Non-Fungible Token (NFT)
What is NFT? NFT stands for Non-Fungible Token.
If you want to understand NFT you need to understand a bit about the blockchain.
If you would ask your ChatGPT trained model, Google or your personal favorite source of information
you could get something like:
A blockchain is a distributed and decentralized digital ledger technology that
records transactions across multiple computers or nodes in a secure and transparent manner.
Wow nice right? Ok let's try to break it down.
-
Distributed Ah like the internet that was born in the 90's right? Multiple computer in
different locations making up as single website. Distributed sure.
-
Decentralized No central owner, not a single party responsible but a collaboration based
on some set of agreements. Ok sounds cool right. I do not need a single governing to regulate things, the 'system'
can do it on it's own by some form of consensus. This should speak to all the hippie commies out there.
-
Digital ledger A registry with numbers. Not a book but a digital version of it. Ok fine.
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That records transactions Ok that's usually the purpose of a ledger.
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Across multiple computers or nodes Yeah yeah we know distributed and decentralized, got it.
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In a secure and transparent manner Ah but this is important. I would have preferred secure, reliable, transparent and
immutable but hey I'm no ChatGPT. But what it boils down to is that the transaction is:
- public and
- undisputable
It represents an actual and verified event. And that is actually cool!
Basically this was the promise and the hype of the blockchain. In our pre-blockchain world, digital data could be tempered with and
furthermore ownership of ethereal digital data was arbitrary, how can you claim ownership of something that is in essence a
collection of 0's and 1's. The introduction of the blockchain opened up the way to actually undisputably claim ownership.
So the first thing we used the blockchain for was (we are still capitalists right) to store value that can be traded (secure,
reliable and transparent). And born is the cryptocurrency.
Another name for cryptocurrency is a Fungible Token. (yes be patient we are getting there).
If you would like a definition of cryptocurrency or fungible token: it is nothing more than something (an asset) on
the blockchain that is exchangable from owner to owner, but with a twist.
Cryptocurrency of Fungible Token (FT)
-
It is not unique and
-
It is divisable
It is just an address on the blockchain (the ledger) with a virtual value attached to it based on some supply and
demand market techniques. Not much different than the tokens in your wallet or on your bank account called dollars or
euro's but without any physical representation. It can be divided further down like your dollar can be broken up into multiple
cents right? Furthermore the thing is not unique, like any dollar can be interchanged with any other dollar, same with the asset
on the blockchain.
Then on to the Non-Fungible Token. The NFT only differs from the Fungible Token in two aspects.
Non-Fungible Token (NFT)
-
It is unique and
-
It is not divisable
So one more time:
The Fungible Token (cryptocurrency): is an exchangeable asset on the blockchain that is divisible but is not unique.
And a non-fungible token (NFT): is an exchangeable asset on the blockchain that is not divisible but is unique.
NFT today
If you are still here. We are not quite done yet. In it's current popular form an NFT also has some digital data
attached to it. This is not data on the blockchain. It is data registered specifically for this NFT. In that sense an
NFT as we know it now consists of a blockchain address (that is exhangeble) and some piece of digital data
(that hopefully has some artistic value, the art piece that cannot be divided into smaller art works) and it has
some value attached to it (the price) that can be traded or exchanged.
Conclusion
An NFT is a data file, stored on the blockchain, that can be sold and traded.
And now we use it so sell overpriced jpeg files to each other of which we can then claim indisputed ownership!
I had some fun with my assistent ChatGPT when I was writing this and I asked it to pose the pro and con arguments. What do you think?
Opponents
Critics argue that NFTs, at their core, are often nothing more than a mechanism for selling digital images, such
as JPEG files, at exorbitant prices. They contend that the NFT market has, in some cases, lost sight of the fundamental value
of the underlying content, placing excessive emphasis on the scarcity of ownership rights instead. This has led to scenarios where
digital art, which can be easily copied and distributed, commands astronomical prices simply because it is linked to a token on
a blockchain. The notion that buyers are paying vast sums for the privilege of ownership or bragging rights rather than intrinsic
value has raised concerns about the sustainability of this trend and whether it represents a speculative bubble. Critics suggest
that the NFT market needs to regain a focus on the artistic or creative merit of the content itself to justify the often overblown
price tags associated with these digital assets.
Advocates
NFTs have been hailed as a revolutionary force in the world of art and creative expression. They have the potential to redefine how we
perceive and value art by placing artists and creators at the forefront of their work. NFTs empower artists to directly monetize their
digital creations, eliminating the need for intermediaries and providing a new source of income. Furthermore, the blockchain technology
underpinning NFTs offers unprecedented transparency and authenticity, ensuring that ownership and provenance of artworks are indisputably
recorded. This not only combats issues of plagiarism but also encourages a deeper connection between artists and their audience. NFTs can
break down traditional barriers to entry in the art world, fostering inclusivity and global accessibility for artists, collectors, and
enthusiasts. The ability to embed royalties for artists in smart contracts ensures ongoing support and recognition, making NFTs a potential
game-changer in the way art is created, shared, and appreciated in the digital age.
Jeroen Vesseur, november 2023.
