Core message: If you own an NFT, you own the bragging rights to a digital file, the ability to sell it … and, currently, often little else. Although you have probably seen, bragging rights can occasionally sell for a lot of money.
Our 2-Cents: NFTs enjoyed a good year in 2021: chosen by Collins Dictionary as a word of the year and reaching and sales topping
USD 17 billion in the collectibles market. Now, let's see how this
nascent technology's business use cases take hold too.
Let's break it down...
A fungible item is something that is not unique and is thereby readily interchangeable with another item of the same type. A non-fungible item is in some way unique and not interchangeable with any other item.
A non-fungible token is, therefore, a token that has some element of uniqueness.
There is no definitive ‘feature list’ for NFTs.
At its simplest, an NFT is a contract/record on a blockchain which states the number of the token, indicates its owner, and includes a link to a digital file that resides off chain (e.g., on a website).
While an NFT can link to any digital file, currently the hype surrounds high priced, digital art NFTs: see examples here.
What an NFT is Not
There is a lot of misinformation around NFTs, so it is important to understand what an NFT "is not" .
Here we address some of the most common misconceptions:
Royalties: Royalties do not automatically accrue to the creator of the digital file each time an NFT is sold. Royalties are usually handled separately by the NFT auction site so are not an integral part of an NFT.
IP Rights: An NFT does not automatically confer any IP rights to its owner. (You can do this if you enter into a separate contract with the creator, but it is not an integral part of an NFT.)
Scarcity: More often than not, the number of NFTs in any series is not limited so more can be minted at any stage. Scarcity is not an integral part of a NFT series.
Immutability/Ownership: Even though an NFT exists on the blockchain, the digital file to which it relates does not. If that file is moved, or the website on which it resides closes, you then own a link (NFT) that leads nowhere.
Buyer Beware: It is easy to create NFTs. Many people are doing so and often link to images over which they have no legal right. Caveat emptor applies.
We mentioned it above, but it bears repeating, there is no definitive feature list that covers all NFTs. The only way to be certain of what you’re getting is to examine the code.
The Ethereum Blockchain is the most popular for minting NFTs and has two associated Standards:
NFT Use Cases
2021 was a good year for NFTs with sales topping USD 17 billion and its place within the public consciousness was
highlighted when it was chosen as a 'word of the year' by Collins Dictionary.
While NFT use is currently linked predominantly to the sales of digital art, this young technology has many other use cases.
NFTs have wide application as they represent digital ownership/control and the ability to transfer ownership/control and maintain a history of all transactions. This important functionality forms the basis of the many business use cases.
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