By Eftychia Antonopoulou,
What is a blockchain?
In this fast-growing economy, blockchain is really important for ensuring safe transactions and facilitating investments. Even though it is a prevalent concept, blockchain technology is not that easy to understand. A blockchain is a digital ledger database, encrypted and distributed throughout a network of nodes. In other words, all new information is stored in a block and is connected with other blocks creating a chronological sequence —a so-called chain. These blocks are decentralized and distributed among multiple computers, called nodes. In such a way, all information and transactions stored in a blockchain are safely monitored. The blockchain technology is applied in many aspects of our society, from commerce to healthcare to government. Due to the security it provides, it has also become a way to store multiple assets, including non-fungible tokens (NFT).
What is an NFT?
Non-fungible tokens are basically crypto-assets stored in a blockchain that record the ownership of digital items. The fact that these assets are encrypted with blockchain technology means that their ownership is monitored and, in case of a sale, there is a live running record of it. As far as the term non-fungible goes, it is used to describe the fact that this token is one of a kind, unique and rare and thus it cannot be replaced or replicated.
Anything digital can become an NFT. However, they are mostly used to sell digital art, such as music, drawings, AI generated images. For example, one of the most popular NFT collections is the Bored Ape Yacht Club collection which consists of 10,000 pictures of vibrant cartoon apes, pictures that are generated by an algorithm. The most expensive of these pictures was sold for $2.9 million in 2021. Ownership of a Bored Ape NFT ensures access to a private online club and as a result invitations to private events and, of course, intellectual property rights of the specific image. Even though everyone can view, copy and download the NFTs only one person is granted ownership rights, the buyer. Although the artist can still maintain the copyright and reproduction rights, as it is done with a physical art piece, the ownership of it belongs only to the buyer.
Advantages of NFTs
The benefits of the NFTs concern artists as well as buyers. Firstly, NFTs provide the opportunity for artists to share, promote and hence sell their artwork in an easier and more attractive way. Living in a technology-oriented society, anything digital becomes more appealing to the human eye that enjoys being part of the newest trends and latest advances. Moreover, some NFT marketplaces give artists a percentage of the value of their work every time it is sold and changes hands. In such a way, when a piece of digital art becomes really popular and its value increases, the artist that created it benefits from that. For the buyers, the benefits have to do with the usage rights of the digital item, such as the right to use the item for commercial purposes, for example in marketing or media projects. Additionally, buyers can verify the origin and authenticity of the NFT, adding value to their ownership. As it happens with rare art pieces in general, NFTs gain a value over time and give their owner the chance to resell and make profit. In general, the NFT market efficiency is mostly what attracts investors.
Disadvantages of NFTs
According to the legal framework around every NFT, the rights of the owner and the challenges that emerge vary. First and foremost, in contrast to the regular financial market the NFT space lacks consumer protection and because blockchain transactions are irreversible the dangers of buying or creating NFTs are multiple. This lack of regulation can also lead to volatile and uncertain values and thus risky purchases. Secondly, the ownership rights are different in every platform, and they can be unclear. As a result, the intellectual property rights can sometimes be limited.
In conclusion, non-fungible tokens may have been part of the economic and technological world, but it seems that today not many people trust them to invest a lot in them. As any investment, NFTs come with risks especially when their value depends completely on what someone else is willing to pay for them. The fact that NFTs are relatively new means that “there is no history in order to judge their performance“, says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures. Thus, this uncertainty is probably why NFTs haven’t become the center of attention yet.
References
- 24 NFT Collections to Know. Builtin. Available here
- NFTs, explained. The Verge. Available here
- Non-fungible token. Britannica. Available here
- What Is An NFT? Non-Fungible Tokens Explained. Forbes. Available here
