You Just Bought An NFT, What Did You Actually Buy?
NFTs are all the rage right now. And why not?
There’s an interesting technology that has a lot of potential. Just like the early days of cryptocurrencies, there’s a bit of a gold rush happening.
Some NFT projects will succeed. A lot more will fail. Eventually things will stabilize and some community norms will emerge.
For now though, it’s important to understand what an NFT actually is. Like physically, well…digitally 😉.
Smart contracts are agreements expressed in code, instead of a mountain of legal paperwork.
This code lives on a blockchain so it’s transparent and verifiable. The blockchain will execute the contract automatically without a third party being involved when various requirements are met.
When I pay you X, I get NFT Y.
Of course, smart contracts can be much more complex but you get the idea.
An NFT is a unique record that represents an asset of some kind.
What is represents is entirely dependent on the smart contract.
Right now, we’re seeing NFTs used to represent digital artwork, membership in a group, and even as tickets to events.
When you dig into the code, an NFT is simply a name, description, and link to an image.
Remember, an NFT represents something. It isn’t that thing itself.
Take for example the Bored Ape Yacht Club. This funky collection provides the owner of the NFT with a digital asset (an artwork of a unique Bored Ape) and membership to the BAYC club.
Membership to the club is proven by showing you have possession of the NFT. That’s done through a standardized crypto wallet just like logging in with a username and password.
Proving you own the artwork can be done by matching the NFT to a license granted by the Bored Ape Yacht Club. Restricting usage of the artwork is a whole different matter.
If you want to make sure you are the only one using that Ape as an avatar or printing it out, you need the global copyright system and its enforcement mechanisms. That means a court of law.
NFTs may help prove ownership or licensing agreements but they don’t stop a major problem with digital assets: a complete disregard for copyright law.
It’s critical to understand any technologies goals and it’s limitations. With NFTs they are incredibly useful representations of assets but at the end of the day, they are just representations.