NFTs… easy as 123?

Unfortunately, not quite. But that doesn’t mean they have to be a mystery.

You may have seen the term “NFT” floating around recently. It’s just about everywhere, from Saturday Night Live skits, memes, and social media, all the way to Wall Street and the global tech giants. So what exactly is an NFT? While an explanation of NFTs can often sound like a mess of jargon and confusing principles, NFTs can be broken down to some reasonable basics.

What does NFT stand for?

NFT is short for “non-fungible token.” Clear as mud, we know, but bear with us. Non-fungible is another way of saying that something is unique and can’t be replaced with something else. Something that is fungible is anything that is interchangeable because they are identical, like money. With money, you can swap a $20 bill for two $10 bills and have the same value. A non-fungible item however is something that is one of a kind. A non-fungible item has unique qualities that cannot be interchanged with something else. NFTs are unique digital assets that can be bought and sold like any other piece of property, but have no tangible form of their own. So, an NFT is a unique digital token, the value of which lies in its unique nature. The digital token can be thought of as a certificate of ownership for virtual or physical assets.

How do they work?

From the 10,000 foot view, NFTs are part of a cryptocurrency blockchain. A blockchain is a digital ledger of transactions across a network of computer systems. NFTs are recorded in a digital ledger in the same way as cryptocurrency, so there is a listing of who owns each NFT. What makes an NFT unique is the digital asset it is connected to. This can be any non-fungible digital work such as an image, artwork, a meme, a song, sports memorabilia, and much more, that is uploaded to an NFT marketplace where the NFT is sold. These works can be uploaded to the marketplace and sold as NFTs, and the purchaser of the NFT will be added to the blockchain ledger as the owner of the NFT.

Does this mean the purchaser owns the image, art, meme, or song connected to the NFT?

No it doesn’t. This concept can be very strange, but the person who buys the NFT doesn’t own the actual asset on which the NFT is based. The purchaser of an NFT owns the token, but the creator of the original work retains the intellectual and creative rights. The purchaser has a record, hash code, and metadata in the blockchain showing ownership of the unique token associated with the original work. But this is digital art; can’t it be replicated and distributed infinitely? Of course, but we can look at it like art prints. There are hundreds of thousands of prints and reproduction of Van Gogh’s Starry Night, but since they are not the original, they are far less valued. The same principle applies to NFTs, you can copy and paste an image but only the original, together with the hash code and metadata, digitally signed by the artist, holds value. The buyer is purchasing the NFT which contains the digital work as well as the indelible signature of artist and all transactions associated with the artwork as digital proof of authenticity and uniqueness.

So how can you take advantage of NFTs?

As an artist you might be interested in NFTs because they are a new way to sell digital versions of your work, while retaining your ownership rights. This type of sale creates an easily trackable ledger where you can follow the ownership of these NFTs. Also, you can keep some control as to resale of the NFTs, including a percentage of each resale of the NFT on the blockchain. While there are fees involved for an artist, including fees required to make and sell the NFT through the specific marketplaces, savvy digital artists can find a great market for their work as NFTs grow in popularity.

As for buyers, NFTs present a unique opportunity to own a piece of art or pop culture history. The NFT serves as contracted proof of ownership that lives on an easily traceable digital ledger. NFTs offer a blockchain-created certificate of authenticity for the digital asset and tracks the ownership. This proof can be very valuable to buyers and collectors alike. 

NFTs are a new and exciting market for creatives, but can initially be tricky to navigate. We at Creative Law Network are always ready and able to help if you have any questions, or are hoping to dive into the world of NFTs and are looking for protection and a knowledgeable guide!