Non-Fungible Tokens (NFTs)
WHAT IS THIS STUFF: NFTs are being mentioned all over the news, mostly because the market value for them has tripled in the past year. In short, an NFT is a unique digital asset that offers a blockchain-created certificate of authenticity to make it unique. NFTs and cryptocurrencies (e.g., Bitcoin) have similar functionality since they are blockchain based, but NFTs are not mutually interchangeable – or fungible – since NFTs are unique (i.e., non-fungible). Contrarily, cryptocurrency tokens are not unique (i.e., fungible) and are similar to traditional forms of currency (e.g., think of a quarter coin and another quarter coin). The token standards that support NFTs are Ethereum, FLOW, and Tezos.
WHAT ARE THEY USED FOR: NFTs are commonly used to commodify digital assets such as digital art, collectibles, video game assets (in-game or virtual world), music, sports, and other video/media. NFTs provide authenticity as well as source of origin and that data is immutable because of the blockchain backbone.
THINGS TO WATCH FOR WITH NFTs: As with any other purchase, know the terms of the agreement. Just like NFTs, the agreement or terms will be unique to what you are paying for, who the seller is, what forum for enforcement of rights you will be in, and what you are purchasing (i.e., what bundle of rights you are getting), among others. Another key aspect is that the seller or other buyers may be keeping rights to the digital asset and you are essentially getting a nonexclusive right with your purchase. In short, these types of purchases and agreements are in their infancy so there are no “standard” terms that apply. Each NFT purchase and the terms should be carefully reviewed to ensure alignment with what each involved party wants from the transaction.