What Is NFT?
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. Because each token is uniquely identifiable, NFTs differ from most cryptocurrencies, such as Bitcoin, which are fungible.
NFT ledgers claim to provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. NFTs do not restrict the sharing or copying of the underlying digital files, do not necessarily convey the copyright of the digital files, and do not prevent the creation of NFTs with identical associated files.
NFTs have been used as a speculative asset, and they have drawn increasing criticism for the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams. The NFT market has also been compared to a Ponzi scheme.
An NFT is a unit of data, stored on a type of digital ledger called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset including but not limited to, art, songs, and sport highlights and a license to use the asset for a specified purpose. An NFT (and, if applicable, the associated license to use, copy, or display the underlying asset) can be traded and sold on digital markets. The extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, and so often confers little more than use as a status symbol.
NFTs function like cryptographic tokens, but unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually interchangeable, and so are not fungible. (While all bitcoins are equal, each NFT may represent a different underlying asset and thus may have a different value.) NFTs are created when blockchains concatenate records containing cryptographic hashes—sets of characters that identify a set of data—onto previous records, creating a chain of identifiable data blocks. This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that tracks NFT ownership.
Ownership of an NFT does not inherently grant copyright or intellectual property rights to the digital asset the NFT purports to represent. Someone may sell an NFT that represents their work, but the buyer will not necessarily receive copyright to that work, so the seller may create additional NFTs of the same work. So an NFT is merely proof of ownership separate from copyright.
Commonly Associated Files
NFTs have been used to exchange digital tokens that link to a digital file asset. Ownership of an NFT is often associated with a license to use such a linked digital asset but generally does not confer the 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.
Digital art is a common use case for NFTs. High-profile auctions of NFTs linked to digital art have received considerable public attention. The work entitled Merge by artist Pak was the most expensive NFT, with an auction price of US$91.8 million, and Everydays: the First 5000 Days, by artist Mike Winkelmann (known professionally as Beeple) the second most expensive at US$69.3 million in 2021.
Some NFT collections, including EtherRocks and CryptoPunks, are examples of generative art, where many different images are created by assembling a selection of simple picture components in different combinations.
In March 2021, the blockchain company Injective Protocol bought a $95,000 original screenprint entitled Morons (White) from English graffiti artist Banksy and filmed somebody burning it with a cigarette lighter. They minted and sold the video as an NFT. The person who destroyed the artwork, who called themselves “Burnt Banksy”, described the act as a way to transfer a physical work of art to the NFT space.
American curator and art historian Tina Rivers Ryan, who specializes in digital works, said that art museums are widely not convinced that NFTs have “lasting cultural relevance.” Ryan compares NFTs to the net art fad before the dot-com bubble. No centralized means of authentication exists to prevent stolen and counterfeit digital works from being sold as NFTs, although auction houses like Sotheby’s, Christie’s, and various museums and galleries worldwide started collaborations and partnerships with digital artists such as Refik Anadol, Dangiuz, and Sarah Zucker, selling NFTs associated with digital artworks (via NFT platforms) and showcasing those artworks (associated with the respective NFTs) both in virtual galleries and real-life screens, monitors, and TVs.
NFTs can represent in-game assets, such as digital plots of land. Some commentators describe these as being controlled “by the user” instead of the game developer if they can be traded on third-party marketplaces without permission from the game developer.
CryptoKitties was an early successful blockchain online game in which players adopt and trade virtual cats. The monetization of NFTs within the game raised a $12.5 million investment, with some kitties selling for over $100,000 each. Following its success, CryptoKitties was added to the ERC-721 standard, which was created in January 2018 (and finalized in June). A similar NFT-based online game, Axie Infinity, was launched in March 2018.
In October 2021, developer Valve banned applications from their Steam platform if those applications use blockchain technology or NFTs to exchange value or game artifacts.
In December 2021, Ubisoft announced Ubisoft Quartz, “an NFT initiative which allows people to buy artificially scarce digital items using cryptocurrency”. The announcement prompted criticism with a dislike ratio of 96% over the YouTube announcement video, which has since been unlisted. Some Ubisoft developers also raised their concerns over the announcement. The Game Developers Conference’s 2022 annual report stated that 70 percent of developers surveyed said their studios had no interest in integrating NFTs or cryptocurrency into their games.
Some luxury brands minted NFTs for online video game cosmetics. In November 2021, Morgan Stanley published a note suggesting that this use could become a multi-billion dollar market by 2030
In February 2021, NFTs reportedly generated around US$25 million in the music industry, with artists selling artwork and music as NFT tokens. On February 28, 2021, electronic dance musician 3LAU sold a collection of 33 NFTs for a total of US$11.7 million to commemorate the three-year anniversary of his Ultraviolet album. On March 3, 2021, an NFT was made to promote the Kings of Leon album When You See Yourself. Other musicians who have used NFTs include American rapper Lil Pump, Grimes, visual artist Shepard Fairey in collaboration with record producer Mike Dean, and rapper Eminem.
In May 2018, 20th Century Fox partnered with Atom Tickets and released limited-edition Deadpool 2 digital posters to promote the film. They were available from OpenSea and the GFT exchange. In March 2021 Adam Benzine’s 2015 documentary Claude Lanzmann: Spectres of the Shoah became the first motion picture and documentary film to be auctioned as an NFT.
Other projects in the film industry using NFTs include the announcement that an exclusive NFT artwork collection will be released for Godzilla vs. Kong and director Kevin Smith announcing in April 2021 that his forthcoming horror movie Killroy Was Here would be released as an NFT. The 2021 film Zero Contact, directed by Rick Dugdale and starring Anthony Hopkins, was also released as an NFT.
In April 2021, an NFT associated with the score of the movie Triumph, composed by Gregg Leonard, was the first NFT minted for a feature film score.
In November 2021, film director Quentin Tarantino released seven NFTs based on uncut scenes of Pulp Fiction. Miramax subsequently filed a lawsuit claiming that their film rights were violated and that the original 1993 contract with Tarantino gave them the right to mint NFTs in relation to Pulp Fiction.