If you don’t already know about non-fungible tokens (NFTs) from a copyright and intellectual property perspective, now’s a good time to start.
This article is one in a series created to demystify this emerging technology and answer some of the many questions it raises:
- Who owns an NFT?
- What’s the difference between creative content and an NFT?
- What’s an NFT worth? Who’s it for?
- Can an NFT be used to market and/or promote art?
- What rights do creators have?
- What rights do buyers have?
The first step is to try to define an NFT and what it’s based on.
A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. Types of NFT data units may be associated with digital files such as photos, videos, and audio.
Cryptography is a method that makes it difficult for unauthorized users to access data.
In other words, cryptography is used to enhance the security of data transferred across the web.
For example, it’s used to encrypt passwords as they travel on the web.
What’s a token?
A token is an item whose primary value is as a symbol, in that it refers to something else.
An example would be a voucher that can be exchanged for a drink or for access to a ride at a fairground.
Next, what does fungible mean?
Fungible... like in fungus?
You might expect the word fungible to come from the Latin fungus, referring to mushrooms and mould (which is why we used fungicide) as well as a process of decay or decomposition in the natural world.
But no (lol).
Instead, fungi in this case is a Latin verb in a legal context meaning to be engaged in or to perform, execute or discharge a duty. An item is referred to as fungible if it can “do something.” If another item can do the same thing, the two items are interchangeable.
Fungible = replaceable
For instance, coins with the same value are fully interchangeable; nothing distinguishes one from another in their role, which is to embody monetary value.
A “fungible” token can therefore represent monetary value as long as it can be exchanged for any other similar token without losing any of its value.
Non-fungible = irreplaceable
In contrast, a “non-fungible” token represents an object that cannot be replaced, i.e. a unique item.
Unlike an apple that can be switched with any other apple without making a difference, an NFT can’t be replaced by another NFT because each one is unique. It’s not fungible.
That’s the main reason NFTs attract so much attention. Since an NFT can’t be replaced by any other and is a unique specimen, it ensures that the holder’s digital item is “the right one.”
What are NFTs used for?
The singular character of an NFT certifies its own authenticity and, at the same time, the authenticity of the creative content it represents.
Since an NFT is unique and can’t be replaced, it can be used as a sort of certificate of authenticity for the digital property it is associated with.
This complex technological tool has the potential to assign value to cyber objects or virtual content. One way it can be used is in the digital art market, a field where the authenticity of creative content is extremely important but difficult to guarantee.
We hope this introduction has given you some insight into the strange world of NFTs!