NFT stands for non-fungible token. Non-fungible essentially means the token is unique and cannot be replaced with another. For example, a Bitcoin is fungible, so, if you trade one bitcoin for another you would have the same thing. Whereas, if you traded one NFT for another you would have something completely different.
An NFT is a unique piece of metadata which has been coded onto a blockchain. The NFT relates to a virtual item in existence such as drawings, music or art. The NFT is like a digital certificate which allows buyers to confirm ownership of the digital asset.
The digital artist Mike ‘Beeple’ Winkelmann sold an NFT called Everydays: The First 5000 Days for $69.3 million dollars at a digital art auction. The NFT is a collage of over 5000 images Beeple created and shared during the previous 13 years.
It has become incredibly easy for digital works to be copied and pasted without the copyright owner’s consent. This can happen just moments after the work has been uploaded legitimately through an intermediary. Many identical copies shared online diminish the value of the original works. When it comes to physical artwork, for example, a painting by Van Gogh, the original is unique and any replication attempt of the original can often be detected by experts, maybe the painting technique or the material used are different. However, digital copyright works can be identically copied instantaneously.
So, what is different about an NFT?
A NFT is a unique piece of metadata which indicates the origin of the works in question. It is not a copy of the works, it is a unique token which represents the work, a link to the creator and the original. A NFT cannot be tampered with as it is securely stored in a blockchain record. A NFT could be considered as a certificate of authenticity that sometimes comes with a purchase of a physical painting. More than one NFT can be created for the same piece of work, but they are still limited by the number generated by the creator.
Copyright law is meant to give creators some control over the use of their works, and they should receive some benefit, usually money, when a third party uses the work. Copyright law gives creators rights over the copying, adaption, distribution, public performance or display, or the public communication of their works. However, in reality, the mass copying and sharing of online content has made it extremely difficult for copyright holders to assert their rights.
As there are far fewer NFT’s than the countless exact copies that could be created. Even if mass copies of a particular piece of work were to be made, diminishing its value, the value of its NFT would not decrease as it’s a scarce version of the digital work, a certificate of authenticity connected to the original. Another way of viewing an NFT is to imagine it is a signed limited-edition book. There may be millions of copies of that book, but the signed limited-edition version will usually have a higher value.
In the creative industry it has become common for creators to secure a deal with an intermediary. For example, musicians often have their works on platforms such as Spotify. The intermediaries that host and make the works available to end users tend to retain the largest part of the profits, while the copyright holders only receive a small fraction of the profits. Recently (29.09.2021), NME reported that fewer than 800 United Kingdom (UK) musicians make a living from streaming alone. The few that could make a living were achieving over 1 million UK streams a month. The intermediaries also often retain a lot of control of the use of the works. The tokenisation of digital works through NFT’s and blockchain technology could potentially allow creators to distribute their works directly to end users, giving them more control and allowing them to retain much more of the profits.
If you have any further questions about NFTs, please get in touch with the team today.