NON-FUNGIBLE TOKEN (NFT)
A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.
NFT ledgers claim to provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. NFTs do not restrict the sharing or copying of the underlying digital files, do not necessarily convey the copyright of the digital files, and do not prevent the creation of NFTs with identical associated files.
An NFT is a unit of data, stored on a type of digital ledger called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose. An NFT (and, if applicable, the associated license to use, copy, or display the underlying asset) can be traded and sold on digital markets. The extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, and so often confers little more than use as a status symbol.
NFTs function like cryptographic tokens, but unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually interchangeable, and so are not fungible. (While all bitcoins are equal, each NFT may represent a different underlying asset and thus may have a different value.)
Ownership of an NFT does not inherently grant copyright or intellectual property rights to the digital asset the NFT purports to represent.
Commonly associated files
Standards in blockchains
Plagiarism and fraud
Commonly associated files
NFTs have been used to exchange digital tokens that link to a digital file asset. Ownership of an NFT is often associated with a license to use such a linked digital asset, but generally does not confer copyright to the buyer. Some agreements only grant a license for personal, non-commercial use, while other licenses also allow commercial use of the underlying digital asset.
NFTs, as with other blockchain securities and with traditional art sales, can potentially be used for money laundering. A February 2022 study from the United States Treasury assessed that there was "some evidence of money laundering risk in the high-value art market," including through "the emerging digital art market, such as the use of non-fungible tokens (NFTs)." The study considered how NFT transactions may be a simpler option for laundering money through art by avoiding the transportation or insurance complications in trading physical art.
In 2019, Nike patented a system called CryptoKicks that would use NFTs to verify the authenticity of physical sneakers and would give a virtual version of the shoe to the customer.
Standards in blockchains
ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Soliditysmart contract standard; "inheritable" means that developers can create new ERC-721-compliant contracts by copying from a reference implementation.
The ERC-1155 standard offers "semi-fungibility", as well as providing an analogue to ERC-721 functionality (meaning that an ERC-721 asset can be built using ERC-1155).
- Bitcoin Cash supports NFTs.
- Cardano introduced native tokens that enable the creation of NFTs without smart contracts with its March 2021 update.
- The Flowblockchain, which uses a proof of stake consensus model, supports NFTs. CryptoKitties had announced plans to switch from Ethereum to Flow in the "near future", in March 2021.
- The Solana blockchain also supports non-fungible tokens.
Tezos is a blockchain network that operates on proof of stake and supports the sale of NFT art.
Plagiarism and fraud
There have been cases of artists having their work sold by others as an NFT, without permission. A process known as "sleepminting" allows a fraudster to mint an NFT in an artist's wallet and transfer it back to their own account without the artist becoming aware. This allowed a white hat hacker to mint a fraudulent NFT that had seemingly originated from the wallet of the artist Beeple
Some NFT marketplaces responded to cases of plagiarism by creating "takedown teams" to respond to artist complaints. The NFT marketplace OpenSea has rules against plagiarism and deepfakes (non-consensual intimate imagery). When Adobe announced they were adding NFT support to their graphics editor Photoshop, the company proposed creating an InterPlanetary File System database as an alternative means of establishing authenticity for digital works.
Click here for a list of most expensive NFTs
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