Non-Fungible Tokens (NFT) have been getting a lot of attention recently. But what are they? And why are they trading for millions of dollars?
The question of traceability
Art, like painting and sculptures, has always been hugely collectable. The value of artwork is usually calculated according to the artist and whether the item can be confirmed as original. Art historians and experts can spend hundreds of hours assessing an item to verify its authenticity.
But in the internet age when digital artwork can be copied endlessly, how do you verify which version is the original? How can you trace one file back to its creator?
Smart contracts and NFTs
We occasionally write about cryptocurrencies on the Panda Security blog. From Bitcoin to Ethereum, they are all built on a technology called ‘blockchain’.
Blockchain is used to monitor and verify digital transactions. But in the case of Ethereum, the technology has been extended far beyond cryptocurrency to include ‘smart contracts’ – and that’s where Non-Fungible Tokens come in.
Using a smart contract, digital artwork owners can create a unique NFT that is stored on the decentralized blockchain ledger. This special token is incorruptible, unfalsifiable and indestructible, stored in the owner’s digital wallet. And once created, these non-fungible tokens can be bought and sold – just like a physical painting.
What about copyright?
Perhaps the most famous NFT so far has been the one assigned to the legendary Nyan Cat meme. When the Nyan Cat NFT was put up for sale, it was eventually bought for 300 Ethereum coins – worth approximately $600,000.
So does the NFT holder now own the copyright to the Nyan Cat meme? No. They simply own the original traceability for the image and the social prestige that goes along with it. They can claim to own ‘the’ original image – even if it is exactly the same as the millions of other copies available online.
And if digital artwork continues to hold its value, the NFT can be traded or auctioned – just like a real painting. It could be that NFTs become another popular investment.
Can anyone buy NFTs?
Yes, anyone can buy and sell non-fungible tokens and the artwork associated with them. All you need is a digital wallet that holds the Ethereum cryptocurrency. You can then begin adding to your digital art collection using one of the many NFT marketplaces that are appearing like OpenSea or Rarible.
But as with any cryptocurrency related transactions, you should always remember:
- Cryptocurrencies and NFTs fluctuate, so your artworks may lose a lot of its value. But it may also gain a lot over time too.
- Your digital wallet is just like a real one – if it gets stolen or hackers get hold of your passwords, they can steal your NFTs.
It will be interesting to see how the market for NFTs develops – and how the technology is applied in other ways.