6 July 2021 14:51

Digital property rights. What is NFT and what are its prospects

Author

Nadezhda Balovsyak

Some perceive NFT tokens as a serious innovation, while others—as a hype that will disappear over time. Let's figure out what NFT is and what are the prospects of this technology.

Blockchain-powered deal: $5 million for WWW

Sir Tim Berners-Lee, the founder of WWW, at the end of last week sold the source code of the World Wide Web for $5.5 million. The auction for this digital artifact started on June 23 and lasted almost a week. The starting amount of $1,000 has grown to over $5 million.

The deal involved the transfer of rights to several objects. The original World Wide Web code with date and time stamp was among them. The files containing this code describe the implementation of the HTML markup language, the HTTP communication protocol and the unique resource identifier URI, and also provide instructions for early Web users on how to use these documents. These files were created by the founder of the world wide web, Tim Berners-Lee, in 1990-1991. The files contain over 9,500 lines of source code. In addition, the buyer received an email mentioning work on this project, a 30-minute video demonstrating the code creation, and a digital poster.

The description of the lot, as well as the video, are available on the Sotheby's auction page. It was this auction that organized this deal. The same link will direct you to reduced copies of the file with the WWW source code.

The purchase of the WWW source code means that the buyer now owns these artifacts. However, this does not mean a ban on the use of this code or the existence of the WWW.

Explaining the substance of the deal, Tim Berners-Lee said that this purchase does not mean that there will come a point from which Internet users or site owners will have to pay for clicks on links or other things they do on the Internet.

"I'm selling a picture that I made, with a Python program that I wrote myself, of what the source code would look like if it was stuck on the wall and signed by me." explains the WWW founder.

The name of the purchaser of this digital object was not disclosed. Tim Berners-Lee plans to spend the raised money on charity.

This transaction was made possible by the existence of a special type of digital asset called NFT—Non-Fungible Tokens.

What is NFT

Today it is difficult to say when NFTs appeared. There are mentions that NFTs were used in 2018 or even earlier when experiments with NFTs were carried out. However, a real surge of interest in this technology has been observed since the beginning of 2021. This is confirmed by both the growth rates of the NFT market and the data of the Google Trends service for the United States and Ukraine.

So, NFT, or non-fungible tokens, are one of the types of crypto assets. A token is a digital coin, a conventional unit of a specific cryptocurrency. The existence of NFT, as well as other cryptocurrencies, became possible due to the blockchain—a database of a special structure that stores information about tokens, including about NFT.

The feature of NFT is that tokens—these units—are non-fungible. For example, ordinary fiat money (the one used for settlements) is fungible, that is, $10 can be exchanged for goods of equivalent value and, accordingly, one can sell something and get $10 in return.

But non-fungible are, for example, objects of art—The Last Supper by Leonardo da Vinci exists in a single copy. Its copies, albeit written by high-class masters, are just copies, and their cost is much lower.

The use of NFT has become possible due to blockchain technology created in such a way that its content cannot be faked. Accordingly, each NFT stored in the blockchain exists in singlicate, there can be no copies or equivalents—there is no analogue of the same value for NFT. Moreover, it cannot be divided into smaller parts.

All these properties of NFT led to the fact that non-fungible tokens began to be used together with digital objects. In other words, with the help of NFT, it became possible to claim or sell rights to digital objects—from a meme to a picture or, actually, the WWW code. NFTs also became popular among gamers, who, with their help, secured the rights to game artifacts and game characters.

Possession of an NFT and, accordingly, possession of a digital object does not mean that it becomes inaccessible or cannot be used. It's just that the person who bought the NFT turns into its author. By and large, NFT is a collectible. And when people buy NFT for a digital object, then, in fact, they write in the blockchain that they become its owner.

With the use of NFT, ownership of digital objects becomes more democratic. After all, now it is not necessary to visit Sotheby’s and buy a digital or real painting for tens of millions. You can buy NFT just from your computer. And the owners of digital objects can create an NFT for them and put them up for sale.

The instructions on how to create your own NFT can be found on the Binance marketplace site, one of the most popular digital goods trading platforms.

Where and what are NFTs used for

The broadest sphere of NFT application is digital object ownership. In addition to the NFTs mentioned above for the WWW source code and for the digital picture, there are variations in the use of NFTs. For example, a famous NFT deal was the sale by Twitter founder Jack Dorsey of the first post on the Twitter platform. At that time the deal cost the buyer almost $3 million. NFT was created for a video authored by the robot Sofia and digital artist Andrea Bonaceto. It was later sold for almost $700,000.

Traditional auction houses have started to hold the biddings specifically for NFTs.

The value of transactions using NFT varies. According to the analytical company NonFungible, in 2020 the market of non-fungible tokens tripled and reached the level of $250 million, and in the Q1 of 2021 it exceeded $2 billion.

NFT in Ukraine

The popularity of NFT came to Ukraine as well. Ukrainian musicians, media professionals, famous people, and even brands are actively experimenting with NFT. However, the amounts that non-fungible tokens cost to the buyers and sellers from Ukraine are still very small.

For example, the project Telebachennia Toronto sold the meme in the form of NFT for $2,500 at the auction that lasted about two weeks.

The band Kazka released the single Miata (Mint from Ukrainian) in the NFT format. At the time of making this record, the official track was sold for the equivalent of $1,300, and that is 100 times the stated price. And the bidding for the video clip is still going on—so far about $333 was given for it, and that is 30 times higher than the nominal price.

Okean Elzy and Alyona Alyona created several types of NFT for fragments of the composition Land of Dreams. The musicians put up for sale over 100,000 tokens to raise funds for the project Zhovtyi Avtobus (Yellow Bus from Ukrainian).

The chain Silpo put up for sale several drawings in the form of NFT tokens, boxer Oleksandr Usyk created his own NFT for a video in which Oleksandr's photo turns into Joker.

NFT can be used for a variety of purposes. For example, in May FC Dynamo Kyiv became the first Ukrainian sports club to announce the launch of NFT sales for match tickets. The tickets can be bought on the Binance exchange. Commenting on this decision, the vice-president of Dynamo expressed confidence in the popularity of NFT in the near future, including for the sale of collectible unique objects.

Tokenization, or how to create an NFT for a real object

The most common use of NFT is related to digital objects. However, there are more and more attempts to assign NFTs to physical objects. For example, in May of this year, Techcrunch founder Mike Arrington put up his apartment in Kyiv for sale for NFT.

Such deals are possible if the real object has been tokenized before. Tokenization is the representation of a real physical asset on a blockchain base. In other words, tokenizing an asset means creating its representation on the blockchain. Tokenizing a physical asset allows one to buy and transfer rights to an asset, for example, by linking a non-fungible token (NFT) to it.

Arrington's bid was posted on the Propy platform and a 24-hour auction was held for the deal. At the moment, it is known that the apartment was sold for the equivalent of $93,000 in Ether cryptocurrency.

The future of NFT—a promising market or a temporary hype?

The sale of the WWW source code in the form of NFT is a very important step for the development and adoption of the non-fungible token system. The amount of $5.5 million for several objects is huge, but not a record one. In March 2021, a painting by the artist Beeple was sold at Christie's for $69 million. These amounts indicate that it is too early to write off NFT as another short-lived hype that everyone will soon forget about.

However, it should be noted that after a particularly strong growth of interest in NFTs by the beginning of the summer, there was a slight decline in the market—the number of transactions with NFT decreased, as well as the average cost of one transaction. Most likely, this is due to the fact that, for example, in comparison with the figures of a year ago, the interest in NFT at the beginning of the year was simply huge. However, large companies are exploring non-fungible tokens and how to use them in their business. For example, Instagram is considering the NFT marketplace —the possibility of trading these artifacts on the platform.

At this point, NFT has experienced its first growth in interest, followed by a decline, according to the hype cycle for new technologies—the technology assessment methodology created by Gartner, but later the technology will reach a qualitatively new level of acceptance in society and use in the mass market.

It is possible that by that time the NFT will have changed and will be used in other areas. In addition, it should not be forgotten that NFT is closely related to the adoption of blockchain and cryptocurrencies in society. Therefore, regulatory restrictions or the volatility of the cryptoasset market may not have the best effect on the NFT either.

Most likely, we can talk about the emergence of a trend for the tokenization of physical objects and the use of blockchain technology for data storage. It is possible that before the mass adoption of these instruments, we will see the growth and decline of interest in NFT more than once, and over time, these instruments will transform into something else, and we will smile remembering NFTs created for memes and videos. Nevertheless, there is no reason to doubt that NFT and blockchain will change many aspects of our life.