WTF is an NFT?

NFT stands for non-fungible token. A token that is not fungible represents the unique private digital property. These are digital deeds that prove a digital asset’s ownership. NFTs are currently linked with art, although they can certify ownership of any digital asset.

NFTs, non-fungible tokens, use blockchains and crypto to create a digital property. Digital property rights are an exciting innovation. For example, the internet has had difficulty creating property rights for art, music, writing, and more. Not anymore. Now creatives can own their work and make a profitable living online.

Once a decentralized foundation to store and execute lines of code has been laid, developers can build anything on top, including assets and applications (dapps). The developer’s ingenuity is the only constraint. There are various types of tokens or digital representations of assets. Some resemble financial building blocks, like stock shares, bonds, and stablecoins, which are pegged to conventional fiat currencies. Governance tokens function as votes to determine how DAOs are operated. Non-fungible tokens (NFTs) represent one-of-a-kind assets such as artwork, movies, or music. The market for these has boomed.

Tokens can be traded or lent out through protocols that govern how transactions occur. The established protocols are governed by DAOs and can be changed only by consensus. Users can buy, sell, and swap tokens through a web browser-based interface that connects them to protocols.

NFTs will become more widely used. Today they are collectible digital claims, but they could, for example, represent homeownership claims. Mortgages could be bundled efficiently with automatic mediation on the blockchain: the owner of the “Blue House, Maplewood, New Jersey” NFT would swap it with the buyer, who would deposit it with an automated collateralized-lending platform like Aave or Compound. In exchange for the NFT, the buyer would receive tokens that transfer instantly to the seller. To repurchase the NFT title, the buyer periodically deposits enough stablecoins to pay off the loan ultimately.

This model is possible because blockchains hold organizations to their promises. Computers controlled by blockchain technology are computers that can make commitments. A central controlling agent can’t tamper or change the game’s rules. This arrangement removes or at least drastically reduces counterparty risk.

NFTs offer a way for creatives to make a living. For example, once an artist sells a painting, she no longer has a vested interest in its value. If she later becomes popular, all of the gains increased value goes to the buyer. However, if she sold an NFT image, she could retain a stake in future sales of that work by coding into the smart contract that she will receive, say, 10% of any transaction value. This residual arrangement would have been far too expensive to enforce without a smart contract on a transparent blockchain.

Fashion models have written about their inability to retain ownership over their image because photographers own all rights to pictures. So now they can issue a selfie NFT. Likewise, musicians are starting to monetize their fan base by issuing albums and songs as NFTs or creating tokens that offer fans exclusive merchandise and front-row seats at gigs, all without intermediaries.

NFTs are digital property rights. This technology is a revolutionary development that places creative and intellectual property ownership back in the hands of the creators.

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