In a world that already offers you cryptocurrency, blockchain, security tokens and Bitcoins to wrap your head around, there is also NFTs, or non-fungible tokens. These are, before we get into any long-drawn explanations, proof of ownership, either temporary or permanent and they are unique, cannot be swapped with another token and are not divisible. Think of NFTs as digital assets, which can be linked to something you want to attach value to.
A piece of art, a photograph you may have clicked, something you posted on Instagram or Twitter or pretty much anything of value in physical or digital form. It isn’t a joke, at least not in the larger scheme of things as they stand, that Twitter CEO Jack Dorsey sold his first ever tweet for $2.9 million as an NFT earlier this year. He later donated the earnings to a charity.
What is an NFT?
Non-fungible tokens are digital assets that contain identifiers for the owner and the physical or virtual thing that you are attaching value to. This information is unique for each NFT that may be created. The non-fungible part of the NFTs refers to those unique properties which make it inimitable and thus it cannot be divided into parts. Unlike bank notes or cryptocurrencies which can be used in different amounts and quantities for payments, trade, and exchange, NFTs remain in entirety forever.
Think of NFTs as the opposite of typical payment and currencies. You can divide or configure currency as you please with the options of different denomination of notes available to retain the same value. You can pay someone with crypto coins, which would perhaps be a part of your whole crypto ownership. Now, think of the non-divisible things in your life. Your car—you wouldn’t sell half your car. Credit cards—a chopped up credit card doesn’t hold the same value or purpose as it did before you took the scissors to it. NFTs are like the latter.
The security of an NFT?
When a non-fungible token is created (also called ‘minted’ in some circles), it cannot be copied, edited, deleted or in any way modified or manipulated by anyone except the creator, as well as the owner at the time.
Can I trade NFTs?
Mind you, any non-fungible token that you may have created, or you own, cannot be used for part payments. Ideally, you may exchange an NFT with someone else for another NFT. In which case, you’ll be trading ownership of the digital or physical entity attached to that NFT with a digital or physical product attached with the NFT you get in return.
Who attaches value to an NFT?
Unlike currency, there is no centralised monitoring or regulation of NFTs and how they are valued. If you think an Instagram post from you is worth $1 million, then it is worth $1 million. Whether there is a market for it or not, is another matter. No one can question you about the valuation.
The permanency adds value to NFTs, there is no doubt. These digital assets aren’t prone to accidents like physical assets including to theft, damage and more. The ownership is signed and sealed digitally on blockchain platforms such as Ethereum, and since there are no disputes on that front, it also adds the sense of value.
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What about someone simply downloading a digital asset?
A lot of the NFT conversation revolves around digital art and content. The video Crossroad by Beeple sold for $6.6 million last year. The irony is, you can simply right click on the video on the very platform that was hosting the sale, and download it. And this is where the NFT debate gets a bit murky.
In the digital space, there is no chance anyone will be able to hold you back from downloading or copying a digital piece of art or music or video or any other content. The role of NFTs is to establish ownership of the original, no matter how many copies are out there. And this is when you realise the limits to what NFTs can do. You can have as many copies of a piece of art, but the original artwork can be owned by one person only.
What if there are more than one NFT of the same thing?
It has happened. Creators have made multiple NFTs of the same asset and sold them. At this time, the values are based on quantity and availability ratio, and there is no way for buyers or collectors to rate creators who use such tactics. In the long term, multiple NFTs of the same asset will simply see a serious decline in value for the person who owns it.
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