Non Fungible Tokens (NFTs): Re-construction of Authenticity
Blockchain will do for transactions what the internet did for information.
-Ginni Rometty, CEO of IBM
Blockchain technology is one of the innovations that require a multidisciplinary approach to comprehend. It is extremely wrong to evaluate blockchain technology only with cryptocurrencies. Although they constitute a large space at the tip of the iceberg, the invisible part of the iceberg does not still draw enough attention. Non Fungible Tokens, also known as NFTs, generate a new type of authenticity in art, collectibles, and even concert tickets. What are the features that distinguish NFTs from fungible tokens? Most importantly, can they reconstruct the idea of authenticity in the light of blockchain technology?
Fungibility refers to the capability of being replaced. It derives from the Latin word ‘Fungibilis’, which means ‘to perform’ in English. The Economist defines what is fungible as: “Somebody who is owed $1 does not care which particular dollar he gets. Anything that people want to use as money must be fungible, whether it be gold bars, beads or shells.” Fiat currencies (Dollar, Euro, Yen, etc.) and most of the cryptocurrencies (Bitcoin, Ethereum, ERC-20 tokens, etc.) are fungible regarding their interchangeability. On the other hand, Non Fungible Tokens indicate the uniqueness of a certain thing, which brings quality into the forefront (Regner & Schweizer & Urbach, 2019).
Although the development of NFTs goes back to late 2017, early versions were started with the emergence of ‘colored coins’ in 2013. Discussions on colored coins appeared in a blog post in 2012. However, the concept was initiated diffusively in a whitepaper that was published by Yoni Assia, Vitalik Buterin, Lior Hakim, and Meni Rosenfeld. The idea was to transform a satoshi, the smallest unit of bitcoin, into a colored unit. Thereby, colored units could be used by different organizations such as rental companies and subscription services (Bradbury, 2019). It is important to realize that colored coins have played a pioneering role in the progress of NFTs.
Addressing the Ethereum and Ethereum-based protocols might clarify the basis of Non Fungible Tokens. Ethereum, which was first implemented in 2014, is the most actively used blockchain protocol that enables users to design programs on its network. The Ethereum community found a middle ground to create standards for the next Ethereum-based applications that they called Ethereum Requests for Comments (ERCs). It was a milestone for blockchain technology that resulted in the development of ERC-20 and ERC-721 protocols. ERC-20 standard, which was designed for fungible tokens, allowed the blockchain community to crowdfund, design new tokens and projects. Correspondingly, the development of the ERC-721 standard specified traceability and authenticity by giving birth to Non Fungible Tokens.
NFTs first became popular with the application called CryptoKitties. There are unique and adorable cats in the CryptoKitties ecosystem that allow users to buy, sell, and breed them. The application had so much popularity that a cat named ‘Dragon’ was sold for 600 ETH (170.000$ at the time of the sale) in 2018 by breaking the previous records. CryptoKitties was a cute starting point for the NFT technology, which did the groundwork for the next applications.
Another fact is that digital artists often have difficulties regarding copyright issues. Together with the emergence of NFTs, many artists have developed a futuristic attitude and turned towards the crypto sphere. There are plenty of websites that are available for digital artwork purchases. Know Origin is one of the digital artwork websites and there are more than 300 artists that are represented with their work. SuperRare is another digital art platform, which brings artists from 203 countries together. As of today’s date, 20th of December 2020, artists have won 4,776,502$ and 11,221 artworks have been sold on the platform (SuperRare, 2020).
Murat Pak, a crypto artist, has been designing digital artworks and presenting them on popular digital art platforms. He has recently become the first crypto artist, who earned more than one million US dollars (Frost, 2020). According to the CryptoArt analytics, 268 of Pak’s artworks across different platforms have been sold for $1,079,382 (or 1,881 ETH) combined to date. Pak’s success is a milestone for digital artists and NFT technology. It demonstrates that NFT has been a potential game-changer in the art market.
To sum up, NFTs have originated the concept of digital authenticity with the power of the ERC-721 protocol. The NFT ecosystem offers alternatives for ownership of real and digital assets. However, NFTs are still at a very early stage. Considering the ongoing pandemic and the process of digital transformation, NFT technology will find a greater space in the upcoming years. NFTs will change how people claim ownership and use subscription services drastically.
References
- Regner & Schweizer & Urbach. (2019, 12). NFTs in Practice — Non-Fungible Tokens as Core Component of a Blockchain-based Event Ticketing Application. https://www.researchgate.net/publication/336057493_NFTs_in_Practice_-_Non-Fungible_Tokens_as_Core_Component_of_a_Blockchain-based_Event_Ticketing_Application
- The Economist. Economics A-Z terms beginning with F. https://www.economist.com/economics-a-to-z/f#node-21529901
- Assia & Buterin & Hakim & Rosenfold. (2013). Colored Coins BitcoinX http://bitpaper.info/serve/AMIfv94V0F8kxt1ACXga9Tc1V0jm-u-Jf2evCmcHWsZJmYSBG6JB5qA5E3J5eNToOSfOFs7LKfC6X8Y-_nUQR-C-qQC10aruJIVDG0ueU_qdZ4yG5l_VftKoBXs1xzpZHgCTx23tErQ1glKv0XrDC07gvNNINlM-QV1pWzdqhCM1MtubSUA7fyg.pdf
- Bradbury, D. (2013). Colored coins paint sophisticated future for Bitcoin. https://www.coindesk.com/colored-coins-paint-sophisticated-future-for-bitcoin
- CryptoKitties. https://www.cryptokitties.co/
- KnowOrigins. https://knownorigin.io/
- SuperRare. https://superrare.co/
- Frost, L. Cryptocurrency Artist Becomes the First to Earn $1 Million. https://decrypt.co/50731/cryptocurrency-artist-becomes-the-first-to-earn-1-million
