NFTs Explained By A Basement Dwelling Tech
13NFTs Explained By A Basement Dwelling Tech
A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger.[1] NFTs can be associated with reproducible digital files such as photos, videos, and audio. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.
NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams.[2][3] Further criticisms challenge the usefulness of establishing proof of ownership in an often extralegal unregulated market.[4]
Description
An NFT is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded.[5] 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.[6] An NFT (and the associated license to use, copy or display the underlying asset) can be traded and sold on digital markets.[7] The extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement,[4] often conferring little more than use as a status symbol.[8]
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.[9] 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.[10] This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership.[10] However, data links that point to details like where the art is stored can die.[11]
Copyright
Ownership of an NFT does not inherently grant copyright or intellectual property rights to whatever digital asset the token represents.[12][13] 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.[14][15] In that sense, an NFT is merely a proof of ownership that is separate from a copyright.[13][16] 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."[17] In practice, NFT purchasers do not generally acquire the copyright of the underlying artwork.[18]
Technology applications
The unique identity and ownership of an NFT is verifiable via the blockchain ledger.[19] Ownership of the NFT is often associated with a license to use the underlying digital asset, but generally does not confer copyright to the buyer. Some agreements only grant a license for personal, non-commercial use, while other licenses also allow commercial use of the underlying digital asset.[20]