Non-Fungible Tokens (NFTs)
What is this Q&A?
This Q&A briefly discusses NFTs. It does not aspire to provide a legal or scientific overview of blockchain-enabled transactions with tokens, but rather to serve as a starting point for your further research in this area.
What is a digital collectible (NFT)?
An NFT (non-fungible token) is a unique digital item stored on a blockchain. NFTs can represent almost anything, both digital and physical assets, and serve as a digital record of ownership. NFTs are sometimes referred to as digital collectibles. Click, for instance, here, for a more detailed explanation.
What is a public blockchain?
A public blockchain is an information recording system enabled by decentralised, distributed ledger technology. In other words, it is a large database where the ownership and transfer of tokens is recorded. There are many different blockchains.
What is the difference between fungible and non-fungible tokens?
When a token is fungible, it means that it is interchangeable with another token of the same type. For example, one Bitcoin that was created in 2020 can always be exchanged with another Bitcoin that was created in any other year. They are perceived to be the same, in the same way that one dollar bill is interchangeable with any other dollar bill.
A non-fungible token is not interchangeable because it represents something unique. For example, an NFT which represents a painting from an artist will not be equivalent to another NFT which represents a different painting from the same artist.
Can I copy the image represented by an NFT and store it in my computer? Does this mean that I own the image or the NFT?
No, you can copy any image on the internet and store it in your computer, but this does not mean that you own it. Similarly, taking a picture of the Mona Lisa painting does not make you an owner of the painting.
How can I display my NFTs?
There are many companies which offer beautiful digital displays for your NFTs. Samsung’s Frame TV and LG’s smart TVs have virtual art components. There are also emerging companies which specialise in NFT displays, such as Tokenframe, Infinite Objects, and BlackDove. Spatial allows NFT holders to create their own, virtual galleries. For more information on how to display your NFTs, click here.
Can I resell my NFTs?
Yes! You can sell them at a fixed price, put them up for auction, or wait for an offer. You can list them in many marketplaces, for example at OpenSea. The advantage of NFTs is that you always control how and when you sell them. In contrast, digital assets that are not NFTs, for example a movie or a song sold by Amazon or Apple, cannot be resold and they can even disappear from your account, if the company goes out of business or they discontinue this service.
Why bother with NFTs and blockchains when I can store my digital assets in my computer or in the cloud?
Beware of the legal stuff! In simple words, NFTs enabled by blockchain allow users to produce undisputable proof of ownership of a digital asset. This in turn makes the possession of and trade in NFTs easier than transactions outside the blockchain environment. But this is not the end of the story: Certain NFT collections, including Nelum’s NFTs, may be accompanied by additional experiences reserved for the community of NFT holders.
By contrast, when you post a picture on social media or on any other kind of third-party database (like e-games or else), you must know that the incumbent entity can unilaterally change its terms on how you can access and use it, or even delete it. Thus, for instance, if that entity goes bankrupt, the picture may also disappear. More generally, the information that a user stores on a private database are in principle controlled by the entity that controls the database, not by the user who creates or posts the information.
This changes with blockchain-enabled infrastructures because no one “owns” them; they are hosted in many different places and there is no central authority controlling them. As long as the blockchain operates, you can prove that you own a digital asset, and you are free to sell it or keep it. In the near future, you will be able to use your digital assets across different digital worlds, giving your assets greater value.
Are NFTs used by well known artists?
Yes, in recent years more and more well known artists are starting to issue NFT collections. Examples are The Currency by Damien Hirst, the Hero by Marina Abramovich, and the Kiss by Gustav Klimt.
Do I have unrestricted rights on the NFTs that I own?
You have the right to sell your NFTs at any price that you like. However, you do not have unrestricted rights on the underlying art.
For example, Nelum’s NFTs of the Tsoclis collection only permit personal use but forbid any commercial uses, so they are very similar to the rights given when buying a physical painting. Thus, you can use the artwork associated with your NFT as your profile picture on social media, display it in your office, professional environment or home using a TV screen or digital frame, and post it in similar virtual environments, but you won’t have any rights of commercial exploitation, unless you obtain prior permission from Nelum and Costas Tsoclis. Third parties to whom you sell your NFT will acquire from you the said rights to the associated artwork.
NFT collections with full commercial rights may also be available. Before buying an NFT, you should always check the licensing terms and intellectual property rights of the associated artwork.
Are NFTs bad for the environment?
No, the Ethereum blockchain that we use to create our NFTs reduced in September 2022 its energy consumption by 99.9%, by switching from a Proof-Of-Work to a Proof-Of-Stake mechanism. The annual energy consumption of the network is now around 0.0026 TWh. In comparison, Youtube and gold mining each consume around 240 TWh, which is 94000 times the consumption of Ethereum.
