Risks of Non-Fungible Token Adoptions and Risk Mitigation Strategies

Abstract

Non-fungible tokens (NFTs) have made big waves in the last two years in particular and have caused headlines with ever higher individual transaction sums. Among other things, this boom has led to many hobby artists digitizing their art and selling it as NFTs. At the same time, many companies also became aware of the NFT phenomenon and exploded opportunities to develop existing or new products based on this innovative technology. In the shadow of the success of NFTs lies a large number of projects that have failed badly and are rarely mentioned. In this thesis, the underlying technologies of blockchain and smart contracts are explored. Based on this, different types of non-fungible tokens are analyzed and explained using examples. This study then uses design science research methodology to explore the problem of prevalent risks in the development of NFTs. Based on this analysis, a prototype score-based questionnaire will be developed as a solution to mitigate the existing risks. This solution has been built on MS Excel, ensuring that it can be used easily and by anyone. The developed questionnaire was then presented to subject matter experts and evaluated using a standardized questionnaire. This evaluation showed that the prototype is very well suited as an initial analysis tool and sufficiently covers the most important risks. Two of the three subject matter experts agreed that the tool can be used well in early stage, but would bring even more value as a sophisticated tool and recommend to further expand the risks covered and to include more questions per risk.