT market, artificially inflate prices or create panic by spreading false information. These actions create an unfair advantage for select investors and contribute to an unpredictable market as NFT prices fluctuate for no good reason. Furthermore, these activities pose a serious reputational risk for the project or the dealer if they are exposed.

Vulnerabilities in AI-powered platforms, privacy and data security

AI systems collect personal data to train algorithms and make predictions. Integrating AI with an NFT platform poses a risk: the organization that owns the tool can misuse user data without consent. This can lead to unwanted services being offered to users, thereby compromising their privacy.

Again, since the relationship between AI and blockchain platforms remains in the early stages, there is an increased risk of vulnerability for users. This can lead to data breaches, where user information is illegally accessed from NFT marketplaces, and vulnerabilities in smart contracts, where hackers can exploit technical loopholes in a smart contract to steal NFTs.

Conclusion

Artificial Intelligence (AI) is poised to revolutionize the Non-Fungible Token (NFT) market. By customizing user engagement, AI can improve the customer experience on NFT platforms. It also enables creators to produce more complex and sophisticated artwork or assets for trading as NFTs.

However, there are several risks associated with the implementation of new technologies such as AI that need to be taken into account by stakeholders in the industry. One of them is sustainability, as it is linked to the energy consumption of the machines that will drive these processes. Balancing innovation with sustainability will be critical to help manage these potential hazards while trying to push boundaries within this exciting new frontier.