By Kenneth Horsfall
What is an NFT? An NFT is a non-fungible token (NFT), a non-interchangeable unit of data stored on a blockchain, a form of digital ledger that can be sold and traded.
Types of NFT data units may be associated with digital files such as photos, videos, and audio because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.
NFT ledgers claim to provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. NFTs do not restrict the sharing or copying of the underlying digital files, do not necessarily convey the copyright of the digital files, and do not prevent the creation of NFTs with identical associated files.
NFTs have been used as a speculative asset, and they have drawn increasing criticism for the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams and claimed structure of the NFT market to be a Ponzi scheme.
An NFT is a unit of data stored on a digital ledger called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose. An NFT (and, if applicable, the associated license to use, copy or display the underlying asset) can be traded and sold on digital markets. The extra-legal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, often conferring little more than use as a status symbol.
How Is an NFT Different from Cryptocurrency?
NFTs function like cryptographic tokens, but, unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually interchangeable, hence not fungible.
While all Bitcoins are equal, each NFT may represent a different underlying asset and thus may have a different value. NFTs are created when blockchains string records of cryptographic hash, a set of characters identifying a set of data, onto previous records, therefore, creating a chain of identifiable data blocks.
This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership. However, data links that point to details such as where the art is stored can be affected by link rot.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
How Does an NFT Work?
NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You’re probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible.
Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.
An NFT is created or “minted” from digital objects that represent both tangible and intangible items, including:
- Art
- GIFs
- Videos and sports highlights
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. That’s right: NFTs can have only one owner at a time. NFTs’ unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
Early History of NFT (2014–2017)
The first known “NFT”, Quantum, was created by Kevin McCoy and Anil Dash in May 2014, consisting of a video clip made by McCoy’s wife, Jennifer. McCoy registered the video on the Namecoin blockchain and sold it to Dash for $4, during a live presentation for the Seven on Seven conference at the New Museum in New York City. McCoy and Dash referred to the technology as “monetized graphics”.
A non-fungible, tradable blockchain marker was explicitly linked to a work of art, via on-chain metadata (enabled by Namecoin). This is in contrast to the multi-unit, fungible, metadata-less “coloured coins” of other blockchains and Counterparty.
In October 2015, the first NFT project, Etheria, was launched and demonstrated at DEVCON 1 in London, Ethereum’s first developer conference, three months after the launch of the Ethereum blockchain. Most of Etheria’s 457 purchasable and tradable hexagonal tiles went unsold for more than five years until March 13, 2021, when renewed interest in NFTs sparked a buying frenzy. Within 24 hours, all tiles of the current version and a prior version, each hardcoded to 1 ETH ($0.43 at the time of launch), were sold for a total of $1.4 million.
The term “NFT” only gained currency with the ERC-721 standard, first proposed in 2017 via the Ethereum GitHub, following the launch of various NFT projects that year. The standard coincided with the launch of several NFT projects, including Curio Cards, CryptoPunks (a project to trade unique cartoon characters, released by the American studio Larva Labs on the Ethereum blockchain) and rare Pepe trading cards.
Increased Public Awareness of NTF (2017–Present)
The 2017 online game CryptoKitties was monetized by selling tradable cat NFTs, and its success brought some public attention to NFTs.
The NFT market experienced rapid growth during 2020, with its value tripling to $250 million. In the first three months of 2021, more than $200 million were spent on NFTs.
In the early months of 2021, interest in NFTs increased after a number of high-profile sales and art auctions.
Copyright of NFT
Ownership of an NFT does not inherently grant copyright or intellectual property rights to the digital asset a token represents. While someone may sell an NFT representing their work, the buyer will not necessarily receive copyright privileges when ownership of the NFT is changed and so the original owner is allowed to create more NFTs of the same work. In that sense, an NFT is merely proof of ownership that is separate from copyright.
According to legal scholar Rebecca Tushnet, “In one sense, the purchaser acquires whatever the art world thinks they have acquired. They definitely do not own the copyright to the underlying work unless it is explicitly transferred.”
To be continued…
My name is Kenneth Horsfall and I’m the creative director and founder of K.S. Kennysoft Studios Production Ltd, fondly called Kennysoft STUDIOs, a Nigerian Video and Animation Production Studio. I am also the founder and lead instructor at Kennysoft Film Academy and can be reached via [email protected]
