By Erik Sherman
Almost every day you hear about a new collectible NFT (short for non-fungible token from the crypto world) on sale. A reworked computer image of Andy Warhol from the 1980s sold for $ 870,000 at a Christie’s auction. The famous Video of Charlie bit my finger on YouTube, which holds a record with more than 885 million views, sold for $ 760,999. Yet all the little potatoes.
Christie’s auctioned off a work by digital artist Mike Winkelmann, known as Beeple, for more than $ 69.3 million.
When it comes to things like cryptocurrencies and blockchain technology, it’s a crazy world and NFTs are now a part of it. In May, people were buying and selling a 85,787 estimated NFT– for a total value of $ 5.8 million – per day, according to app tracking company DappRadar.
âIt’s just good to remember that when so much of the hype is earning this amount of money, there are plenty of incentives to convince innocent people to risk too much money,â says Scott Morgan, cryptocurrency expert and CEO from the Crypto Integrity Tao website.
But NFTs could become something much more widely used, if not so flashy. They have many practical business uses. At least they could once people have solved some important issues.
What makes an NFT special
An NFT is a digital object (computer code and data) that conveys ownership of something. Ownership can be online, like virtual real estate in a digital world or a special outfit in a video game. It could be something real: real estate, a painting or a place at a concert. Then again, a TVN can be a hybrid, such as the right to decide who can rent a room in a cooperative living space (something An entrepreneur from San Francisco tried, but without takers as at the end of May 2012).
Conceptually, it is old. Contracts, deeds, deeds of sale, actions, titles, logins for cloud-hosted software applications – even pet ID tags and many other mechanical and digital methods have passed on and proven ownership for as long as there has been trade.
It is not a difference from almost any other technology. The carriages took over from the horse and the buggy. Computers have replaced pencils, paper, accounting journals, human activity and much more in specific ways.
Like any technology, NFTs can provide more efficient ways of doing business. For example, they work with encryption technology called blockchain, a distributed digital record ledger that doesn’t necessarily need a central system to function. Transactions can potentially happen faster and easier.
Second, the blockchain also keeps a record of all transactions related to the NFT and the ownership it represents. In art sales, for example, it could represent the provenance of something that goes back to the creator.
Third, NFTs can include something called smart contracts, or coded elements that can automatically take action under certain conditions. The concept is that of a set of automated and self-enforcing rules that cannot be ignored or ignored.
But then there is the reality, depending on who is involved and who uses the technology. The technology first appeared in 2014 and has only started gaining mainstream attention in recent years. Limited uptime means limited time for issues to show up and experts to work out fixes.
âWe’re opening a Pandora’s Box,â Morgan says.
There are the security issues which, with the best of intentions, can still arise. Someone anonymous calling himself Mr. Nobody, or Mr. Nobody, claimed to have found a way to force a known artist to authorize a TVN without being aware of the process.
“It’s like any immature technology,” says Doug Schwenk, president of Digital Asset Research. âYou see some stumbling steps towards a use case, and then you try to improve it. You can forge an NFT, but there are CAs that can place trust in a chain of NSTs. Which is fine as long as buyers recognize the problem and are wary.
The Warhol NFT auction raises other issues, according to Alan Snyder, managing partner of alternative investment advisers Shinnecock Partners. “Who hit the chips?” [that represent ownership] exactly? âSnyder said.â Was that a hard mint, which means the token cannot be changed? Or a soft mint, which means the token is changeable.
The creation and sale of NFT takes place on platforms, which raises another question. âIf a platform hits the token, do you really have a clear provenance to the artist? Snyder said. Or, given the ease with which platforms come and go, what if the site that an NFT appears on, because it’s a digital item, goes bankrupt? Is the value paid by someone also disappearing?
And other questions, this time about the rights included with the NFT. Someone may own an image, for example, but not be allowed to reproduce it or authorize its use if the creator retains the copyright.
One of the potential uses is intellectual property (IP) law, the type that governs ideas like patents and trademarks. There could be “a potential conflict between a [pre-existing] contract on paper and the NFT, âsays intellectual property lawyer Catlan McCurdy. âI am not hostile to it. It’s exciting and I’m interested to see what happens. But she is wary “without real disputes being resolved by the court or the laws in place.”
And then there are smart contracts. Often all that is available is the computer code ready to run. Without source code or a precise description of the rules, there is no way to verify what the smart contract might do. Even with the source code to check the rules, many people trying to create NFTs lack the programming skills to understand what they are reading. When reselling, the terms can become onerous.
âWhat transfer costs are built into the smart contract? Snyder asks. âIt varies everywhere. Sometimes it’s 10%. I saw one at 50%.
âThese smart contracts cannot be sustained [and changed when necessary]Says James Cropcho, co-founder and CTO of Flipkick, which provides NFT services to artists. “Once they’re in place, they’re in place, and if something terrible happens, it can’t be updated.”
Or the rules may not be something a smart contract can control. Certain types of securities investments may only be authorized for so-called qualified investors. It is highly unlikely that a smart contract would have access to the data that would show whether an investor is truly accredited.
Don’t be entirely disheartened. The history of new technologies is strewn with errors and even catastrophes. Eventually, things improve and come into common use. âAt some point you lose the crypto-anarchist-libertarian fantasy here when the rubber meets the road,â Cropcho says.
This is when business users should be careful and recognize which NFT transactions and platforms are safe and what specifics need to be looked at closely.