For the past couple of months now, NFTs have been all the craze in the crypto and new-technologies space. We have all had to take successive rapid-fire lessons on what bitcoin, blockchain, Ethereum, and DeFi are since bitcoin and other cryptocurrencies debuted in 2009. And now, with NFTs being the latest innovation in the cryptocurrency space, everyone is having to learn what they are and what they stand to gain from them.
So, what are NFTs? Well, simply NFT is an acronym, and it stands for Non-Fungible Tokens. Fungibility of any product or an economic item is essentially the interchangeability of the said product. Gold, for example, is fungible. A kilogram is always equivalent to any kilogram of gold, provided standard purification processes are followed.
However, for an item to be considered non-fungible, it must be unique and non-interchangeable. At the moment, NFTs are digital artworks that are created and sold on blockchains. They include audio, video, or photo files. They may be sold for money or exchanged, but 2 different digital tokens will never be the same, hence non-interchangeability.
Currently, there is a flurry of activity in the NFT market. In what is probably the biggest NFT transaction to date, Christie’s, a traditional auction house, sold an artwork produced by Beeple, an American digital artist, for $69M. Twitter’s CEO sold his first tweet for $2.9M. Also, Grimes, a Canadian music artiste, sold a couple of her artworks for $5.8M.
These and many other such transactions created the current media buzz around NFTs. Already, it is estimated that NFT purchases have surpassed a total of $200M. The technology was developed on the Ethereum blockchain, but other crypto exchanges have begun to encourage the development and sale of NFTs on their blockchains.
The attention around NFTs can be likened to the ICO buzz less than 4 years ago before the SEC and Silicon Valley began to take action against ICO sponsors. And just like with ICOs, NFT buyers purchase tokens (in this case, representing digital files), hoping that they rise in value. However, unlike ICOs, NFTs also have utility as collectibles and not just as investment options.
A few legal issues are arising around the sales and exchange of NFTs.
- The first and probably the most important is copyright. An NFT is simply a sort of certificate of ownership of a digital file. It does not immediately confer the ownership of the artwork itself on the buyer. In most cases, the artists retain the copyright.
- Also, there have been reports of fraud. Several artists have raised alarm about their artwork being sold as NFTs without their permission.
- Also, there are issues around adult stars attempting to sell their content as NFTs.
Apart from these, there are a whole lot of other developing legal issues around NFTs. One thing is sure, regulators and lawyers are going to have much NFT-related work on their hands in the coming months.
You may not know this, but NFTs have been around for quite a while, they have been mostly used in the mobile gaming space, where they had some form of value relating to the games. Right now, they are being sold as investment options, the digital equivalent of art. However, the value of art is in its tangibility and uniqueness.
Even though there may be a million physical and digital copies of Van Gogh’s starry night, there can only be one original copy, and therein lies its value. However, with NFTs, there are no physical copies, just digital files that can be viewed and downloaded by anyone. Plus, sellers still retain copyright and can sell other copies of the same art. Thus, they have no real value.
My opinion on NFTs is short and simple. There is a lot of much-undeserved hype around NFTs, just like there was around ICOs between 2016 and 2017. And just like the ICO bubble, the NFT bubble is bound to burst sooner or later, with or without influence from the SEC and Silicon Valley, and other regulators in markets around the world.