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What is an NFT?
Information about what an NFT is
Interesting fact: NFT was the Collins Dictionary’s word of the year in 2021.
There’s a lot of technical terms and jargon to cut through, so let's first look at the term non-fungible. A fungible good can be exchanged for another of the same value/type. For example, if I have a regular $1 bill, it can be exchanged for another regular $1 bill, as they have identical value. A non-fungible good is, of course, the opposite. If Danny DeVito signs and dates a $1 bill - it becomes unique (non-fungible) and can be easily differentiated from regular $1 bills - they would not be equivalent in value.
Now let's look at the term token. In the context of NFTs and blockchain, a token is a unique record of data that lives on a smart contract (what is a smart contract?), which can be interacted with and tracked through the blockchain. Given that the blockchain acts as a ledger for all transactions occurring within it, one can always trace the owner and creator of an NFT by looking at the history of transactions. This provides an extremely powerful tool for ease of tracking ownership over digital assets.
Through NFTs, Artists and Creators gain a greater level of autonomy over their work. If, for example, a photographer wants to create an NFT, their digital artwork (a photograph) will be ‘minted’, and due to the blockchain-based record of ownership, each transaction of that artwork will be recorded and traceable back to the original photographer, who can also can set royalties of future sales. The provenance, traceability and openness of NFTs make them important tools for Creators.
For Collectors, NFTs enable access to truly decentralised and open ownership of new assets, and token-gated experiences which can drive exclusive and meaningful interactions which enhance the Creator-Collector experience.
Ownership and intellectual property rights are often, incorrectly, used interchangeably in the context of NFTs.
Ownership
If you’re the owner of a piece of artwork, there is no better use than blockchain to prove ownership and provenance. The records on the ledger of transactions provide provenance and traceability, proving that you are the true and original owner of the art piece. If they’re unable to prove they’re the owner of the artwork through publicly accessible blockchain, a potential replica is worthless.
Intellectual Property
Owning an NFT does not always mean you own the copyright rights - unless specifically stated by the owner of the smart contract/collection, the artist will retain the copyright.