Nonfungible Tokens Could Change the Way We Own Things
Blockchain technology is widely associated with the exchange of interchangeable digital assets, from payment systems like Zcash (ZEC) and Libra to platforms like Ethereum and Substrate, using what are known as fungible tokens. An item that is fungible is interchangeable with another identical item. Your dollar bill and my dollar bill, your Bitcoin (BTC) and my Bitcoin, are all worth the same amount.
However, nonfungible tokens are not worth the same as any other token or currency, even one that may seem similar. While this characteristic may appear impractical — especially considering the trading utility of tokens — it is a very desirable feature if the goal is to protect the value of an asset. For this reason, nonfungible tokens have been revolutionizing the ownership of tokenized art and intellectual property.
The low-down on fungible and nonfungible tokens
To fully understand the difference between fungible and nonfungible tokens and the role each type of token plays in the blockchain ecosystem, you must first understand fungibility and nonfungibility.
Fungible tokens are by far the most popular tokens currently on blockchains — think Bitcoin or Litecoin (LTC). While these tokens often have to adjust for fluctuations in price, they are most often able to be exchanged for other fungible tokens at the same price they were purchased at. Not only does this make fungible tokens more convenient for trading but it also enables the high levels of liquidity enjoyed across the cryptocurrency markets.
Nonfungible tokens are a different beast. Though they can be bought and sold using fungible tokens, they are their own asset class. Identifying information is embedded in their smart contracts, which is what makes each nonfungible token completely unique. This uniqueness makes nonfungible tokens unsuitable for most stereotypical crypto trading purposes but ideal for recording and storing the ownership of digital items like collectibles, games and even art.
Digital representations of analog items
While NFTs are digital assets, there have been interesting moves to tie them to physical, real-world objects. Unisocks, for example, allows you to purchase a $SOCKS token (fungible) that you can then redeem for a pair of real socks and an NFT representing ownership of that pair of socks. Saint Fame has a similar setup with its $FAME and $ICK tokens, which you can redeem for a physical shirt and mask, respectively. And, 12 real-world prints of the CryptoPunks characters were made and put in a Zurich art gallery, with sealed envelopes on the back containing a paper wallet.
If those all seem niche, consider that traditional auction houses like Sotheby’s and Christie’s, who control up to 80% of the secondary art market, have begun investigating blockchain-based solutions. Sotheby’s has said it plans to leverage blockchain technology for preserving ownership of artwork, though it’s less bullish on cryptocurrency, saying it has no plans to accept it. In 2018, Christie’s used blockchain registrar Artory — founded by a former Sotheby’s employee — to enable and record the sale of a private art collection, which sold for $323 million.
The interesting thing is blockchain-based art could eliminate the need for these corporations. Given that the origin and history of ownership can be verified publicly on-chain, only someone holding the private keys can actually transfer the art. Moreover, like many of these projects, a real-world and digital solution will have to coexist for some time.
Related: Art and Blockchain: Revolution in Art Collecting
A new landscape for intellectual property
What NFTs have most successfully accomplished is proving the range of things that can be tokenized. A picture, a sound, a fraction of a video, or even a game piece can all be turned into a tokenized asset, opening the doors for intellectual property to be revolutionized in the burgeoning digital age.
Existing models around art creation, ownership and resale rarely benefit the artist. Imagine you create and sell a painting for $900, only to have the buyer resell it 15 years later for $85,000, with none of that profit going to you — the creator.
This is exactly what happened to painter and graphic artist Robert Rauschenberg. He was from the United States where no federal resale royalty rights exist, but even in the few states and countries where they do, the sale still has to meet certain criteria for you to be eligible. Imagine, instead, you tokenize your art and attach a smart contract that enforces a certain percentage of every sale be sent to the original address. This allows for infinitely paying royalties with no restrictions on your country of residence, size of the sale, or how old you are when it’s sold. This setup could be a game-changer for artists who often only see returns on the original sale.
More than just profit
The crypto space is known for speculators, people looking to get rich quick versus being invested in contributing to building a lasting ecosystem. That can’t be said of many projects in the NFT space, which are specifically built with a long-term vision in mind. OpenLaw has helped to create an end-to-end real estate transaction using NFTs to represent ownership of property, something that could get rid of the expensive, and lengthy, title verification process in places like the U.S.
0xcert’s Evidenspace product allows for the issuance (and verification) of NFT-based academic credentials — a hopeful solution for forged credentials. This is a big deal since research has shown more than half the people who claim to have Ph.D.s are likely lying. And GenoBank’s current goal is to allow people to fully own their DNA (you often lose these rights when you send your data to companies like 23andMe that can, and do, sell your data to drugmakers), meaning you could sell or donate it as you wished for product development and scientific research.
NFTs are the future of ownership
As NFTs have been gaining popularity in the crypto and broader tech industries, they have started to attract investors and spawned projects in other spaces like retail, sports and even politics. In the past year alone, Nike filed a patent for tokenizing shoes on Ethereum; Formula 1 held an auction for Formula 1 car-branded NFTs; and Brooklyn Nets NBA player Spencer Diwiddie attempted to tokenize his contract to allow fans to participate in his success, though the NBA prevented him from doing so. The ongoing coronavirus pandemic has continued the discussion around whether blockchain technology could be used for secure, virtual voting in the U.S., a move that could lead to NFTs making their way into the political sphere.
With the world becoming more and more digital, NFTs present a very viable solution for tokenizing ownership and property. These tokens allow for real-world assets to be properly digitized and stored while simultaneously keeping them secure, ultimately revolutionizing the compensation, storage, legality and the security of property.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Trinity Montoya is a protocol engineer at Bison Trails — a leading blockchain infrastructure provider. A software engineer for seven years, she’s worked exclusively at early-stage startups in New York City and Boston. A New York City native, she’s currently in Colorado with her monster dog, Zapp.
