What are Non Fungible Tokens (NFT)?
In today’s digital world, a non-fungible token (NFT) is a digital asset that is sold and traded online. Most current NFT implementations are secured using blockchain technology. NFTs can be associated with a wide variety of things like art, music, and videos; they are treated similarly to cryptocurrency. An NFT can be compared to a collector’s item but digital. This type of monetary system helps artists to sell their work without being required to put their work in physical galleries.
The NFT has built-in authentication which shows ownership in order to prevent copying. In addition, this authentication allows digital creators to receive royalties every time their work is re-sold. The main difference between NFTs and typical forms of currency like a dollar bill or cryptocurrency are that they are non fungible – one NFT is not always the same value as another NFT. They are not interchangeable, there is no non-fungible token standard. For example, a dollar is fungible because one dollar bill is always equal to another dollar bill just like one unit of a cryptocurrency is always equal to another unit of that same cryptocurrency.
The value of an NFT is determined by its uniqueness and of course demand. A creator can sell one completely unique non fungible token or a non fungible token having multiple replicas. The number NFTs released by the creator affects the price. However, as well known, price is determined by what people are willing to pay. For example, a buyer could purchase an NFT for 0.5 Ethereum (a form of cryptocurrency commonly used for NFT purchasing) but only be able to sell it for 0.2 Ethereum. In summary, the value of an NFT varies by NFT and is based on demand. Note: there is not a non fungible token standard.
What is blockchain technology?
Blockchain technology is a relatively new and complex system. In simple terms, blockchaining is just growing a connected list of data records linked together. Blockchain technology is often used to create and support NFTs. This is because blockchaining is easy to secure and easy to use for verification of the authenticity of an NFT. One example of blockchain technology that is used for NFTs is the Ethereum Blockchain.
The Ethereum Blockchain is how ownership is proven and protected for a form of NFTs. As Ethereum describes it, each NFT is unique and determinable by an identifier, comparable to a bar code, even on replicas. The Blockchain protects the non fungible token from being manipulated or copied in any way. Within the Blockchain, there are “blocks” that are created around every 12 seconds. The system works this way to make it tamper-proof and secure with miners constantly working and verifying. A miner works with the special Blockchain mining software to verify transactions and ensure computers are working together correctly.
According to Ethereum, “The more blocks the more secure the chain. If your NFT was created in block #600 and a hacker were to try and steal your NFT by modifying its data, the digital fingerprint of all subsequent blocks would change. That means anyone running Ethereum software would immediately be able to detect and prevent it from happening.” Because of this ease of detection and therefore improved security, blockchain NFTs have taken off with more than $174 million spent on NFTs since November 2017.
NFT Definition and How to Use Them
How to Use NFTs with Cryptocurrency
Non fungible tokens are easy to use. NFTs are accessed electronically or digitally online. It is an electronic or digital link generally like any other. The difference is that on the other end of an NFT digital link, the special properties of that NFT are stored, secured, and can be readily verified. While there are more traditional currency based registration and purchasing tools available for NFTs, in today’s digital world, the best example is NFTs bought and sold with cryptocurrency. NFTs are bought and sold like anything else making them rather very easy to use. In order to use NFTs, you need two things connected together: first, a digital wallet, and, second, an online marketplace.
The first thing needed to use NFTs is the place to keep them – that being a digital wallet. To buy an NFT, the first step is to create a cryptocurrency digital wallet using some form of traditional currency. The digital wallet is a secured online digital warehouse used to store, receive, and send NFTs. Most often, NFTs are bought and traded with either Ethereum or Bitcoin.
The second thing needed is a place to trade (buy and sell) the NFTs. The marketplace in which the NFT is located determines what form of payment is required. Popular places to buy NFTs are OpenSea, Rarible, SuperRare, and Foundation. For example, OpenSea uses Ethereum to trade NFTs. Ethereum can be purchased the same way as Bitcoin and other cryptocurrencies – Coinbase, Robinhood, MetaMask, etc. The marketplace determines the cryptocurrency. You will need cryptocurrency to trade NFTs. After purchasing cryptocurrency, it is added to the digital wallet enabling NFT trading.
After the digital wallet it set up and a marketplace is chosen, the next step is connecting the wallet to the marketplace. Each marketplace is a little different on how to purchase and sell NFTs. However, virtually all of the marketplaces make the process relatively easy to follow. After purchasing a non fungible token, the new digital asset will be stored in the wallet until the buyer sells it to another buyer. Some people collect and keep them and others resell them.
Famous Examples of NFTs
- Jack Dorsey, Twitter co-founder, sold an NFT of the first ever tweet for more than $2.9 million. (not the first non fungible token)
- Mike Winklemann (commonly known by his artist name “Beeple”), a famous digital artist, combined 5,000 daily drawings to create one work called “EVERYDAYS: The First 5000 Days,” which sold for a staggering $69.3 million.
- A highlight clip of Lebron James sold for more than $200,000.
- Grimes, a musician, sold a collection of 10 NFTs for over $6 million.
Is a Non-Fungible Token Intellectual Property?
Simply put, no, a non fungible token is not intellectual property. An NFT itself is not a form of currency or intellectual property. However, the underlying digital image could be protected under a copyright or in a trademark. For example, an artist could register a copyright for their work and create a non fungible token of the same work. Just because it is copyrighted does not make it an NFT. Also, just because it is an NFT does not mean it is protected by a copyright. For this reason, creators (authors and artists) of original works should be aware that even when they create an NFT, their original work is still copyrightable.
An NFT is more comparable to the form of a property record or individualized receipt than it is to a form of intellectual property. There is, however, a similarity between copyrights and trademarks and NFTs. All three are applied for, registered, issued, and accessible online. Interestingly, in 2022, patents are going to start to be issued online as well, thus also making patents similar to NFTs.
As discussed previously, non fungible tokens are usually purchased and sold using blockchain technology. This type of software is used to verify ownership and the rights to the NFT. With “international” copyrights and trademarks, a digital ledger similar to the blockchain technology used for NFTs is used to verify the owner of the copyright or trademark. The USPTO is planning to start issuing patents online in 2022. Read more about international copyrights and international trademarks.