Just a few weeks ago an artwork sale made the news because it was a digital-only artwork that sold for $69 million. That’s not too strange in the world of exotic art. The novelty was in the actual item that was sold. The new owner of this artwork won’t receive a painting or even a digital picture. Instead, they will receive a digital token known as a non-fungible token. But what exactly is a non-fungible token or NFT in short?
To clear a few things up, in commerce, a fungible asset is something that can be interchanged. For example, you have a $100 bill which you can exchange for two $50 bills and you will have the same value of money in the end. But if you have a non-fungible asset, exchanging for the same value is impossible. The asset has unique properties that can’t be interchanged with any other asset. Take the Mona Lisa for example. You can take as many photos of it or buy a print with it, but the original Mona Lisa is only the one painting that is displayed at the Louvre. This is kind of what NFTs are in the digital world, except that their value is actually thought of as a certificate of ownership for assets which can be virtual of physical.
Digital assets have become increasingly popular in the world of video games, music and digital artwork such as drawings and 3D art. A perfect example of digital assets that can be readily purchased are CS:GO skins which are items that can only be redeemed within the context of a video game, but you can buy them with real money and you get a bill that says you do own this item in its digital form and you can have access to it in the specified video game.
There are many other examples like this where digital art sells for large sums of money. You can buy Partyhats for Runescape as well as alternative art for Path of Exile, both are items that can only be seen in their respective video games. This goes to show that NFTs can really be anything digital be it a drawing, some music, software or an item for a video game.
So what makes NFTs so valuable in the world of art? Well, once such a token is created, it can be traced digitally for ever and unlike the rest of the digital formats in which images, audio files and videos are stored, an NFT cannot be duplicated giving it some value as it is linked to an original piece of art. Of course, nothing is foolproof and neither are NFTs. There are already cases in which completely unrelated people have been able to tokenize art belonging to someone else and sell it as their own. But NFTs aren’t to be considered as useless just yet.
In the near future, NFTs can become quite valuable in their usage to prove ownership or at least watermark source code and track digital rights but since NFTs are using the blockchain technology, there are still many challenges to overcome.
