The business of purchasing art is traditionally associated with the sale of unique, physical objects whose source was verified by galleries, auction houses and, typically, a trail of paper, to distinguish an original from a copy. In the physical world, you can simply go and buy a painting that you wish to hang on your wall. You pay the artist and you become the owner of the painting. Now, that is possible even in the digital world through a Non-Fungible Token (NFT). With the rise of NFTs, digital “artists” can sell their “work” (or any image already freely available on the Internet) to a growing base of “collectors” with the click of a button. Through NFTs, every digital collectable is given a unique code making it a one-of-a-kind work of art.
What are NFTs?
In technical terms, an NFT is a unit of data which certifies a digital asset as being unique and not interchangeable. When used in the art world, NFTs operate like digital certificates, which establish the absolute ownership and authenticity of a digital artwork.
An NFT is a type of “crypto asset”, in which an asset is made unique by giving them a unique code. This unique code is like the ownership certificate of the digital asset. NFTs are digitally unique assets, and no two NFTs are the same.
NFTs, thus, are essentially computer files, combined with proof of ownership and authenticity, like a deed. They exist on a blockchain, or a secure digital, publicly-available ledger, which is also how cryptocurrencies exist. But cryptocurrencies differ from NFTs in a critical aspect: like traditional currency, cryptocurrencies are “fungible”. In other words, bitcoins are mutually interchangeable and one bitcoin will always be worth the same as any other bitcoin interchangeable (although the pricing of bitcoins may be subject to valuations made by the market). In contrast, NFTs are not fungible, i.e., they cannot be interchanged with each other, and every individual NFT has the potential to have a unique valuation set by the highest bidder.
Artists who seek to sell their work as NFTs must sign up first with an NFT marketplace, upload and validate their information on a blockchain, and thereafter, “mint” digital tokens, or NFTs.
Unique features of NFTs
Every NFT must have an owner, which is a matter of public record and easily verifiable. The ownership of that NFT is what makes them special, in that, such ownership is recorded in a secure verifiable digital ledger. The complete record of title, payment history, and information about the underlying asset is maintained on this decentralized digital blockchain. Critically, the ownership details are secure.
The security of the blockchain adds considerable value to NFTs as assets: once NFTs are entered in a blockchain, no one can modify the record of ownership or paste a new NFT into existence. This relatively secure record of ownership is what distinguishes NFTs from real-world assets, where ownership records and authentication remain challenging to establish.
NFTs can be bought, or sold, or traded, or used as collateral, just like other assets in the physical world. Of course, since NFTs are an emerging asset type, a lot of its uses are still under regulatory scrutiny and yet to be made universally publicly accessible.
NFTs in the art world
These special features make NFTs naturally amenable for use in the art world. Authenticity and ownership of artworks are critical aspects in the creative arena, particularly in the visual arts. Through NFTs, content creators and collectors now have means to certify authorship, establish authenticity, and secure ownership of a piece of art. Through NFTs, content creators can sell their work anywhere, and access a global market instantly. Creators can also retain ownership rights over their own work and claim resale royalties directly.
It is useful to note that the underlying item or asset linked to the NFT need not be an original work on which copyright subsists; it could be a limited-edition collector’s item, an animated GIF, a song, or a range of other things.
The second part of this article discusses the issue of copyright in relation to NFTs.