NFTs, or Non-Fungible Tokens, are the latest darling of the crypto-revolution. Yet what exactly are these new cryptographic tokens and how have they exploded onto the mainstream with such force that everyone from Tim Berners Lee to Grimes to William Shatner is getting in on the act?
Is it all just a flash in the sizzling crypto pan? Or are we witnessing the birth of a nascent asset class that promises to store value, open up new artistic collections, generate new, intimate connections between artists and fans of their work, provide income to creators and, of course, give rise to an all-new thriving art market in the digital landscape we all inhabit?
Judging by the length of our final question, we clearly think the latter. Yet let’s explain exactly what NFTs are and why they will change the future of content creation.
Fungible versus Non-Fungible
A fungible item is something that can be exchanged for something else of equivalent value. If (at time of writing!) we give you $46,000 and you give us 1 bitcoin then we’re both happy. The two items are of equivalent value and, crucially, can be traded back just as easily. Fungibility refers to items that store value and can be easily swapped for other items, the way you can swap your Euros for Great British Pounds or a weighting of gold — at market rate of course.
A non-fungible item refers to something that is unique and whose value is not easily delineated and is prone to change. Art is the classic example. Edvard Munch’s The Scream has a value, but that value is entirely based on what someone is willing to pay for it at any given moment or whatever the buyer demands for it.
Moreover, these unique items sometimes never get traded. The seller just wants to hold it at any price and it is therefore beyond a value estimation. You could turn up to the Louvre with the private key to the Satoshi Wallet and they still probably wouldn’t give you the Mona Lisa in exchange (fools).
An Explanation of Non-Fungible Tokens
NFTs then, as Non-Fungible Tokens, are blockchain-inscribed certificates of ownership that give their owners a permanent cryptographic token that states they are the rightful possessors of a piece of art. We all know the blockchain is secure and immutable, so this “piece of paper” can never be lost, nor the art destroyed. It’s a permanent artifact that all history can see.
To do this, a creator can “mint” an NFT on a blockchain (Ethereum is the most commonly used blockchain, but there are others) and then put it out to tender and have it bidded upon the same way an artist sends their work to an auction house or hosts it in a gallery to let people view it and purchase it. A buyer who wants the NFT can then purchase it with a cryptocurrency and become the proud owner of that artist’s work.
However, what they don’t do — and this is where it gets confusing for some — is prohibit others from downloading the digital media and using it or “owning” it themselves. They are not copyright-enforceable (not yet, anyway, but it’s doubtful they’ll become so either) and they do not give the owner full rights to any piece of digital media they own an NFT for.
Think of it like the difference between a print of The Starry Night, by Van Gogh, and actually owning the original. Every art student’s dorm room or fancy hotel has one of them, but only one person owns the original. The person who owns it can look at it and go “yes, I own that.” That’s worth a lot to humans.