NFTs — or non-fungal tokens — are all the rage these days. In addition to buying large amounts of common folk cost in dedicated market places, auction houses such as Sotheby’s have also begun to participate in the activity. But despite this dirty excitement and widespread publicity, chances are you will ask someone what an NFT is and see it as empty in response.
At its core, NFT is a digital token that represents ownership of the underlying asset. Think of it as a way for Leonardo da Vinci to attest to a sea of identical copies of the original Mona Lisa. Unlike the Mona Lisa, every peak of paint on its canvas bears proof of its authenticity — every Da Vinci self-applied brushstroke-NFTs are tokens of ownership, the acquisition of which does not give special access to the underlying digital artwork.
So why are people falling for themselves to buy NFTs? For example, in Jack Dorsey’s first tweet, Sina Estavi paid 9 2.9 million for the NFT, however, he did not acquire any exclusive rights to it by purchasing the NFT. Not that he has the NFT now, we all need his permission before we can see the way tickets need to be bought to see the Mona Lisa in the Louvre. So what is investing in NFTs?
Before answering that question, let’s take a quick detour around blockchain and some of its different applications. Whenever we mention ‘blackchain’, our minds immediately go to bitcoin. However, distributed ledger technology has applications that extend beyond decentralized cryptocurrency, through which it was first manifested. Decentralized, distributed ledger enables unknown, invisible individuals to transact with each other in a fully digital environment without the need for reliable third party mediation. This key feature of blockchain, when applied to other commercial contexts, allows us to redesign many of the legal and commercial structures on which we have relied for centuries.
Take loading bills, for example. Since the 1300s, the process of shipping goods from a freighter has revolved around the exchange of this particular document, which, at the same time, serves as the title to the goods and as evidence of their shipment and receipt. Even today, freight forwarders will not be able to receive goods at their destination port unless they submit a physical copy of the relevant bill. Since they have to produce the original, there is a $ 5 billion industry that revolves around couriering these documents to different parts of the world. But conditions are already beginning to change. Companies such as Mersk and Casco are experimenting with electronic bills on distributed ledgers, which serve as title certificates and shipping evidence. Over time, the blockchains they set up incorporate the Internet of Things devices into their workflow so that the exact location of the goods can automatically trigger payments or other obligations without the need for human intervention.
Think of NFT as another blockchain application designed to solve a very specific problem. When it first became pregnant in 2014, millions of digital artists were creating and distributing fully digital artwork, uploading them to microblogging sites such as Tumblr, from where they were widely re-blogged without feature or context. None of these artists, true to their inspiration at the time, really expected compensation for their efforts — but Anil Dash and Kevin McCoy wanted to emphasize ownership over their creation if they wanted to — and if nothing else, they could be blamed for the work they created.
The solution they created was to create a token to indicate ownership of the digital property and then attach that token to the blockchain and buy and sell it for free, creating a strong digital path of ownership. But according to their prototype solutions, they were the first to admit that it was not perfect. Due to technical limitations, the original digital artwork could not be attached to the blockchain. As a result, the token they created is only associated with the underlying property, which represents the actual artwork. To this day, most NFTs provide a link to the underlying asset or at best its compressed representation. This means that even after you have spent millions on NFT, your access to the underlying digital asset still depends on whether the hosting website is still active.
This unique fact underscores the most fundamental differences between NFTs and cryptocurrencies. Unlike Bitcoin, valuable assets within themselves — NFTs — are not digital assets. They are just tokens of ownership. Although it is suggested that you may claim ownership of the property underlying an NFT purchase, your token will not be used to exercise any rights commonly associated with ownership — such as preventing anyone from accessing it or requesting rent for its use.
This is not to say that NFTs are useless. In the free market, people are free to find value wherever they look — even if it is a digital token of implicit title. The growing foreign market in NFTs should have all the evidence anyone needs for a community interest in them.
As long as there is this excitement, who are we to question it?
The Rahul Mathan trilogy also has a partner and a podcast called Ex Machina. His Twitter handle @Matton