Unless you live in a cave, you're almost certainly aware of a new internet phenomenon called non-fungible tokens (NFTs). The media hasn't tired of this topic since a South Carolina artist sold a digital collage last March for a whopping €69,3 million. Even more amazing is the fact that the creation can be freely copied and published by anyone.
Many people are currently getting rich off NFTs. In December, nearly 29.000 collectors came together to pay $91,8 million for a single piece of digital art. It was the highest price ever paid for a work by a living artist in any medium. Last year, Kevin Rose of The New York Times sold an NFT of one of his columns for more than €1 million (proceeds went to charity).
So maybe the art world has lost its collective spirit, but should that mean anything to those of us who work at desks all day? In the short term, no. But it's worth understanding what NFTs are, as the real business uses will emerge after the hype wears off.
data only
An NFT is simply a digital asset that lives on a blockchain. It can be used in digital rights management to establish ownership and track ownership changes over time. The blockchain is a secure, distributed database that enables transactions to be carried out directly between two or more parties with a high degree of fidelity, even if the participants are anonymous. It is most commonly associated with cryptocurrencies, but there are many other uses.
An NFT does not have to be a work of art. It can be a Word document, an audio recording, a PDF, or even a tweet. “There is no difference between an NFT and a document with metadata,” said Nick Donarski, CEO of ORE-Systems and a veteran of cybersecurity and blockchain technology.
The important thing about NFTs is that they establish ownership immutably, and that's where it gets interesting for businesses.
Consider this scenario: You work for a company that makes cookware and you've just come up with a revolutionary new design for a can opener. You are afraid that someone else might get their hands on your idea and bring it to market before your business. By saving your design as NFT, you can establish without a doubt that your design came first. The timestamp on the digital token, which is the smart contract that governs the use of your asset, proves it.
Or suppose you buy computer chips from a factory in China. You want to create a secure chain of custody to make sure the chips haven't been tampered with during their journey. You can create an NFT for the shipping record, "so every time it changes hands, it creates an immutable timestamp that can be queried and tracked," Donarski said. “By doing this in one system, you no longer have documents on a shelf. Everything becomes transparent throughout the life of the company.
Costs vary by rarity, but can range from a dollar to several hundred dollars. You can specify the number of copies of the digital asset that can be created and the royalties that will be charged. You can also track ownership of the NFTs you create if they change hands. "There will always be a risk of hacked versions, but you will always know who is authorized to own the asset," Donarski said.
Legal prognosis: hazy
It sounds like NFTs are about to make patents and copyrights obsolete, but don't get too excited just yet. “The courts haven't done much in this area and there isn't a lot of regulation in the United States yet,” Donarski said. "Indeed, there are no laws governing the use of blockchain."
There are technical problems that could wreak havoc. "The NFT is connected to the digital asset via a link. However, if the digital asset is deleted or the server hosting it goes down or goes offline, the link will be broken and the remaining NFT will be worthless because it will no longer be associated with the digital asset, and there is no way back to the NFT,” wrote Pratin Vallabhaneni, a partner at Washington-based law firm White & Case.
NFTs are closely related to digital wallets. This can be a single point of failure, as people have lost fortunes because they forgot their wallet passwords.
There is also no guarantee that the owner of an NFT is the same person who created the digital content. "There's nothing stopping you from taking an image off the internet and creating an NFT," Donarski said. “We cannot prevent intellectual property infringement. This is the owner's responsibility.
Despite the drawbacks, it's probably a good idea to start creating NFTs of your most critical data. The cost is modest, the process is simple, and legal issues will be resolved over time. You may not be able to sell your $70 million PowerPoint slideshow, but at least you can be sure it's yours.
So read this:
Copyright © 2022 IDG Communications, Inc.