‘Non-fungible’ is a clunky, technical word that means ‘not interchangeable’ – you wouldn’t want an oil painting of your daughter mixed up with a different oil painting. By ‘token’, I mean a record, or proof of ownership – an account entry in the marketplace equivalent of the old ledger that found its way to the movies in The Shawshank Redemption (1994). An NFT owns a thing, of which there is only one (some people prefer to call them ‘unique’). That could be a digital thing – a web address, especially used to show digital art or photographs – or it could be a physical thing, like one of the artist Beeple’s NFT paintings.
NFTs are powered by blockchain technology (in the case of the Merge, they’re ‘native’ to the blockchain), which is essentially a globally distributed ledger. Plus, they are often attached to programmes like smart contracts that run on a blockchain.
Tokenization
NFTs turn the traditional art-world route of gallery shows leading to prestigious auction sales into a universal art market that’s accessible online to anyone, anytime, anywhere. NFTs provide a route for the protection and monetising of creative work which bypasses traditional gatekeepers such as galleries, publishers, auction houses and record labels. NFTs enable artists and other creators to sell their artworks and virtual collectables through a different digital route – one where they don’t have to worry about printing costs and changes in the market.
NFTs – or Near Future Tokens – can serve as a collector’s item, whether of digital art, game currency or even physical objects such as collectible NBA trainers. NFTs are easily bought, traded and sold via online marketplaces and communities; they might even be stored in dedicated hardware wallets.
Given that NFTs are assets that in the main are not subject to regulation – and although they may have blockchain-based records, art aficionados have discovered that digital images can be manipulated, their appearance and shape can be changed to create multiple ‘skins’ – buyers have been urged to take caution, as prices can dramatically change within minutes and hours: NFTs are rife with fraud and scams so buyers need to research projects before buying, and for investment opportunity buyers could be better off taking a long-term perspective and choosing investment based on due diligence. Select projects with the strongest teams, best roadmaps, and great track-records.
Transparency
Because NFTs are programmed to store all the provenance information about an item in a blockchain, they can’t be faked, and ownership is impeccably traceable. Since they can confirm not just who owns an NFT but also who ‘owns’ derivative works – such as when a picture is used in an ad, or to produce a T-shirt – it’s possible to track copyright infringement and pay royalties directly to the artist, even if the NFT of her work is sold.
However, the immutability of blockchain is also not an unbreakable protection against intellectual property poaching or piracy; an NFT linked to a piece of digital art could still be right-clicked to save like any image file. NFT owners can minimise this risk by keeping their NFTs in the safekeeping of hardware wallets and other cold storage solutions.
They have become an essential currency for gaming aficionados to buy, sell or trade assets in-game; are being used by artists for monetising their work and engaging fans (such as fan-only channels and streams, or for the sale of limited-edition merchandise); and will in the future allow users to create virtual identities for avatars or AI-generated digital characters that authenticate by indexing.
Ownership
Digital files can be re-produced indefinitely, that is what the internet does – it moves things around. But original works have aspects that make them unique next to a copy or even a high-quality one, but NFTs let you prove that you own it.
It’s verified by way of a cryptographic hash function, which allows a picture to be converted into an authentication guarantee via a fixed-length code, making it impossible to alter or swap the data, while guaranteeing the fidelity and authenticity of its original version. These hash codes then become NFTs, or non-fungible tokens, comprising the numerical code of each artwork and recorded on blockchain databases – the open-source species of distributed database.
And NFTs can be bought and sold on marketplaces such as Amazon Marketplaces, meaning they can reach an even wider audience and be subject to bad practice (for instance, ‘shill bidding’ where an artist, or their paid employees, buy an item to artificially drive up the price). Hacking is also potentially easier with NFTs.
Monetization
NFTs, or National Financial Tokens, are digital proof-of-ownership: each represents something that exists on a blockchain network (typically Ethereum), and that can be easily verified as belonging to a specific person. NFTs can be used to represent any type of digital file: art, music, games.
With the help of efficient NFTs, it’s faster to verify deals – so it reduces the scope of piracy and other forms of fraud. Besides the traditional proof of ownership conferred by the Copyright Act, NFTs have an extra layer of validity given by the fact of their existence in blockchain’s immutable ledger – meaning that they could prove useful in deterring copyright infringement claims from artists and investors.
NFTs have swiftly become a retailer trend with collectors and moreover artists. Before any investment, it’s indispensable for you to perform a due diligence. The NFT prices are highly volatile and might be even victim of a pump & dump scam, therefore investing with the help of a hardware wallet can help you to withstand the scams; it may also help you to diversify your portfolio with projects who have long-term visions, a good way to hedge against the case it happen again in the future! (No one want that!)