Like DeFi coins, and ICOs before them, non-fungible tokens, or NFTs, are officially the latest crypto ‘craze’. However, many artists and analysts agree that despite the short-term hype, NFTs do have long-term viability.
Indeed, NFTs have a number of promising use cases, specifically, NFTs have been identified as the future of the creative economy. However, the concept of NFTs is still so foreign to most of the world that many of the people who would benefit from creating them get lost at the utterance of the words ‘non-fungible’.
In other words, there is definitely a learning curve when it comes to entering the world of NFTs. Here is (almost) everything that you need to know.
Should You Make an NFT?
Who can make a non-fungible token?
Gagan Grewal, CEO of Mogul Productions, explained to Finance Magnates that the answer is “anyone,” really.
However, Danny Holland, Smart Contract Engineer at Vega, told Finance Magnates that: “some NFT platforms require artists to be pre-approved by the platform or the community, some do not. Rarible, for instance, is 100% open for anyone to create NFTs.”
Essentially, though, “anyone can create an NFT, including artists, musicians, entertainers, entrepreneurs, companies and platforms,” Grewal explained. “The important thing is for the creator to consider the value an NFT brings to them. NFTs are great for demarcating intellectual property and creative works that otherwise could be easily copied and disseminated online.”
Tal Elyashiv, Founder and Managing Partner of SPiCE VC, said that: “When you’re determining whether or not you should you need to have something of value that fits the NFT paradigm,” Elyashiv told Finance Magnates.
“In other words, some unique item or experience that is of value and interest. Currently, the main items offered as NFTs are digital art, physical art, collectibles, assets in games, virtual properties, rare videos, et cetera. It can easily be extended to tokenized physical assets like real estate, cars, wills and more.”
What Do You NFT Buyers Really “Own”?
What is a non-fungible token, exactly? Basically, it is a unique, digital collectable, analogous to a one-of-a-kind Pokemon card or a unique painting in the ‘real world’.
However, selling an NFT does not necessarily mean that you sell the intellectual property associated with the work. Additionally, multiple NFTs can be produced and sold in association with the same work. For example, NFT art world superstar Beeple has sold multiple NFTs in association with single works, which has not stopped them from exploding in value.
For many who are new to the NFT space, it is unclear what an NFT really represents in terms of ownership. Beeple explained the concept of NFT ownership this way in an interview with the School of Motion: “We’re used to, like, you are able to copy anything and reproduce it a million times,” he said. “So just the concept of something being like owning a digital file and being able to prove that you are the only one that owns it, that whole concept is like, what the fuck are you talking about?”
“[…] It definitely is something that takes a bit to sort of wrap your head around, especially because like, you can look at the NFTs out there and you can still copy it. Like you could just right click and save the file.” You could then say, “oh, look, I own the file.”
This is true. However, owning a copy of the file is not the same thing as owning a unique, digital collectable that is associated with the file. If you had a rare, one-of-a-kind baseball card, someone could make an identical photocopy of it, but that does not mean that they would own the card in the same way that you do.
And, of course, each NFT is created with different levels of ‘ownership’ programmed in. Some NFTs contain intellectual property rights, and some do not; some NFTs also include physical copies of the works they are associated with, and some do not. Some NFTs also offer other perks, like the chance to meet the person who issued the token. Buyers of Beeple NFTs have gotten a piece of the artist’s hair.
NFTs Create Digital Scarcity in the Age of Internet Abundance
But really, what is the point of making a non-fungible token? After all, why would anyone ever buy such a thing?
Essentially, these tokens offer their creators the opportunity to create scarcity in the world of online abundance. If you create a digital painting and put it online, anyone can copy it at any time; if you release a song on the internet, anyone can listen to it, download it, and essentially do whatever they want with it (short of counterfeit or copyright violation).
Yes, anyone can ‘buy’ the song from services like iTunes or Bandcamp, but what do they really own? A copy of the file, certainly, but there is nothing unique about that file. The buyer cannot resell the file for any value. This is why NFTs are of interest to investors: investors can buy NFTs associated with songs, paintings, sports moments, or whatever, and they can sell them as speculative assets.
In other words, someone who buys an mp3 file from iTunes cannot expect that the file will appreciate in value; they cannot reasonably expect to resell the file with the potential to earn a profit from it. (In fact, they cannot really legally re-sell the mp3 at all.)
However, the same person could buy an NFT associated with the mp3 file, and very reasonably expect that the value of that NFT would appreciate in value, and could therefore be sold at a profit. The same applies to a JPEG or PNG file of a digital painting.
(Of course, there is some debate about what NFT ownership will look like over the long-term, but that, dear reader, is another story for another time.)
Out of curiosity I dug into how NFT’s actually reference the media you’re “buying” and my eyebrows are now orbiting the moon
— Jonty Wareing (@jonty) March 17, 2021
”The Elimination of Middlemen from the Traditional Art Market Model and the Immediate Access to a Global Market Means Artists Can Finally Earn a Living from Their Art.”
“There has been a lot of FUD (fear, uncertainty, and doubt) and vilification of NFTs as a result of articles portraying the problem in apocalyptic terms. Some artists involved with crypto art have even been blacklisted as a result which is an unacceptable reaction considering the efforts to make NFTs greener are ongoing. A great example of this is Green NFTs.” Green NFTs is a self-described bounty initiative for “more ecologically friendly NFTs (Non-fungible Tokens).”
As the NFT infrastructure community continues to work out the kinds in non-fungible token market energy consumption, artists must decide for themselves if the benefits are worth the risk.
“NFTs are an incredibly exciting moment in the evolution of blockchain technology. They can expand far beyond art and their use cases will evolve and become even more valuable as a result,” Pop said.
“In terms of art NFTs, the elimination of middlemen from the traditional art market model and the immediate access to a global market means artists can finally earn a living from their art, create & grow global supporter communities and generally redesign the relationships and value-flows tied to their work.”