After the previous Blogposts on the Blockchain fundamentals and Crypto-assets, the following regards Non-Fungible Tokens, a particular version of Crypto-assets, that allow the representation of “non-shareable” rights (e.g., the right to reproduce a song) on the Blockchain (advanced readers may find further detailed information in “D4.1 – Copyright and Procedures for IPR Definition”).
Non-Fungible Tokens
Non-fungibility describes things that are not interchangeable with other items because they have unique properties. If we consider the example of an artwork, there will be only one original painting, say, by Miró, which makes it non-exchangeable with other paintings by Miró and other authors – it is non-fungible. Conversely, if a generic coin is exchanged, it does not matter which coin it is. All real-world coins of a particular denomination are the same. They are fungible. Therefore, NFTs are a tokenised representation of the ownership of unique items.
Although the first NFTs were minted on the Bitcoin blockchain in 2012/2013 (Coloured Coins), this market reached real popularity in 2017 with projects like Cryptokitties and Cypherpunks released on the Ethereum blockchain. They are a blockchain-based virtual game allowing players to buy and trade virtual cats and punks using Ethereum Smart Contracts. Nowadays, NFTs are taking the scene of the digital art [1]Reyburn, S. (2021, March 25). Jpg file sells for $69 million, as ‘NFT mania’ gathers pace. The New York Times. https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html and collectables world due to the exponential growth of marketplaces and the attention of the media and artists [2]. Those are seeing their lives change thanks to massive sales to a new crypto-audience, and celebrities are joining in as they spot a unique opportunity to connect with fans.
As everything becomes more digital and connected, NFTs can be a unique opportunity for translating the properties of physical items like scarcity, uniqueness, and proof of ownership in the digital world. The owner of an NFT can easily prove the ownership, have the safety that no one can manipulate it in any way, sell it, and prove that the copy of the digital file is the original. Indeed, the NFT creators can easily prove the creation, determine the scarcity, earn royalties every time it’s sold and sell it on any NFT market or peer-to-peer, not locked to platforms or other third parties [3]. However, the euphoria around NFTs has raised some scepticism around the technology due to episodes such as the more recent Rug Pull [4] and the implications of IPRs (Intellectual Property Rights) management [5].
Most NFTs are built using a consistent standard known as ERC-721 [6]. Nonetheless, there are other more specialised or experimental standards, like the ERC-1155 (for semi-fungible tokens, useful in gaming) and EIP-2309 (proposed to make minting NFTs much more efficient). There is also the issue raised by the interoperability between standards in the blockchain landscape. Learn more about this in the fourth and final post of this series on Blockchain Agnosticism and Interoperability.
[1] Reyburn, S. (2021, March 25). Jpg file sells for $69 million, as ‘NFT mania’ gathers pace. The New York Times. https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html
[2] Ohlheiser, A. (2021, March 25). Some artists found a lifeline selling NFTs. Others worry it’s a trap. MIT Technology Review. https://www.technologyreview.com/2021/03/25/1021215/nft-artists-scams-profit-environment-blockchain/
[3] Non-fungible tokens. (2021, September). Ethereum.org. https://ethereum.org/en/nft/
[4] Redman, J. (2021, March 11). NFT immutability debate grows as tokenized tweets get deleted and nft images are replaced. Bitcoin News.
[5] McConaghy, T. (2021, June 3). NFTs & IP 1: Practical connections of erc721 with intellectual property. Medium. https://blog.oceanprotocol.com/nfts-ip-1-practical-connections-of-erc721-with-intellectual-property-dc216aaf005d
[6] Standard token non fungibile ERC-721. (2021, August 19). Ethereum.org. https://ethereum.org/it/developers/docs/standards/tokens/erc-721/
References
| ↑1 | Reyburn, S. (2021, March 25). Jpg file sells for $69 million, as ‘NFT mania’ gathers pace. The New York Times. https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html |
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