NFTs – What are they, where did they come from and what do they do?

Article by Amy Cross

What are NFTs?

NFT stands for Non-Fungible Token, when broken down: ‘Non-Fungible’ means that it’s irreplaceable and that the object (in this case an image, video, audio or GIF) is unique and the only one of its kind. In other words, NFTs are unique digital art assets. Despite only just becoming popular in the last year, NFTs have been around since 2014. People buy NFTs via blockchains, which are online systems that record trading information between 2 people in a way that is essentially impossible to change. Blockchains are open to the public so everyone can see what’s there and they are permanent, meaning no change can be made once a deal is done. Using blockchain is a lot quicker and simpler method of transferring ‘money’ (or tokens/coins in exchange for money) than using a bank.

What are they used for?

The most popular use of NFTs are for the artists who create them: it’s a way for them to promote their work online and make a profit. There’s even a feature for NFTs which allows the original creator to earn a percentage of the profit every time the NFT is sold or changes hand – this is called a smart contract, sometimes buyers don’t even realise the NFT comes with a smart contract when buying as it doesn’t have to be disclosed in the selling. NFTs are also used by collectors who buy NFTs and sell them for a profit as a way to earn extra money, only recently has everyone started doing this as one NFT sold for $69 million (this NFT was created by Beeple who’s a digital artist who has only ever sold his work for maximum $100). This major NFT was a collage of all his previous artworks, titled ‘Everydays: The First 5000 Days’.

What are the pros and cons of NFTs?

NFTs have created a new way for creators/artists to gain popularity and also help them earn more money whilst becoming known in the art industry. As the NFT becomes more popular online, the value increases and so the artist gains more profit. One of the reasons NFTs are so popular is due to their authenticity and the fact there is only one like it which makes the value of the NFT much more special and original. However, due to the lack of professional transferring (eg. banks), it opens everyone up to being hacked. There have been a number of cases where it’s clear that blockchains do not have the same level of security protocols in place as professional banks and has resulted in users losing thousands of pounds. Another major issue about NFTs is the sustainability, both creating and selling NFTs use a lot of power and electricity as well as the blockchain transactions themselves. It’s been found that an average NFT has a carbon footprint equivalent to more than one month’s worth of electricity for 1 person and that NFTs as a whole are responsible for millions of tons worth of CO2 emissions. And since the increase of popularity of NFTs, there has also been an increase in the greenhouse gas emissions into the atmosphere, contributing to global warming. Finally, whilst NFTs are fun and can make you loads of money, there have been several issues over the true ownership of an NFT. When you purchase an NFT you have bought the ownership of the digital  “original” but this doesn’t mean you can stop people making copies of it. Also, many smaller artists have found their work online as an NFT which had been sold by someone else without consent, in order to sell an NFT it’s necessary to have legal ownership or have consent from its creator – yet users take advantage of these creators and their work and sell them for profit without considering the creators.

What are the legal issues?

Data Protection Laws are something that seem to be forgotten about with NFTs and blockchains. The data protection laws are all about protecting personal data of an individual, one of the ways they do this is offer an individual the right to be able to erase their personal data online yet blockchains produce a record of every single transaction that occurs which is open to everyone and anyone – meaning anyone can look at what anyone else has purchased. Data Protection Laws also allow people to change any inaccuracies to their personal data yet data of blockchains are unchangeable and permanent which, again, violates the data protection laws. The NFT platform has also seen to have recurring issues with Intellectual Property Rights as when an NFT is purchased, it’s often found that the buyer believes they have bought the actual ownership of the artwork which instead still belongs to the original creator who is the copyright owner (unless they specifically granted it to someone else). Also, some cases of ownership/copyright issues have been taken to court yet every time the original owner wins the rights, despite the buyer having paid possibly millions for their NFT, because the blockchain holds no legal authority unlike transactions through banks. And as always with anything digital, there’s always the chance of being hacked too.

Is there a future for NFTs?

The future of NFTs is still unknown; some believe this is the start of a new digital era where blockchains will lead to a more efficient and simplistic way of transferring not only money but possessions and even property. Whereas, others seem to think that NFTs are just the new trend, after being around for 7 years but only just becoming popular in the past year, it’s likely users will soon start losing interest in them and find something else to craze over. Either way, NFTs have already contributed to exploring a new potential and new ways to work the digital world.