What NFT really is
The only problem is that very few people know what NFT is and how it really works. It’s time to shed some light on NFT and dive deep into the details of how they work and how much deception there can be in the realm of NFT.
What is NFT really about?
Everyone knows the analogy with collectibles. Unfortunately, this analogy is at best completely inadequate, and at worst clearly harmful.
NFT as a term means that every digital token on the network is unique. Each token contains a small amount of data that is unique to that token. That’s it. They are just small containers of data that move across the blockchain between addresses.
Right now, NFT on the Ethereum blockchain has a number of features that make them very popular. It is also likely that other networks will implement some or all of these features, if they are not already implemented.
- The address of the creator of the NFT is stored as part of the NFT. Thus, the information about the current owner of the NFT is public.
- An NFT token can have a royalty percentage set. When the NFT is then traded at any time between any two ETH addresses, the royalty from that “sale” will be redirected to the token creator’s address.
Now, before we go any further, it is important to understand one more aspect. NFTs are very, very small. Storing real data in a blockchain, even something as small as a 64x64 jpg, is prohibitively expensive. Most NFTs will only store a few bytes of data. For example, a serial number or a URL.
In short, an NFT is essentially a unique piece of paper with a serial number, password, or web address.
What NFTs are not
NFTs are not digital media content stores. They do not store digital content (a file) on a blockchain. If you buy NFT images or songs, you actually get a token with the URL of the song or image hosted on a random web server.
NFTs do not prevent copying, altering, deleting, or otherwise dealing with any digital or physical objects to which they refer.
NFTs do not inherently grant ownership or copyright of any assets to which they are linked.
Let’s do a quick summary again: NFTs are just unique tradable scraps of paper with a little bit of information scratched on them.
The NFT has several potential ways to really mean something
- NFT can unlock functions when connected to an external system. An example is the NBA Topshot project. A token has value by interfacing with an external system to display a “sports moment” that is on a website. If the site closes, the tokens immediately become useless as access to the “NBA moments” is lost. It’s the same with CryptoKitties. If the site goes down, the CryptoKitty tokens are meaningless and don’t work. In both cases, the NFT is simply a tradable serial number that is associated with a “moment” or “kitty” on the project owners’ servers. Another example: NFTs that can be sent to an app, which then burns (destroys) them in exchange for sending you some physical item, such as a T-shirt.
- The creator of a digital object (or physical thing) can sell the legal rights to it along with the NFT. There is no guarantee that the seller of the NFT owns the rights to the linked object. To legally transfer the rights/ownership, a legally significant contract must be executed. For large properties like a home or business, significant legal work and documentation will be required. If you want to buy title to an asset with an NFT, you must make sure that the seller is the title holder and he or she gives written consent to sell you the rights along with the NFT and attaches all documentation if required. However, there is no reason why you cannot sell the property rights independently of the NFT in the future. In short, nothing legally binds NFT to digital rights ownership at this time.
- Unique / secret data. In this case, the NFT contains unique data visible only to the address to which it belongs, such as the URL or the secret club password. If the buyer has reason to believe that the information is still secret, buying an NFT becomes the way to get it. The problem is obvious — this is the Internet, nothing stays secret for long, and there is no guarantee that the creator or previous owners have not divulged secret information.
Cheating using the NFT
- Buying an NFT to own a related property when the seller does not initially own the property.
- Buying an NFT to own a property without actually obtaining legally enforceable rights to the property.
- Buying NFTs to own an object and getting non-exclusive rights (instead of exclusive rights), which means that the author can keep minting an infinite number of NFTs for the same object.
- Buying a “collection” NFT, after which the site/server/system with the content referenced by the NFT stops working or disappears.
- Buying NFTs for investment, with NFTs having exorbitant (50–100%) royalty payments. This means that most or all of the proceeds from your investment go to the creator, not you, when you resell the NFT.
- Buying an art/thing along with the NFT, then the URL of the digital content host has dropped (or been maliciously changed), so your NFT no longer refers to the object you bought.
Where do NFTs really work now?
The biggest real NFT success story so far are the CryptoKitties, CryptoPunks, TopShot, etc. projects. That is, when a website/application can interact with NFT to show you content as proof of ownership of that content within the site/game.
NFTs have great potential for projects with in-game item trading, as the game developer company can release in-game items at a certain royalty rate (e.g., 1%) and always make a profit if the game and trade gains momentum.
NFTs can also serve as souvenirs at events, meaning you can be given a token for attending a concert as proof that you were there. NFTs are suitable for selling digital tickets. They can’t be directly copied/cloned, and even if they are resold on the secondary market, you get royalties (until people start bypassing royalties and just start selling the ETH address the token is on, or taking cash as payment and then transferring the token for free).
As for owning standalone digital assets or physical objects, there’s certainly potential there, but right now NFTs are legally useless in that area. Yes, NFTs are also great for money laundering, because if you buy some crap, like a collectible photo of a hat online, it is impossible to say that you overpaid, because the price spread on NFTs is enormous, and the prices themselves are arbitrary.
SWAP.NET Team
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