Wednesday, January 26, 2022

Why do NFTs have value

Furthermore, many people just don’t trust assets or currencies not backed by military power.

Why Do NFTs Have Value?

Why Do NFTs Have Value? According to the brilliant Roko Mijic: “The dollar ($) is valuable because of the institutions built around it, not because of the money supply.

What #crypto is gradually finding that functional institutions are the real moat, the real value.”

People are finding out that property rights come from cops and courts, not distributed hash tables.

Moreover, more specifically, mutual defense networks which provide their members freedoms, the violations of which are reliably prosecuted. In addition, drug cartel members have a lot of freedom. Any group with enough firepower produces the phenomenon of “individual rights” by that threat to its violators.

Furthermore, many people just don’t trust assets or currencies not backed by military power.

It is the state which gives value to any currency or backs the criminal prosecution of theft in society.

In conclusion, it is very difficult for an artist to enforce his or her artwork in the digital collectible world. Furthermore, any piece of digital art is ripe for the taking. As a result, of an easy method of thievery, screenshots, enforcing rights on your Non Fungible Token will be tough in today’s world.

Lastly, in regards to the question as to whether or not an NFT has an intrinsic value. Well, value comes down to what people are willing to pay, and currently people are willing to pay a lot for this asset class. But, the question is will the bids continue on for years to come?

Why Did Bitcoin Drop?

What Is Bitcoin Worth?

Is Bitcoin A Ponzi Scheme?

Why Do NFTs Have Value?

The dollar ($) is valuable because of the institutions built around it, not because of the money supply.

The supply of a certain digital asset can be the leading factor that determines its value. If it’s limited in supply, it can be considered a valuable asset. Of course, other factors will have to contribute as well like who's releasing the NFTs. If it’s a public figure, a widely recognized company, or a brand that people deem to have potential, the limited supply will be more attractive to NFT collectors.

What determines the value of NFTs?

Rarity

The supply of a certain digital asset can be the leading factor that determines its value. If it’s limited in supply, it can be considered a valuable asset. Of course, other factors will have to contribute as well like who's releasing the NFTs. If it’s a public figure, a widely recognized company, or a brand that people deem to have potential, the limited supply will be more attractive to NFT collectors.

Professional golf player Bryson DeChambeau has a limited edition NFT collection that was released on OpenSea in March. The collection consists of only four cards, with three of those cards having 18 editions. A total of 57 collectibles were released, which can be extremely rare if DeChambeau doesn’t release any future editions and his star career in professional golf continues.

NFTs are very similar to limited edition sports cards and other collectibles. With millions of NFTs being offered on different marketplaces, having a collection of digital assets that are tied to something appealing helps give the NFTs their rarity.

Capability

Another significant factor in digital collectibles having value is its capability because many NFTs can be used in other ways besides as art. NFT sellers might have a special feature or included bonuses that come with purchasing an NFT. Some sellers might have an NFT release. Buyers can become a member of a certain group, win physical goods, and more. Sorare is one platform that has combined NFTs with fantasy sports.

Thanks to blockchain technology, digital collectibles can now be truly owned and verified.

Digital, for Real

Digital collectibles have evolved into a rapidly growing market since the inception of NFTs.

Embraced by game devs, artists, enterprises, and more for the incredible possibilities unlocked, the space is filled with innovation and creativity.

The guarantee of provable scarcity via code has been a game changer, allowing the digital to replicate many of the key properties responsible for physical collectability.

Through demonstrable scarcity, instant authentication, true ownership, and deepened utility, these cutting edge collectible tokens are bringing value the realm of the digital–and making it a lot more real.

A physical or digital file can be converted into an NFT token by minting. Basically, minting is a process by which a user can publish a unique instance of a non-fungible token, for example, ERC-721 on the blockchain. The platforms that support NFT minting also build NFT smart contracts. These smart contracts are used to track ownership of real-world and digital assets. Let’s take a deep dive into how do NFTs work?

What is an NFT and how do NFTs work?

A monthly overview of the Non-fungible Token market reveals that in the last 7 days, NFTs worth $70 million were traded.

Undoubtedly, NFTs are on the rise, but the fact is that the sector is still being driven by speculators. To transform it into a real value-driven market, it is very important to learn what is an NFT and how do NFTs work.

In simple words, NFTs are unique digital assets. Their ownership is recorded, tracked, and managed on the blockchain. Interestingly, an NFT cannot be duplicated or divided. To state an example, a digital image in a JPEG format can be turned into a non-fungible token.

How is an NFT different from a cryptocurrency like Ethereum?

To understand the difference, it is important to know the definitions of fungibility and non-fungibility.

Fungible asset – Cryptocurrency like Ethereum is a fungible asset. That’s because in any given condition, 1 ETH is interchangeable with another 1 ETH.

Non-Fungible asset – A non-fungible asset or token is unique, non-interchangeable, and irreplaceable. For example, a game character or a piece of art is a non-fungible asset.

Thus, an NFT differs from a cryptocurrency because each NFT has unique metadata and that differentiates two NFTs. As a result, you cannot trade the NFTs with each other like cryptocurrencies.

How do NFTs work?

Let us try and understand how do NFTs work from the perspective of a particular token standard.

Ethereum’s ERC20 token standard is a fungible token standard and is used to build interchangeable tokens like LINK.

Ethereum’s ERC-721 token standard is a non-fungible token standard. It is used by platforms like CryptoKitties and Decentraland.

Some token standards like ERC-1155 also support semi-fungible tokens like concert tickets. Another new NFT standard is EIP-2309. It supports the creation of multiple NFTs in a single transaction.

Anyone can create a non-fungible token by using the right tools and support. Previously, Ethereum was the widely used platform for creating NFT but now blockchains like TRON, EOS, and NEO are also offering NFT standards.

How to mint an NFT?

A physical or digital file can be converted into an NFT token by minting. Basically, minting is a process by which a user can publish a unique instance of a non-fungible token, for example, ERC-721 on the blockchain. The platforms that support NFT minting also build NFT smart contracts. These smart contracts are used to track ownership of real-world and digital assets. Let’s take a deep dive into how do NFTs work?

How to create an NFT?

1) An NFT is always backed by a media file. This file could bd in the following formats:
a) JPG
b) GIF
c) MP3
d) GLB and more
2) Take this file to a minting platform. A variety of NFT minting platforms have been launched in the last couple of months. While choosing a particular NFT minting platform one must definitely take care of aspects like the minting fees, does the platform allow the user to earn royalty.
3) Once the minting platform is chosen, the user must connect his wallet to the platform and upload the file.
4) Next very important step is to decide whether you want to create an edition-based NFT or a standalone NFT. In case you choose the edition-based NFT, you need to mention the royalty percentage. Once everything is sorted out, you can start the minting process.

How to trade an NFT?

Trading an NFT is pretty simple. If a user is interested in buying an NFT, he needs to find an NFT dedicated marketplace. To carry out the transaction, the user must first set up an NFT-supporting wallet. Once the wallet is set up, the user must add a balance to it like ETH and connect this wallet to the marketplace.

Now, you can search for the NFT you wish to buy and pay for it using the ETH deposited in the wallet. Once the transaction is complete, the NFT bought will appear in the user’s wallet that was connected to the marketplace.

Why trade NFTs?

• NFT trading is efficient
• It is a transparent way of trading unique assets
• It is an authenticated and secure method of trading assets
• It improved artist royalties and offers them an infrastructure to set up micro-economies
• It reduces third-party costs

To wrap

NFT creation and trading are growing rapidly. As of 2021, total investment volume in the space has surpassed $420 million. At Antier Solutions, we are working to support the NFT sector growth by helping build NFTs, NFT trading markets, and wallets. Besides development services, we also provide consulting solutions to help you understand how do NFTs work.

That changed with the recent introduction of non-fungible tokens or NFTs, a new type of cryptocurrency that first appeared on the Ethereum blockchain. NFTs are unique units of digital data that get stored on a blockchain like Ethereum, and they can be used to tokenize digital art, music, or any other type of asset. Unlike assets like BTC or SOL, each asset is unique, which means they are not interchangeable. NFTs are useful because they offer a way to verify the ownership, authenticity, and scarcity of an asset.

NFTs Go Mainstream

On Mar. 11, 2021, one of the world’s premier fine art auction houses, Christie’s, sold its first purely digital NFT artwork. The item in question, Beeple’s “Everydays: The First 5,000 Days,” sold for a record-breaking price of $69.34 million. It was paid for in Ethereum. The buyer was Vignesh Sundaresan, also known as MetaKovan, a Singapore-based crypto investor and founder of the largest NFT fund, Metapurse.

Everydays: The First 5,000 Days by Beeple (Source: Christie’s)

MetaKovan described the NFT purchase as “a significant piece of art history” in a CNBC interview, which wasn’t too far from the truth. $69.34 million is the highest sum any individual has paid for a piece of digital artwork, and the figure made Beeple the third most valuable living artist sold at an auction. According to Christie’s, the history of digital art dates back to the 1960s, but the ease of duplication traditionally made it impossible to assign provenance and hence value to the medium.

That changed with the recent introduction of non-fungible tokens or NFTs, a new type of cryptocurrency that first appeared on the Ethereum blockchain. NFTs are unique units of digital data that get stored on a blockchain like Ethereum, and they can be used to tokenize digital art, music, or any other type of asset. Unlike assets like BTC or SOL, each asset is unique, which means they are not interchangeable. NFTs are useful because they offer a way to verify the ownership, authenticity, and scarcity of an asset.

Beeple’s landmark Christie’s debut brought unprecedented attention to NFTs and acted as a catalyst that propelled the technology into the mainstream. Renowned tech investors and entrepreneurs (Mark Cuban, Gary Vaynerchuk), celebrities (Lindsay Lohan, Logan Paul), musicians (Aphex Twin, Grimes), sports players (Steph Curry, Tom Brady), and even major corporations (Visa, Coca-Cola) are all either buying into or experimenting with NFTs in one way or another.

Though the NFT market suffered a crash along with the rest of the crypto space in May, momentum soon returned for what many crypto followers dubbed “NFT summer.” In August alone, the largest NFT marketplace OpenSea registered more than $3 billion in trading volume. CryptoPunks, arguably the most iconic NFT collection on Ethereum, also surpassed $1 billion in lifetime transaction volume. And digital rocks from EtherRocks, one of Ethereum’s earliest NFT collections, hit a floor price of over $2 million. Such staggering numbers raise several questions about the value of NFTs. Why are NFTs valuable? Who is spending fortunes on penguins, rocks, and pixelated Punk avatars? And more importantly, why?

EtherRock27, sold for $2.8 million in August (Source: EtherRock Price)

AFAIC, this is just a new version of pump and dump and I wouldn't be surprised if the bubble pops. That is, assuming the Greater Fool Theory doesn't prevail and affluent investors persist in paying a fortune for the novelty of owning something worthless.

10 Answers 10

An NFT has no fundamental value. Its selling price is only worth what someone is willing to pay for it. It reminds me of Tulipmania where something worth next to nothing suddenly sells for a fortune.

AFAIC, this is just a new version of pump and dump and I wouldn't be surprised if the bubble pops. That is, assuming the Greater Fool Theory doesn't prevail and affluent investors persist in paying a fortune for the novelty of owning something worthless.

The greater fool theory argues that prices go up because people are able to sell overpriced securities to a "greater fool," whether or not they are overvalued. That is, of course, until there are no greater fools left.

The idea behind NFTs as art is that they create a kind of scarcity for digital art that already exists and drives the value of physical art. The theory is that the reason high value art has such high value is because of its scarcity and not because of the inherent value of the art.

Let's think about this by way of analogy. Let's suppose an old painting was discovered. It had never been seen before, but some art historians examined the painting and concluded that it could possibly have been made by da Vinci, but more likely it was done by one of his students or someone else entirely. That painting might now have some value. It could potentially be sold at auction for a decent amount of money. Now let's say that forensic research is done on the painting and it's conclusively proven that the artwork was created by da Vinci. Suddenly that exact same artwork is worth a fortune.

In fact, you can ask your exact same question about paintings. Is any painting really worth millions of dollars on its own? Do paintings have any inherent value? Why is the identity of the painter relevant to the underlying value of the artwork? The quality is no better than it was before we knew it was a da Vinci. Its state of preservation is no different. All that's different is that we can now know conclusively that it was created by da Vinci. The "inherent value" of that piece of art is whatever it would sell for if it were made by any random anonymous painter. The fact that it's worth a fortune is because of its known provenance coming from da Vinci. NFTs work by establishing the provenance of a digital asset.

Imagine you wanted to buy the "official" Nyan Cat. The way it works is the well-known owner of the work issues an NFT representing Nyan Cat. That NFT is non-fungible (hence the name "non-fungible token") and is always owned by a single individual. It can be transferred or whatever, but it will always be unique. The history of transfers of that token is public and can be traced back to the original creator.

This is what makes NFTs scarce. Can any random individual make an NFT of Nyan Cat? Sure. But it wouldn't be worth anything because it wasn't created by Nyan Cat's known creator. That's like an art student copying da Vinci's work. Could the creator make multiple NFTs? Actually yes. This would reduce the scarcity of the NFT and possibly make it worth less. That would be analogous to a physical artist making multiple copies of their work. Although there would still always be a "first issue" NFT which may be worth more than others.

In the case of the article you mentioned, NFTs representing the artwork are being minted by the owners of the physical paintings. Perhaps that's what makes these NFTs valuable to some buyers despite the artwork being in the public domain and anybody theoretically being able to mint an NFT of it.

Note: This argument only truly applies for extremely notable works of art or artists. I 100% agree with the other answerers who are saying there is currently an NFT mania and tons of junk NFTs are selling for ridiculous amounts of money because of the hype. I'm just pointing out an actual real useful application of NFTs.

Furthermore, there are many other applications of NFT technology that aren't about selling works for enormous sums. For example, you could easily imagine an NFT-based DRM mechanism that only allows the holder of an NFT to access some medium. This could apply to run-of-the-mill music or movie sales at completely normal prices. NFT-based event tickets are already a thing that exists, making the transfer of tickets on secondary markets much more controllable, safer for consumers, and beneficial to event hosts. With some imagination, you can come up with many ways NFT technology can be used to solve real, practical problems.

With the recent boom in the market for NFTs, you have to ask yourself the question, “Why does digital art have value?”

Why do NFTs have value

With the recent boom in the market for NFTs, you have to ask yourself the question, “Why does digital art have value?”

Non-fungible tokens or “NFTs” are a hot topic across the blockchain space. NFTs represent unique assets on the blockchain, whether it be rights to an underlying physical asset, an identity document, a collectible, or in this case: digital art.

NFTs can prove ownership of a unique copy

In the past, the problem with selling digital art was that there was no proof of ownership. While copyrights may protect businesses from competitors, nothing stops you from saving a copy of your favourite digital art. While copyright may have value, no one copy is more valuable than another. With Non-Fungible Tokens, it is now possible to prove ownership of your digital art. While copies can still be made, NFTs prove ownership of a unique and often original copy. “But,” you may ask yourself, “why should digital art have value? It’s just a picture on a screen which can still be easily copied.” You would be correct to point out that a picture can easily be copied. This is also true of physical art; many fakes were made of paintings by Picasso, Leonardo Da Vinci, and Monet, often showing equal technique and craftsmanship. At the end of the day, these “copies” are equally as beautiful and would look exactly the same on your wall, but it is undeniable that there is value in something that can be proven to be a unique original.

There is value in something that can be proven to be a unique original

We as a society have decided owning specific copies of art, such as an original or first edition print, has value, and the same goes for Digital Art. The value of art may have a cultural significance, or someone may feel connected to an artist. In today’s digital world, these types of connections and cultural impacts are increasingly happening online. NFTs enable these valuable copies to be tracked and traded, giving consumers a comparable cultural experience as they might have to buy physical art.

NFTs benefit the artist when art is traded

Another great thing to come from NFTs is revenue when the art is resold. When digital art is resold on the market, NFTs can allow the original creator to receive a royalty every time it’s resold to another person or a unique NFT copy is created. This type of technology could also be used to channel proceeds to charities or trusts. Because transactions are tracked and verified on the blockchain, it is verifiable when digital artwork is sold. One digital artist “Beeple,” who recently sold an NFT worth $69 million, originally sold 100 digital art pieces for $1 apiece just to test the market and technology. Some of those pieces are now being resold for upwards of $300,000. In this example, a 10% royalty would mean $30,000 for Beeple for this artwork even though its original price was only $1.

NFT art has value, but the current market still feels like a bubble

Digital Art, without a doubt, has value and is here to stay. But, for myself, the current market feels like a bubble because there are so many pieces of digital art flooding the market and going for what seem to be astronomical prices. It feels like the ICO frenzy of 2017 where users bought into ICO’s out of fear of missing out or “FOMO.” The same thing appears to be happening here, with seemingly random pieces of digital art selling for thousands of dollars and more. Although digital art and NFTs have real value, It is difficult to rationalize why the specific pieces of art being traded today have so much value, and the only explanation I keep coming back to is “FOMO.”

While you may want to jump on the NFT bandwagon, I am inclined to let the frenzy settle and look forward instead to seeing NFTs cultivate a more sustainable and liquid marketplace for digital art in the future.

Why is anything valuable? 🤯

Why are NFTs valuable?

Okay here's my confusion with NFTs. Why are they becoming so popular when they have no value. Before I'm broken off by the same argument for Bitcoin, bitcoin exists and has value because of its rarity i.e. fixed quantity. However, I do not understand why is that following a similar pattern for NFTs, people are literally making anything an NFT, and selling it. I don't understand the value behind those. I see the point in NFT, when it has some existing quantity to it, let's say Isaac Newton's autograph, which happens to be rare and therefore will not have many copies. But 8bit digital art of Viking doesn't make me want to put money into it.

Am I wrong somewhere? Am I missing something? Help.

NFT Pros & Cons - Participate in the r/CC Cointest to potentially win moons. Prize allocations: 1st - 300, 2nd - 150, 3rd - 75.

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Why is anything valuable? 🤯

Because people are willing to pay for it, that’s it

Most of them don't have value (jpeg NFTs). They are certificates of ownership on the respective blockchain. People just hope they gain value so they can sell them to the next sucker. It's the definition of a bubble.

My thoughts are similar, but the crazy amounts of money people are spending was making me think otherwise

They are proving the concept of non fungibility, uniqueness and digital certification.

Todays bored ape is tomorrows mortgage certificate

Todays plain rock is tomorrows marriage certificate.

This made more sense to me than the other comments for some reason

Perception of scarcity and authenticity = value

Yes, the current use of NFTs for pixelated monkey JPEGs is lame, but future use for deeds, certificates, IDs, and receipts will be much more useful and will give NFTs real world utility… instead of just rich people flexing on each other.

Why is art valuable? Why is gold valuable? Why are collectibles valuable? Why are precious stones valuable?

These are the deepest of questions.

Emperors new clothes

NFTs in the form of digital art is probably silly at best, however, NFTs in the form of video game characters, skins, boosters, digital cards (like magic the gathering cards but online) etc are the way of the future.

Consider the name Non Fungible Token. A fungible thing is something which can be replaced in whole or part and make no difference to the value of the thing. A cup of flour can be replaced with another cup of flour and there is no difference to me. A dollar bill can be replaced with another dollar bill and it makes no difference. These are fungible items. So a non fungible item could be anything from a house, to a piece of land, to a car, to a painting, to a stud horse, cow, or pig.

There are so many uses for NFTs in the future but unfortunately we are not there yet.

people are literally making anything an NFT, and selling it.

Yeah, that's why it's a scam, and everyone is trying to cash in on it. They're taking advantage of peoples greed, ignorance, and FOMO. That's it.

Thanks, this is what I think as well

Ah yes, the boomer argument against Bitcoin.

Anything I wouldn't buy is only used for money laundering

Because people have placed value on them

The only thing keeping NFTs intact are collections. In collections it often doesn't matter what your asset is, so it's almost like a fungible token.

Plenty of collectibles are worthless or lose value over time. As with most goods and services the price or value is what someone is willing to pay. Over time the market decides the true value of NFTs just as it does with Bitcoin.

A rando NFT drawing has as much value as your child drawing on your fridge

I see the point in NFT, when it has some existing quantity to it, let's say Isaac Newton's autograph, which happens to be rare and therefore will not have many copies.

So a better way to think about it imo: there is nothing special about a plain white hand towel, but the one that Mean Joe Greene tosses to that kid in that commercial is probably worth a lot to someone because of some experience it represents that they like to remember. That towel can represent a bunch of different things to a bunch of different people, but what's important, why it has value, is that it was Mean Joe Greene's plain white hand towel.

As you build your digital identity, you'll come to understand that jpeg collections on the blockchain are decentralized brands, and they have value (and are important) for a lot of the same reasons that traditional brands are important and have value. Nike's "swoosh" is itself a multiple billion dollar meme.

- A digital image of Shawn Mendes’ gold embellished vest that he wore while on tour

What are NFTs and why are some worth millions?

After Christie's auction house sold the first-ever NFT artwork — a collage of images by digital artist Beeple for a whopping $69.3 million — NFTs have suddenly captured the world's attention. Now we are sure you're wondering too what it is? So, let's learn more about the latest cryptocurrency phenomenon, called Non-fungible tokens.

What is an NFT?

Let’s start at the very beginning—what does non-fungible mean? “Fungible” is an economic term that refers to a good or asset that can be exchanged for another good or asset of equal value. For instance, a dollar bill is fungible, because it can easily be swapped for another dollar bill of the same value. If something is “non-fungible,” it means it has unique properties so it can't be interchanged with something else. It could be a house, or a painting, which is one of a kind. You can take a photo of the painting or buy a print but there will only ever be one original painting.

NFTs are "one-of-a-kind" assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own. The digital tokens can be thought of as certificates of ownership for virtual or physical assets. An NFT shows exclusive ownership of a particular digital asset. You might purchase an NFT at a certain price, but because it’s non-fungible, its market value is likely to fluctuate.

Non-fungible tokens or NFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. While NFTs are often bought and sold using cryptocurrencies such as Bitcoin and Ethereum, they are not cryptocurrencies themselves. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions. NFTs are unique and not mutually interchangeable, which means no two NFTs are the same. NFTs are typically used to buy and sell digital artwork and can take the form of GIFs, tweets, virtual trading cards, images of physical objects, video game skins, virtual real estate, and more.

The distinct construction of each NFT has the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also be used to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.

Much of the current market for NFTs is centered around collectibles, such as digital artwork, sports cards, and rarities. Perhaps the most hyped space is NBA Top Shot, a place to collect non-fungible tokenized NBA moments in a digital card form. Some of these cards have sold for millions of dollars. Recently, Twitter's Jack Dorsey tweeted a link to a tokenized version of the first tweet ever written where he wrote "just setting up my twttr." The NFT version of the first-ever tweet has already been bid up to $2.5 million.

Like physical money, cryptocurrencies are fungible i.e., they can be traded or exchanged, one for another. For example, one Bitcoin is always equal in value to another Bitcoin. Similarly, a single unit of Ether is always equal to another unit. This fungibility characteristic makes cryptocurrencies suitable for use as a secure medium of transaction in the digital economy.

NFTs shift the crypto paradigm by making each token unique and irreplaceable, thereby making it impossible for one non-fungible token to be equal to another. They are digital representations of assets and have been likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens. They are also extensible, meaning you can combine one NFT with another to “breed” a third, unique NFT.

Just like Bitcoin, NFTs also contain ownership details for easy identification and transfer between token holders. Owners can also add metadata or attributes about the asset in NFTs. For example, artists can sign their digital artwork with their signature in the metadata.

Cryptokitties

Perhaps the most famous use case for NFTs is that of cryptokitties. Launched in November 2017, cryptokitties are digital representations of cats with unique identifications on Ethereum’s blockchain. Each kitty is unique and has a price in ether. They reproduce among themselves and produce new offspring, which have different attributes and valuations as compared to their parents. Within a few short weeks of being launched, cryptokitties racked up a fan base that spent $20 million worth of ether purchasing, feeding, and nurturing them. Some enthusiasts even spent upwards of $100,000 on the effort.

While the cryptokitties use case may sound trivial, succeeding ones have more serious business implications. For example, NFTs have been used in private equity transactions as well as real estate deals. One of the implications of enabling multiple types of tokens in a contract is the ability to provide escrow for different types of NFTs, from artwork to real estate, into a single financial transaction.

How do NFTs work?

Traditional works of art such as paintings are valuable precisely because they are one of a kind.

But digital files can be easily and endlessly duplicated.

With NFTs, artwork can be "tokenized" to create a digital certificate of ownership that can be bought and sold.

As with crypto-currency, a record of who owns what is stored on a shared ledger known as the blockchain.

The records cannot be forged because the ledger is maintained by thousands of computers around the world.

NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.

Since an NFT can only have one owner at any one time, when you buy an NFT, you purchase the exclusive ownership of a particular digital asset. However, this doesn’t mean that you own the exclusive rights as to who gets to look at or share that particular artwork.

Why would anybody buy a non-fungible token?

There are a few reasons why those with spare cash are choosing to invest.

There’s nothing like a perceived sense of rarity to increase interest in a particular item. As NFTs can only have one owner, they create this sense of scarcity by the bucketload. This encourages potential buyers to fixate on a particular piece and worry that someone else may become the exclusive owner of an NFT that they want.

NFTs are essentially trading cards for the super-rich. While there’s no inherent value in these cards other than what the market ascribes to them, their fluctuating worth makes their collectability and trading potential like a high-risk gambling game. As a result, it’s easy to make comparisons between the NFT and the art market.

However, unlike the art market, NFTs give artists more autonomy as they no longer have to rely on galleries or auction houses to sell their work. By cutting out the middle-man, artists can sell their artworks directly to buyers and keep more of the profits by doing so.

How to buy NFTs?

There are a few things to consider when buying one, especially if you're a newbie. You'll need to decide what marketplace to buy from, what type of digital wallet is required to store it and what kind of cryptocurrency you'll need to complete the sale.

Some of the most common NFT marketplaces include OpenSea, Mintable, Nifty Gateway and Rarible. There are also niche marketplaces for more specific types of NFTs, too, such as NBA Top Shot for basketball video highlights or Valuables for auctioning tweets such as Dorsey's currently up for bid.

But be wary of fees. Some marketplaces charge a "gas" fee, which is the energy required to complete the transaction on the blockchain. Other fees can include the costs for converting dollars into ethereum (the currency most commonly used to buy NFTs) and closing expenses.

How to sell NFTs?

NFTs are also sold on marketplaces and the process can vary from platform to platform. You'll essentially upload your content to a marketplace then follow the instructions to turn it into an NFT. You'll be able to include specifics such as a description of the work and suggested pricing. Most NFTs are purchased using ethereum but can also be bought with other ERC-20 tokens such as WAX and Flow.

The value of your NFT is dependent upon how much someone else is willing to pay for it, so you and your NFT are left at the mercy of the market.

How to make an NFT?

Anyone can create an NFT. All that's needed is a digital wallet, a small purchase of ethereum, and a connection to an NFT marketplace where you'll be able to upload and turn the content into an NFT or crypto art. Simple, right?

Are non-fungible tokens safe?

Non-fungible tokens, which use blockchain technology just like cryptocurrency, are generally secure. The distributed nature of blockchains makes NFTs difficult, although not impossible, to hack. One security risk for NFTs is that you could lose access to your non-fungible token if the platform hosting the NFT goes out of business.

What’s the weirdest NFT ever sold?

Choosing which NFT takes the prize for the weirdest ever sold is too difficult to decide. Deciding on a winner would be nearly impossible, but we’ve gathered a few contenders below.

- Lindsay Lohan’s electronic single Lullabye which accompanied a GIF of her upper torso adorned in butterflies that flap their wings to the beat

- A digital image of Shawn Mendes’ gold embellished vest that he wore while on tour

- A video clip of one of Banksy’s artwork being burned—the original artwork was sold for $95k, the NFT of the artwork being burned was sold for $380k

- The viral internet YouTube video ‘Charlie Bit My Finger’ was removed from YouTube and then sold as an NFT for $693k

Why are non-fungible tokens important?

Non-fungible tokens are an evolution over the relatively simple concept of cryptocurrencies. Modern finance systems consist of sophisticated trading and loan systems for different asset types, ranging from real estate to lending contracts to artwork. By enabling digital representations of physical assets, NFTs are a step forward in the reinvention of this infrastructure.

To be sure, the idea of digital representations of physical assets is not novel nor is the use of unique identification. However, when these concepts are combined with the benefits of a tamper-resistant blockchain of smart contracts, then they become a potent force for change.

Perhaps, the most obvious benefit of NFTs is market efficiency. The conversion of a physical asset into a digital one streamlines processes and removes intermediaries. NFTs representing digital or physical artwork on a blockchain removes the need for agents and allow artists to connect directly with their audiences. They can also improve business processes.

Non-fungible tokens are also excellent for identity management. Consider the case of physical passports that need to be produced at every entry and exit point. By converting individual passports into NFTs, each with its unique identifying characteristics, it is possible to streamline the entry and exit processes for jurisdictions.

NFTs can also democratize investing by fractionalizing physical assets like real estate. It is much easier to divide a digital real estate asset among multiple owners than a physical one.

Real estate trading, a complex and bureaucratic affair, can be simplified by incorporating relevant metadata into each unique NFT.

Decentraland, a virtual reality platform on Ethereum’s blockchain, has already implemented such a concept. As NFTs become more sophisticated and are integrated within financial infrastructure, it may become possible to implement the same concept of tokenized pieces of land, differing in value and location, in the physical world.

Despite not usually transferring any copyright, NFTs derive value in other ways. NFTs commonly derive value from scarcity, collectability, and authenticity. The NFT may also derive value from the item that the token purports to represent.

Understanding the Intellectual Property Value of NFTs

Non-Fungible Tokens, known as NFTs, recently made headlines with sales of individual tokens valued at millions of dollars, comparable to sales of fine art. Christie’s– a “conventional” auction house – sold its first NFT, the piece “Everydays: The First 5,000 Days” by the artist Beeple – for a staggering $69 million. [1] Most NFTs sell from merchants without such established reputations. Traders should understand the value of intellectual property, or lack thereof, tied to NFTs.

How NFTs Work – a Brief Overview

NFTs are digital certificates, or “tokens” stored on decentralized ledgers popularly referred to as the blockchain. NFTs use software code, referred to as “smart contracts,” to transfer the digital certificate of ownership, ensuring proof of ownership in the process. Like cryptocurrency, NFTs also use the blockchain to record transactions, but where cryptocurrency creates interchangeable (or “fungible”) tokens, NFTs create unique, noninterchangeable tokens with distinct identifiers.

The non-fungible nature of NFTs offers particular advantages. NFTs can refer to tangible or intangible assets and commonly represent digital media such as images or videos. NFTs often do not include the digital media itself in the blockchain. Instead, the unique identifiers in the tokens point to a storage location of the media, with the blockchain serving as proof of ownership and a medium of transfer.

The Value of Copyrights

17 U.S.C. §§ 101-122 defines the scope of U.S. copyrights. Depending on the nature of the work, copyrights provide the exclusive rights to reproduce the work, prepare derivative works, distribute copies of the work, publicly perform the work, and publicly transmit the work. To transfer a copyright, the owner usually must sign a writing as required by 17 U.S.C. § 204.

By nature, copyrights exclude others from the market and have inherent monopolistic value. For example, the owners of a blockbuster movie may license the right to show or view the movie at high prices by excluding others from showing the movie at lower prices.

What Copyrights do NFTs Transfer?

Most NFTs do NOT claim to transfer any copyrights. A party purchasing an NFT should generally NOT assume that an NFT comes with any copyright without receiving the signed writing required by 17 U.S.C. § 204. Parties should seek legal advice on the exact scope of rights transferred in any copyright sale.

For example, some NFTs use the erc721 standard. This standard includes the following code comments about an NFT transfer event:

This code refers to “when ownership of any NFT changes,” but ownership of a token generally differs from ownership of a copyright. Any party seeking to write or verify code for transferring copyrights should consult an attorney about compliance with the statute of frauds.

As another example, the popular CryptoKitties NFT code [2] includes different language purporting to transfer “kitten ownership,” without mentioning copyrights:

Some NFT merchants include copyright language in their terms and conditions rather than in the source code of the smart contracts. The NFT-based horse racing game ZED includes the following language in their terms and conditions:

Because these terms purport to grant a limited license “to use, copy, and display the Art” for three purposes, ZED’s NFTs may have copyright license value. [3]

What Ownerships Do NFTs Confer?

Without other arrangements, an owner of an NFT owns only the token itself.

Owning an NFT can compare to owning a collectible card, such as a rare baseball card or rare Pokémon card. Like a card, an NFT is a token that represents an item. Owning a token or card confers no ownership or rights in the represented item.

For example, an owner of a Babe Ruth baseball card owns only a physical paper card with artwork showing Babe Ruth. The card owner does not own Babe Ruth, nor does the card owner have any right to make Babe Ruth play baseball for a particular team. The owner of a Pikachu Pokémon card owns only the physical paper card with artwork. The owner of the Pikachu card does not own a real-life Pikachu, nor does the card owner have the copyright to create a derivative anime cartoon showing Pikachu’s likeness as a character.

In the same way, absent other arrangements, an owner of an NFT owns only the token itself but not the underlying item or any related copyright.

Why Do NFTs Have Value?

Despite not usually transferring any copyright, NFTs derive value in other ways. NFTs commonly derive value from scarcity, collectability, and authenticity. The NFT may also derive value from the item that the token purports to represent.

These properties make NFTs comparable to collectible cards or fine art. The authentic Mona Lisa would sell for millions of dollars in part because of its scarcity. Leonardo da Vinci will never paint another. A poster copy Mona Lisa at the Louvre’s gift shop, although visually identical, will sell for a few dollars at most because of the lack of scarcity and authenticity.

NFTs With Utility Value

Though NFTs commonly represent art, some NFTs have digital “utility.” These NFTs give owners rights to perform certain actions on a blockchain.

For example, the online horse racing game “ZED” sells such tokens. The ZED website [4] explains that ZED is “a digital horse racing game where players can build a stable of racehorses by buying, breeding, and racing digital racehorses.” Buyers purchase NFTs that represent digital “horses.” Each digital horse has a breed, blood type, and other characteristics affecting racing potential. These digital horses race against other horses in digital races. The characteristics of the horses directly correlate with the outcome of the races – with some horses being better geared towards particular race lengths and starting positions. ZED’s terms [5] explain that:

The value of this NFT derives partly from its utility in addition to scarcity and collectability.

Value to Creators

Some NFTs include a structure for automatically collecting royalties each time a sale of the NFT occurs. [6] For example, an artist of a work represented by an NFT may receive a 10% royalty each time the NFT sells on the blockchain.

Common NFT Risks

Any party purchasing an NFT should conduct due diligence of authenticity. An art collector seeking to purchase the authentic Mona Lisa would only buy the painting from the Louvre, verify its authenticity, and verify title to the painting. Collectors of rare cards will look for signs of fakery.

In the same way, NFT purchasers should conduct similar due diligence for high-value purchases. Authenticity remains a big concern. For a low transaction fee, anyone can create an NFT that purports to represent something important (such as the Mona Lisa), but these NFTs have no authenticity or scarcity, and thus have low value. If, on the other hand, the Louvre created one and only one NFT for the Mona Lisa, then the Louvre’s NFT will have more value. Internet transactions that hide the identities of sellers make verifying authenticity difficult.

NFTs remain a new technology in a fast-changing market. The extent of copyright and other law’s application to this new technology remains unsettled. NFT traders should understand the latest technology, market conditions, and applicable copyright law when engaging in NFT transactions.

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About Winston’s Videogame, Gaming & Esports Group
Recognizing that emerging industries require bespoke lawyering, Mike Tomasulo and David Enzminger formed and lead Winston’s Videogame, Gaming & Esports Group to provide comprehensive legal solutions to companies in these industries. This multidisciplinary group includes more than 60 lawyers across 10 practices working seamlessly to assist companies in these industries in all areas, including managing IP portfolios, assisting esports companies establish global sports leagues, selling franchises, and developing proactive legal solutions for issues that arise from league operations. We represent videogame publishers in antirust matters and represent both rights owners and gaming companies in licensing issues for game content. In addition, our team helps electronic game clients prepare for all types of regulatory and public scrutiny issues, such as corporate governance, data privacy, and harassment/discrimination claims that are sure to come as the industry continues to grow in both size and influence. Our offices in New York, Silicon Valley, Los Angeles, Shanghai, and Hong Kong provide gaming clients with a global platform for their complex and evolving legal needs.

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