No doubt you have heard the latest “buzz” called NFT. They are taking the art and gaming world by storm. From Crypto kitties to Beeple. But what is a NFT and why should you care?
A non-fungible token, NFT is, in essence, a collectible digital asset, which holds value as a form of cryptocurrency and as a form of art or culture. Much like art is seen as a value-holding investment, now so are NFTs. that is a digital token that’s a type of cryptocurrency, much like Bitcoin or Ethereum. But unlike a standard coin in the Bitcoin blockchain, an NFT is unique and can’t be exchanged like-for-like
NFTs are more than a run-of-the-mill crypto coin, because the file stores extra information, which elevates it above pure currency and brings it into the realm of, well, anything, really. The types of NFTs are super-varied, but they could take the form of a piece of digital art or a music file – anything unique that could be stored digitally and be thought of to hold value. Basically, they are like any other physical collector’s item, but instead of receiving an oil painting on canvas to hang on your wall, for example, you get a JPG file.
But before we move on let us look back: humans have collected artistic objects for their aesthetic, economic, and emotional value. Collectors, traditionally aristocrats and millionaires, have acquired the works of artists such as Picasso, Van Gogh, Caravaggio, or Banksy at astronomical prices. Their market value is very high because they are unique original pieces in the world. Exclusivity has prompted a sale that has spread to other artistic branches such as music, cinema, or videogames.
What is Fungible?
Fungibility means that the individual units of an asset are interchangeable and essentially indistinguishable from one another. For example, fiat currencies are fungible, because each unit is exchangeable for any other equivalent individual unit. A ten-dollar bill is interchangeable with any other ten-dollar bill that is authentic. This is an imperative feature for any asset that claims to act as a medium of exchange.
Fungibility is a desirable property for money because it allows free exchanges, and, theoretically, there is no way to know the history of each individual unit. However, this is not a beneficial attribute for collectibles.
But what if we could create digital assets similar to Bitcoin, but adding a unique identifier to each unit? This would make each of the units different from the rest (i.e. non-expendable). Basically, that is an NFT.
And that my friend is where a NFT comes in as a type of cryptographic token on a blockchain that represents a single asset. These can be fully digital assets or tokenized versions of real-world assets. Since NFTs are not interchangeable with each other, they can function as proof of authenticity and ownership within the digital realm.
Key characteristics of NFTs
As explained in Coindesk, there is a clear analogy between an NFT and a ticket for a music festival: in that ticket, there is information about the buyer of the ticket, the date of the event, and its location. Those inputs, like the NFTs, are personal and unique. Most of these “tokens” — which can be coins, stamps, works of art, or crypto kitties— are based on the standards of the Ethereum network and its blockchain. In addition to this, NFTs have several characteristics:
- Strangely unique: these assets have many analogies with works of art, of which there may be copies (it is even easier to make copies of digital works), but here the owner can certify that he is the sole and actual owner of the original work, although it can be easily shared on the internet (and it does). It’s a curious situation and a shift in the value we place on physical and digital works of art.
- Non-interoperable: You cannot use a Cryptokitties avatar/card in other similar games like CryptoPunk.
- Indivisible: Unlike cryptocurrencies, NFTs cannot be divided into smaller pieces, and they have a full value as a full entity or token, without more. You can’t have 1/1000 of a crypto kitty.
- Indestructible: the data of an NFT is stored in the blockchain through a smart contract (Smart Contract), which makes it impossible to destroy, delete or replicate.
- Absolute ownership: unlike music or movies, if you buy one of these goods, your property is absolutely yours. You do not buy a license to see the movie or listen to the song, but that intangible good is completely yours.
- Verifiable: the blockchain makes it possible to verify something that is much more complex to demonstrate or certify with topics such as art collecting or stamps, for example, the blockchain maintains a history of who has bought or sold an NFT and who is its current (absolute) owner, including the original creator from whom that digital asset was purchased in the first place.
But what’s in it for me?
According to Mark Cuban, NFTs are the future of business. “This generation knows that a digital contract and the digital asset it represents or a crypto asset is a better investment than the traditional asset that you can see, touch, or feel.”
And Yat Siu, co-founder of Animoca Brands — a branded gaming platform on the blockchain, which includes F1 Delta Time, MotoGP Ignition, and other sports-related projects — believes that NFTs can make a mark in many other industries. “Right now we see that NFTs have a powerful effect on all forms of digital content, such as digital art, collectibles, games, and most recently music, but eventually everyone else will follow: medicine, fashion, finance, manufacturing, agriculture, insurance, whatever, and it will have relevant NFT applications.
What ever the future holds for NTF’s it is safe to say the legal implications will need to be addressed by all entering this brave new world.
And why AR SOAR: Business Services in association with and powered by AR LAW SERVICES: Specialist Blockchain Lawyers is well place to assist with start up and providing advice regarding these emerging technologies and their accompanying regulatory architecture.
So if you or anyone you know is thinking entering the NFT space – either as a dealer or an artist – talk to us.