NFTs

NFTs

Ralph Matta

NFTs: we’ve all heard of them, but most people don’t really know what they are or what they mean. To many, an NFT is simply an image, but in reality this is not the case. Roughly 7 years ago, they experienced a vast rise in popularity and have been bought (for seemingly unreasonably high prices) by multiple high-profile celebrities including rapper Snoop Dogg, footballer John Terry, and skateboarder Tony Hawk. Yet there remains a certain enigma surrounding the notion of an “NFT”; so what does this mystical concept actually mean or do and what makes it so special?

If you were told that “NFT” stands for “non-fungible token”, this likely fails to elucidate, so let’s break it down. Being “non-fungible” means that an item is entirely unique and not interchangeable. A result of this is that there is only one version of the item, which cannot be replaced with anything else. For example, money is fungible because you can make a legitimate transaction with any banknote or coin - all cash (of the same value) is effectively identical. The “token” part of “non-fungible token” simply refers to it being an object or article. Therefore, an NFT can be thought of as a unique digital asset. This can represent any real-world thing desired, ranging from masterpiece works of art to hilarious videos. This is one of the main distinctions between NFTs and the commonly associated cryptocurrency. Cryptocurrency, whilst also a virtual asset representing a value, has no other data (than metadata). One bitcoin or ether is equivalent to any other bitcoin or ether respectively: in other words, cryptocurrency, as with all other monetary currencies, is fungible. In spite of this major dissimilarity, the underlying software of NFTs can, to a great extent, be likened to that of many cryptocurrencies. One reason why this is the case is because both cryptocurrencies and NFTs use blockchain technology for verification of ownership.

NFTs have many prospective and potential advantages, whilst also having some (inherent) limiting shortcomings. As for the former, not only are NFTs non-fungible (unlike traditional digital assets or files like MP3s or JPEGs), but they also carry with them a traceable history of ownership, which allows for tracking the provenance of a particular given NFT. Due to the very nature of the blockchain, which itself is a publicly distributed ledger, everyone can see who currently owns the NFT, who used to own it, and who initially created it. This is incredibly beneficial - indeed this power is being increasingly utilised - because it can reduce (identity) fraud/scams, and can increase transparency, and therefore trust, in the NFT market. On the note of changing ownership of NFTs, it is notable that they can be bought and sold with extreme ease. There is a multitude of dedicated (NFT-devoted) marketplaces, including the extremely popular OpenSea, thereby rendering it astonishingly simple and hassle-free to trade NFTs; what with the decentralised nature of such transactions.

Despite these profound benefits, there are some drawbacks associated with the very concept of an NFT. Firstly, an NFT could be used to distribute and sell exploitative content, such as to voyeuristic purchasers. This can be used to bypass laws that prohibit the circulation of such material, which is generally agreed to be harmful to society. Furthermore, they can act as a medium through which money can be anonymously laundered. NFTs open up a whole new area of opportunity for criminals or people with illegal agendas to make illicit transactions. It facilitates criminal activity and can easily enable people to contravene legislation. Indeed, a concern that some have is that NFTs could serve as a platform that terrorist or extremist organisations utilise to operate, receive donations, and thrive. In general, NFTs make it easier to circumvent trade restrictions, and sanctions, too.

Non-fungible tokens have undergone an incredible and unforeseen rise in popularity, in part on account of the rise in “hype” surrounding both blockchain and cryptocurrency technologies. NFTs are still in their infancy, and so there is certainly space and time for improvement. They are not, by and large, accepted by businesses and other institutions, nor as legal tender, which, whilst not being an inherent flaw of the NFTs themselves, is undeniably unfavourable. Whilst the industry is still relatively nascent, the technology has provided some unique advantages. These advantages can, however, be flipped around and used to facilitate malice. For good or for ill, NFTs may well be here to stay.