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The Non-Fungible Token (NFT)

Technology2 min read

When a painter paints a painting, he or she also gains the option to sell prints of that artwork. Since the prints are a physical good, the painter can charge a small fee for the print and the buyer can hang it up as a poster or frame it up on a wall of their choice for a reasonable price. The original, meanwhile, is much more valuable. It has the original details of each brush stroke, a canvas, and a piece of the artist. So, collectors are willing to pay a huge premium for the original. It's not uncommon for famous artists like Picasso or Dali to have their works sold for millions of dollars. In a digital world where nearly endless prints can be made through copying and pasting, how does ownership change? Does it still exist?

The Digital World is Different

Since a digital work of art is infinitely reproducible to anyone who wants to view it, its perceived value is much lower. In fact, most people would say a digital work of art is worthless. The Non-Fungible Token (NFT) solves this problem. Like a work of art when it's first produced, an NFT is "minted" and its first owner is selected through a bidding process.

Along with the minting of the token, the owner also receives a picture of the artwork. This artwork can be infinitely reproduced (copied and pasted) but the original owner is the only one who has the ability to resell the token. Selling the token by extension would also represent selling an ownership stake in the work of art.

As of the writing of this article, there haven't been many innovative uses for NFTs and the works of art behind them, but the field is changing very quickly. Ethereum is the primary currency being traded for NFTs. Investors looking to profit from this trend keep bidding up the price of NFTs of questionable quality. The coronavirus pandemic that's still raging in parts of the world has led more people to find entertainment online. Yet, I don't expect this trend to keep going for long. The technology is very interesting but it reeks of a bubble. With Ethereum's market cap being over $300 billion and interest rates rising, sophisticated investors will soon move their holdings toward areas with more liquidity and less risk. Although NFTs are here to stay, there will be a massive correction before they can rise from the ashes as a more mature, user-friendly technology.