Understanding The Benefits Of NFTs
The concept of Non Fungible Tokens, or NFTs, is certainly a novel one, but one that has been taking off fast in the world of cryptocurrency.
However, not only are NFTs different from many other kinds of cryptocurrency like the original Bitcoin (before Bitcoin went and created its own NFT) in the sense of being unique items that cannot be traded for something equivalent; they also come with a number of significant advantages.
Getting to know these is an invaluable step if you are going to get involved with minting NFTs, trading them or any other activity in the world of the non fungible.
The first area of advantage and importance is for artists. One of the hardest things for any creative producer is to demonstrate complete and irrefutably authentic ownership of anything they produce.
To give a common example, look at the music industry, where many lawsuits arise because one artist believes part of the tune they created was stolen by someone else and embedded in their own piece of work. As well as taking up a lot of time, litigation can be expensive and also financially risky, with the consequence of losing a case being highly damaging both in terms of cost and reputation.
By creating a token of their art, digital artists can avoid this kind of doubt, ensuring they have a verifiable original and unique copy.
Moreover, they can be more lucrative in other ways. Firstly, the deregulated nature of the technology means the agent in the middle can be cut out, while the blockchain technology provides for smart contracts that include sell-on clauses, so if the NFT is sold on by the buyer this provides further royalties for the original artist.
Not surprisingly, this is attracting a lot of artists, who can see the potential NFTs offer them in terms of extra income and also the capacity to sell more art, both digital and traditional, in an online setting.
A second benefit goes to the buyer and seller alike, which is the ability to maximise the uniqueness of NFTs. At a simple level this is rather like rare collectors finding unusual and exceptional items of art or sculpture, but in this case it’s a unique NFT. However, it can go further than that.
For example, the band Kings of Leon produced three NFTs that provided direct links to their artwork for the buyers as well as the exciting privilege of four front row seats to the band’s gigs for life. The owner might suggest these are the best NFT drops yet, and who is to argue?
Of course, Kings of Leon is a famous band and many artists and musicians will not be so well established. But this means an NFT could make a great investment. Imagine getting similar perks concerning the work of an up and coming band that would be bought for a relatively modest amount. That NFT could soar stratospherically if the group hits the big time.
It is not just specific NFTs linked to a producer whose general value soars that may skyrocket in value.
Anyone paying attention to general goings-on in the Crypto world will be well aware that they are volatile and can bob up and down significantly, such as when Elon Musk has something to say on the matter such as whether they can be used to buy Tesla cars, or through his Dodgecoin-boosting purchase of Twitter, after he said it could be used to make payments on the site.
In much the same way, investors can expect NFTs to be more volatile than most things one might invest in, especially if some of the world’s richest people start both investing in them and talking about them a lot. Nonetheless, there is a serious chance they could become worth vastly more than when investors bought them.
Underpinning all this is the use of blockchain technology. Not everyone understands all the ins and outs of it - this is what geeks were put on the earth for - but essentially it is a sequence of blocks of data in a chain that grows with each transaction or addition of data, with the links confirming the correct sequence.
This means both the component blocks and the sequence of the chain links are fixed and unchanging. They cannot be replicated or copied, with each being unique.
What that means is there is a very strong security for anything based on blockchain, which is important for crypto but absolutely essential for NFTs to maintain their value. In effect, it means that an NFT comes with unique data signatures, like fingerprints, that can identify the real thing and see off forgeries. Suffice to say, forging the NFT equivalent of a nine bob note is just about impossible.
Of course, there will always be sceptics, as there is with cryptocurrency. There will be those who claim anything not backed by a central bank is not ‘real’ money or a ‘real’ asset, even though in the latter case digital art obviously is.
That claim, however, has worn increasingly thin. It is not just that a number of countries have plans to bring out their own state-backed cryptocurrencies, though it’s fair to say most will be steering clear of the Russian version; the UK government wants the Royal Mint to develop an NFT as part of plans to make the UK a crypto hub.
It is possible such backing could reduce the volatility of cryptocurrency, as it could at least mitigate against large downward swings in value, while what the government is describing as a “financial market infrastructure sandbox” could create space for innovation and experimentation, while changes to the tax system may further boost the sector in the UK.
The fact that an NFT is part of this plan shows that its benefits are being recognised even by the people with the greatest responsibility for the real hard currency of pounds and pence in Sterling. NFTs are clearly here to stay, with their benefits bound to become well known as they become an increasingly familiar part of the digital and financial landscape.