Digital currencies such as Bitcoin are a valuable asset in their own right, but NFTs are not; they are simply a symbol of ownership.
Many people didn’t expect that NFT (non-homogenized tokens) became hot all of a sudden. Not only are more and more ordinary people starting to buy NFT tokens on some professional trading platforms, but even globally renowned auction houses like Sotheby’s are entering the field.
But despite all the excitement about this new industry and all the media hype, not many people really understand what NFT is, especially when you ask some so-called professionals what NFT is, it’s hard to provide a convincing answer other than a blank stare.
In the most basic sense, an NFT is a digital token that can represent ownership of some underlying asset. We know that there are many identical copies of Leonardo da Vinci’s magnum opus, the Mona Lisa, and in the digital realm, if one wants to authenticate the original Mona Lisa, the NFT should be a better way to do so.
In the real world, it is very troublesome for us to authenticate the original, assuming that to verify the Mona Lisa, one would have to give evidence of authenticity in every single stroke of paint on the canvas (i.e., prove that every single stroke of the painting came from Leonardo da Vinci’s own brushwork).
In contrast, the NFT is purchased as a digital ownership token and does not affect the special access to the underlying digital artifact. (Note from Chaintech: Just like the Louvre owns the original Mona Lisa, but everyone can view this painting, NFT ownership is separate from access rights.)
So why are people clamoring to buy NFTs? As an example, Sina Estavi spent a whopping $2.9 million just to buy Twitter founder Jack Dorsey’s first-ever NFT of a tweet, but the problem is that he didn’t get any kind of exclusivity for himself by buying that NFT.
Sina Estavi, on the other hand, does own the NFT of the first tweet of all time, but again, it doesn’t seem to require permission from all of us, just as we can now buy a ticket to the Louvre and go enjoy the Mona Lisa.
So what is the point of investing in NFT?
Before answering this question, we need to bypass blockchain, and some of the different applications associated with it, for a moment, because whenever we think of “blockchain,” we unconsciously think of Bitcoin.
However, the practical application of distributed ledger technology goes far beyond the application of decentralized cryptocurrencies, the decentralized nature of which was first seen in the form of NFT. A decentralized distributed ledger allows people who do not know each other and have never met to transact in a purely digital environment without the involvement of a trusted third-party intermediary.
When NFT is applied to other business environments, this core functionality of blockchain in turn allows us to redesign many of the traditional legal and business structures that we have been using for centuries.
In the case of bills of lading, for example, the process of transporting goods from shipper to consignee has required the exchange of certain specific documents since the 14th century, without which business could not be conducted. At the same time, such documents served as proof of ownership of the goods, as well as their shipment and receipt.
Even today, in the 21st century, it is still impossible to receive the goods at the port of destination unless the consignee presents a physical copy of the corresponding bill of lading. Since proof of the authenticity of a shipment must be in the form of original documents, it is hard to imagine that a $5 billion global freight industry is moving in the direction of shipping these proofs around the world.
But now things have changed – companies like Maersk and China Ocean Shipping (Group) Company have begun experimenting with electronic bills of lading on distributed ledgers that can be used as certificates of ownership and proof of shipment.
Over time, the blockchain they build will also integrate IoT devices into the workflow, automatically triggering payments or other obligations once the consignment arrives at its precise destination, without human intervention.
So, we can actually think of NFT as another blockchain application designed to solve a very specific problem, rather than just a digital currency.
In fact, digital artists have been conceiving of this idea since as early as 2014, creating and distributing millions of purely digital artworks, which were then uploaded to micro-blogging sites like Tumblr, and many of which began to be widely republished in the community, but which were largely unattributed and without contextual information such as authorship. Frankly, these artists were very true to the spirit of the times, and they didn’t really expect to be compensated for these works.
But New York University professor Kevin McCoy and technologist Anil Dash argue that this approach is inappropriate, and they argue that artists should claim ownership of their works. That is, if for no other reason, the artist should claim ownership of the work he or she has created.
So Anil Dash and Kevin McCoy devised a solution: generate a token that represents ownership of a digital asset and then attach that token to a blockchain that can be freely traded, thereby creating a robust digital ownership track.
It is worth noting that Anil Dash and Kevin McCoy could have been credited with being the first to design a prototype NFT, but because the solution was not perfect, and because of the technical limitations at the time, it was not possible to attach actual digital artifacts to the blockchain, and as a result the tokens they created were only loosely tied to the underlying asset and used only as the actual artifacts’ digital representation.
But even today, most NFTs only provide a connection to the underlying asset, or at best, a “compressed” digital representation. This means that even if you have spent millions of dollars on an NFT, access to the underlying digital asset may still depend on whether the site hosting the digital asset is still up or active.
This fact exemplifies one of the most fundamental differences between NFTs and cryptocurrencies: while Bitcoin, for example, is a valuable asset in its own right, NFTs are not digital assets; they are simply a symbol of ownership. Even though purchasing an NFT may mean having a claim to ownership of the underlying asset, your token cannot be used to exercise any rights associated with ownership. For example, you cannot prevent others from accessing the underlying assets, nor can you prevent others from using them for rent-seeking arbitrage.
Of course, we are not saying here that NFTs are worthless. NFT is generating more and more interest in the crypto community, and more and more people want to explore value in this space. As long as this enthusiasm persists, we will still need to delve deeper into NFT’s vague value proposition.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/exploring-the-fuzzy-value-proposition-of-non-homogenized-tokens/
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