Alex Hughes spoke to blockchain expert Merav Ozair to find out whether NFTs are just a gimmick, or essential future tech
NFTs have captured the world’s attention, with pictures of monkeys selling for millions, celebrities and influencers launching their own projects, and a lot of people losing or making huge amounts of cash. But are they a scam, or are they the future of authentication?
WHAT IS AN NFT?
NFT stands for non-fungible token. Fungible means something that is interchangeable. A dollar is fungible because it doesn’t matter which dollar you use. Non-fungible is everything that is unique, so that could be a one-off painting like the Mona Lisa. Everything physical or digital that is unique is non-fungible.
The token part is simply its existence in the digital world and the fact it is traceable online through blockchains – more on that later. A Bitcoin is fungible because it is traceable on the blockchain, it is a token.
If you think about the concept of non-fungible, then all of the NFTs we’ve seen online fit into this because they are all unique. The focus so far has been on collectables but the true value of the NFT is authentication, because you can authenticate any asset – digital or physical – via this process.
HOW DOES AN NFT ACTUALLY WORK?
An NFT is basically a one-of-a-kind token. It creates a digital smart contract that has all of the information you’d need about a particular asset, whether it’s memorabilia, a photo, a painting or a housing contract.
An NFT is housed on what’s known as a blockchain – a digital ledger that can’t be edited or deleted and can be seen by anyone. Most NFTs are housed on a blockchain known as Ethereum.
When you buy an NFT, it creates a digital contract on a blockchain. Here, every purchase and sale is listed for the particular asset as well as other bits of information like the copyright owner, who created it and how much it has sold for each time.
MOST NFTS HAVE BEEN FOR ART, WHAT ELSE COULD IT BE USED FOR?
Art is the obvious first step because it’s where our minds go in the physical world for something that is non-fungible. It made sense that the applications initially were in the art world, sports or memorabilia and collectables. However, the power of NFTs is authentication.
Everything in our economy is transaction-based. Even when you transfer any information like an email or an online payment, that’s a transaction. For that to work in our physical world, every asset or piece of information needs to be authenticated. In the traditional world, we use all kinds of intermediaries to do this, such as lawyers or banks.
In the digital world, you need this kind of authentication. So the power of an NFT is authentication because it doesn’t require this third party. Whether it’s a digital or physical asset, an NFT can carry all of the information that states something is original, who created it and authenticate the timestamp of when it happened, and so on.
Thanks to the features of the blockchain, you can’t change the information set up in an NFT. No one can alter or erase information in an NFT for a housing contract, large payment, or marriage licence.
DO YOU OWN THE COPYRIGHT IF YOU BUY AN NFT?
The legal side of this is still uncertain but it depends on the smart contract itself and what is stated in there. There are some intellectual property issues that are very questionable. It is the same idea as buying a painting.
“THE ORIGINAL JOURNALIST, ARTIST OR CREATOR WILL ALWAYS BE THE ONE WHO MADE IT, BUT THEY NO LONGER OWN IT”
Do you own the rights? You can’t claim that you made it, but you do own it. Obviously the original journalist, artist or creator will always be the one who made it, but they no longer own it. As long as you own it and you paid for it, no one is going to stop you from selling it.
IS THERE ANY REGULATION FOR NFTS?
It is developing as it happens. I know that the UK has proposed all kinds of obligations and the EU and US are also working on some but it’s not definite yet. There are a lot of things that are not quite certain.
I’m working with the International Association for Trusted Blockchain Applications on proposals to submit to the EU Commission to outline what the policy has to be around decentralised finances, NFTs, cryptocurrencies etc. When there is a better understanding of how it works, the right policies and regulations can be made.
We hope that if that happens there with the EU, then other countries will adopt something similar.
THERE ARE A LOT OF INFLUENCERS CREATING NFTS, IS THIS GIVING THE WRONG IMPRESSION ON WHAT AN NFT CAN BE?
I have my reservations with that because it gives a misconception of what NFTs are. These influencers and all the hype and the gimmicks give people the wrong impression. If they don’t understand the technology behind it and what it can offer, they get the wrong impression. And then if there are scams it’s called fraud.
People were saying the same about the internet back in its early days. People say it’s a fad, it’s a gimmick. And lots of it was a scam. I would not be surprised if many of these NFTs are fads or scams. But I don’t want people to get the wrong impression. If influencers want to be involved with NFTs, they also have to educate.
The value of the technology is there, people just need to understand it and see beyond the gimmick to focus on the technology, not the hype and misconception that they can make a million by launching an NFT.
DR MERAV OZAIR
Merav is a blockchain expert and fintech professor at Rutgers Business School, New Jersey. Along with lecturing on digital currencies and blockchain solutions, she is also actively involved with the advancement and regulation of NFTs and cryptocurrencies.