If you have been wondering what on earth a NFT is but too embarrassed to ask what the big fuss is about, the following article courtesy of Latitudes explains it all.
Non-fungible tokens (NFTs) have consumed the art-world of late, with onlookers equally fascinated and abhorred by this elusive new technology. With memes and algorithm-generated pixel art images selling for millions of dollars, it’s hardly surprising that the craze is being likened to tulip mania, but we’re here to tell you that no, NFTs are not going to quietly disappear.
Without going into too much detail, here’s a quick rundown of how NFTs work. The tokens are built on blockchains, and you can think of the blockchain system as a ledger that stores every NFT that has ever been created on it with a unique identification code. Once an NFT is created, it cannot be removed or replaced, making NFTs indispensable for proving origin and authenticating ownership. With this in mind, it’s clear why NFTs have found a place in the art, luxury brand and collectable markets, as they help combat fraud and forgery by providing digital verification of an item’s authenticity and ownership. In fact, Nike has patented a method to verify sneakers’ authenticity using an NFT system, which it calls CryptoKicks.
But it goes further than preventing fraud and protecting a collector’s valued asset. NFTs can provide end-to-end traceability, thus addressing the rising consumer demand to know how goods are sourced. Whether you’re using blockchain to track how a beer is made, from barley to bar, or tracing E-coli contamination in lettuce crops, the technology is set to revolutionise transparency in supply chain logistics.
ID and certification is another application for NFTs, with forward-thinking Covid vaccine passports already adopting the technology. Seeing as it’s almost impossible to fake data on a blockchain, and that users’ information can be securely stored, this is a massive application for the technology.
But what does it mean for the art world? For us, it’s not about Beeple works selling for $69 million dollars, and more about the technology changing the way we sell (and resell) art. The hype is necessary to pique everyone’s curiosity, but after it dies down, the real value of NFTs will shine through.
Most notably, NFTs will be used to authenticate the originality of an artwork, and this can be extended into the realm of physical works, functioning as your traditional Certificate of Authenticity. Moreover, ownership can be logged on the blockchain, preventing fraud and forgery, while allowing the artist to retain their copyright and reproduction rights.
When it comes to artists being fairly compensated for their work, NFTs ensure that they will receive a royalty every time their work is resold. This is because NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFTs without a third party. Artists can use smart contracts to build even deeper rules into their smart contracts – such as rules preventing owners from selling the work within a certified time span, thus preventing the notorious practice of ‘flipping’ artworks.
Essentially, NFTs can provide owners with certificates of authenticity relating to just about anything you can think of – from artwork, music, collectibles, to data and even real estate.
While some may have considered (and hoped) them to be a flash in the pan, NFT’s show no signs of slowing down’.