My little boy quickly figured out why NFTs have been in the news lately – the money generated by the hefty trading volume. As of October 2022, the 24-hour trading volume of NFTs is approximately $5.8 billion and Total market capitalization is $978 billion. A quick Google search will tell you this The most expensive NFT ever sold was Larva Labs’ CryptoPunk #9998, which sold for $529 million in October 2021.. NFTs are sold for millions and traded in the trillions. I can see why my ten year old cared – he was looking forward to getting rich!
As a nerdy lawyer, I have a different interest in NFTs. I want to understand their purpose and the problem the technology is trying to solve. Our world is increasingly digital. But the real-world characteristics of exclusivity, value, rarity and private ownership are not easy to replicate in the digital marketplace. In the real world, I can buy a print of a Van Gogh painting for $20 on Amazon or buy a single original Van Gogh painting for millions of dollars. The two pieces of art look alike, but the latter is unique, highly valuable, and rare and only one person can own it. However, in a digital environment, the copy and the original will look the same to most people. NFT technology attempts to solve exactly this problem.
NFT stands for non-replaceable token. Irreplaceable is an economic term that describes items that cannot be exchanged due to their unique qualities, such as real estate, real estate, songs, artwork, etc. In contrast, exchangeable items such as money are exchangeable because their value determines them rather than their uniqueness.
Jigna Dalal, eDiscovery Consultant, Squire Patton Boggs
In the current development of the Internet, Web 2.0, major companies curate their own content and publish that content on their own servers. On the other hand, individual content creators have to use third party platforms to create and distribute their content. In the process, the individual content creator may have to relinquish control and rights to create it, as well as any profits they may make. Once the content is distributed, the digital duplicate of the content is identical to the original. Web 2.0 is a prime deal for these independent content creators. But lawyers like me can thank Web 2.0 for giving us the bills for years to fight property rights or our first controversy in court!
NFT is trying to solve the confusion caused by Web 2.0. NFT stands for non-replaceable token. Irreplaceable is an economic term that describes items that cannot be exchanged due to their unique qualities, such as real estate, real estate, songs, artwork, etc. In contrast, exchangeable items such as money are exchangeable because their value determines them rather than their uniqueness. In general, the blockchain creates a ledger of immutable records. The fixed record is NFT, which can be cut into pieces. This means that the entire NFT or parts of the NFT can be used as currency (i.e. cryptocurrency) or linked to the assets as a record of ownership.
The digital market mainly consists of two roles: the owner of the NFT and the buyer of the NFT. The NFT owner digitizes the raw data and then stores it in a database. Then the owner signs the transaction using a hash and sends the data to a smart contract. The smart contract processes the data, then mints it or trades it on the blockchain as a transaction. The blockchain uses its magic, also known as advanced mathematical computation, to confirm the accuracy of a transaction. Once a transaction is confirmed, the NFT is permanently linked to the unique hash identifier and distributed blockchain records. Now NFT is immutable and has an original owner.
An NFT is a digital certificate of ownership or rights to a unique asset whose ownership is registered on the blockchain. NFTs represent digital art, photos, videos, audio files, collectibles, tokens, game items, tickets, and other digital assets. Furthermore, they can represent almost any digital or physical asset as well as entitlements (eg tickets, subscriptions, exclusive access, etc.). Individual content creators – such as artists, authors, or filmmakers – who use NFTs can raise funds to create the product of their work or find investors for their projects without giving up ownership or demanding a resale of property rights. NFTs have the potential to create a digital swap market. I like to think that one day I will trade my legal writings for a piece of digital art that is then traded for the rights to the film, all via proof of ownership shown by NFTs and hosted on a decentralized platform like IPFS (Interplanetary File System – more on this at future articles).
For now, I’ll let startups like NFT Studios sells 10,000 NFTs to raise $10 million to make Wing and a Prayer or authors like Elle Griffin sells individual chapters of her novels as NFTs. As for my son, he quickly moved from wanting to invest in NFTs to begging for a soccer video game. At least my child knows that some video games are irreplaceable!