Have you ever thought of owning digital artwork, music, painting, or any other intellectual or art assets? You can simply download them and essentially have them on your laptop. But then, do you really own them or only a copy of them? It might sound a little confusing. Nonetheless, Non-Fungible Tokens (NFTs) allow you to own a cryptographic asset linked to these digital assets. An NFT frenzy presently gripes the crypto world and some of them are selling for millions of dollars. Let’s learn what are non-fungible tokens (NFTs) are?
What are Non-Fungible Tokens (NFTs)?
To better understand NFTs, we must first get an overview of fungible tokens (FT). A fungible token is something with units that can be interchangeable with any other unit of its kind. For instance, a fiat currency or a cryptocurrency: a dollar is the same as another dollar; a bitcoin is the same as another bitcoin.
On the contrary, digital assets are non-fungible since they are unique and cannot swap. This unique item could be artwork, real estate, collectible cards, or even a tweet. The non-fungible tokens (or ERC721 tokens) are “one-of-a-kind” assets in the digital world. They represent unique items that one can buy and sell online. To simplify, traditional artwork has its own distinct value and is one-of-a-kind. However, anyone can make copies of these digital files.
With NFTs, the artwork is “tokenized” and has a digital certificate of ownership.
Trading of these assets is possible online. This digital certificate proves ownership of an asset. Each NFT has its own blockchain-based code and cannot replace another asset of the same type. Hence the name ‘non-fungible’.
While NFTs do not stop anyone from making copies of a piece of digital artwork, there’s just one authentic piece and NFTs provide the certificate of authenticity.
What do you own when you buy NFT and who owns the copyright?
Unless stated otherwise, ownership of non-fungible tokens does not entitle you the ownership of the digital asset’s IP rights. Consequently, the NFT owner cannot reproduce, make derivative works, perform, display or distribute copies of the content. These activities remain the exclusive domain of the originator of the asset. When you buy an NFT, you just hold the right to claim ownership of the NFT itself and the right to prevent others from claiming ownership of that non-fungible token (NFT). Beyond that, it depends on the terms and conditions governing the NFT. The original maker/creator owns the copyright of their work unless they transfer ownership of the copyright. Think about a book signed by its author. You own the signed copy, they own the rights of all the other copies.
Consider the legal rights and implications of each NFT platform as well as NFT before purchasing. At the moment, there is a considerable disparity in the rights and terms granted to NFT owners. The terms and conditions show on the NFT license, and it defines the rights of both owners of ERC-721 NFTs as well as artists and creators working with NFTs. For instance, the CryptoKitties license allows NFT owners to make commercial use of their kitties, with a gross revenue cap of $100,000 annually.
Do NFTs Work like Cryptocurrency?
NFTs are encoded with the same underlying technology as cryptocurrencies. Non-fungible tokens primarily operate on the Ethereum blockchain, a decentralized ledger stored on multiple computer networks. This ledger records and validates transactions, which can be viewed but cannot be altered. It is worth noting that other blockchains can also implement their own versions of NFTs. In a nutshell, NFTs are recorded on a blockchain and every token holds details about a single digital piece on the block.
How big is the NFT Market?
As per the latest report from Consensys, a blockchain development company, the non-fungible tokens market surged over 800% to reach $490 million in April 2021, compared to $52 million in December 2020. In April 2021, a massive 151,977 pieces of NFT art were sold compared to a mere 53,663 unique NFT artworks sold on the five largest platforms, in the year 2020. The report also states that collectibles dominate the NFT market with ~40% share, followed by Sports (~31%), Art (~11%), Games (~10%), and others (~8%).
Big investors, celebrities, and organizations are captivated by this frenzy, touting their work and flooding the market with NFTs. In Feb 2021, an animated Gif of Nyan Cat (a 2011 meme of a flying pop-tart cat) was sold for around $600,000. Digital artist Mike Winkelmann, better known as Beeple, sold one of his pieces at a record-breaking $69 million, at Christie’s auction house, in Mar 2021. During the same month, musician Grimes sold some of her digital art for more than $6 million, while DJ Justin Blau, (aka 3LAU), sold the NFTs of his previously released albums for $11.7 million. As mentioned, NFTs are not limited to art; Twitter’s founder Jack Dorsey sold his first tweet as an NFT, for over $2.9 million. Other popular NFTs included GIFs sold by billionaire Mark Cuban for $81,000 and album sale ‘When You See Yourself’ by Kings of Leon for over $2 million.
While the NFT market recorded hefty sales in early 2021, there are signs that it has started to slow down a bit. As per the data from nonfungible.com, the total amount of NFT sales has declined by almost 28% and the total value of sales fell by almost 14% between Mar 30th and Apr 28th. The art sector sales plummeted by around 41.5%, to reach $41.5 million from $71 million. Sports NFTs (including player cards, virtual racing cars, and even digital racing horses) and collectibles (including CryptoPunks and CryptoKitties). Also experienced a respective decline of 20% and 32% in sales in April 2021, compared to March 2021. On the contrary, metaverse (where virtual plots of land and digital real estate are sold), was the only sector that grew in terms of both sales volume and dollars spent, during April 2021.
Will NFTs be a short-lived craze, or will this new revolution stay for good?
The NFT market has completely transformed the way digital assets are bought and sold. On one hand, skeptics have now started questioning it and comparing it with the dot-com bubble waiting to burst. On the other hand, the supporters believe that the average price of digital assets might eventually drop. However, the world of NFTs will continue to expand.
Authored by Ekta Bhatia
Edited by Yara Fakhoury
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