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This article is more than 3 month old.

View: NFT, the new kid on the block?

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“Non-fungible” more or less means it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you will have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible.

View: NFT, the new kid on the block?
Non-Fungible Tokens (NFTs), the latest cryptographic dream is all over the news. It is stirring interest, discontent, curiosity as well as creating a lot of anxiety at the same pace. The artisans and art buyers are curious as they are baffled by the windstorm created by some of these new buzz words and creations.
The media and entertainment industry are watching with bewilderment and wonderment; for this craze could create new markets and opportunities for artists, music composers, brands, consumers and investors. The potential of such discoveries is limitless threatening to disrupt and unlock a new-world economy that barely people could believe to-have-existed. Or is it the smoothest hype and hoax?
As technology (especially digital) gains mass appeal and enters the mainstream popular culture, brands and individuals alike are jumping into the NFT bandwagon. They are experimenting with and exploring whether and how they can leverage NFTs to connect with their audience base.
In the conventional sense of the world of investments and collectibles, the usual cases of exclusive jewellery, watches, vintage car, vintage wine, artwork make up for the ownership experience and long-term investment appreciation.
NFT - “Non-fungible token”
Conventionally in the non-digital world, when an artist creates an artwork, which at some point gets bought by a potential buyer, there may be a few handful documents that may go along with the artwork proving to ‘establish authenticity’.
Assuming there are possibilities of illegal trade subsequently, the value of the art gets lost in every subsequent sale thereafter, assuming the price of the artwork has been either maintained or appreciated. In effect, the artwork which could have been of a higher value, trades at discounted value, due to inaccurate documentation of subsequent sale. This leads to devaluation of art eventually.
Another similar industry which you could relate to is the real estate market in the past (without adequate legal documentation for the realty and consequent disputes around ownership etc.).
“Non-fungible” more or less means it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you will have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible.
Let’s consider an example – a 2000 rupees note can be swapped with four 500-rupee notes and it would be the same thing, which means 2000-rupee note is a fungible token. If a 2000-rupee note is signed by an artist, it then becomes a totally unique product and its value cannot be replaced by four 500-rupee note. In fact, the value of the note will become quite different from its initial value.
This means it is a non-fungible token cannot be swapped for any equivalent value. Like any other alternate investment class asset, the value of a non-fungible token could vary (increase/decrease) depending on market assessment.
While many associate blockchain with Bitcoin, most NFTs use a different kind of cryptocurrency called Ethereum like bitcoin, dogecoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from, say, an ETH coin. To buy an NFT, you must first buy a cryptocurrency. Then you can shop for NFTs on a handful of platforms.
It is worth noting that other blockchains can implement their own versions of NFTs.
An NFT is stored on a digital ledger known as the blockchain. This gives it the ability to maintain a record of ownership and also acts as a certificate of authenticity. It can only have one owner at a time. Ownership is managed through the uniqueID and metadata that no other token can replicate.
NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFT's. An NFT is simply like a deed to your house.  A deed is not the house itself, but a record of ownership of the house. When you buy a house, you record your deed at the registrar of land records office and hence your proof of purchase is with the government. Similarly, when you buy an NFT, that transaction is recorded on the blockchain, which stores a record of each time a transaction takes place, making it harder to steal.
Market trusts the blockchain because it is a distributed ledger and its entries are immutable.
Market dynamics
In recent months, non-fungible tokens (NFTs) have skyrocketed in market acceptance and valuations as well. A digital flower has sold for over Rs 14 lakhs, a video clip of the basketball star LeBron James has sold for over Rs 70 lakhs. No wonder the global brands have started experimenting with NFT and associated fan-base development and giving access for branded NFT.
These tokens have been around since 2015. And yet suddenly in the past few months, we have seen a large impetus. The acceptance of cryptocurrency and evolving wide-spread ownership of various cryptocurrency is an important aspect.
Also, technological advances in Blockchain have brought in higher safety and robustness to its usage. More importantly, FOMO (Fear of Missing Out) is another aspect that’s pushing youngsters to the entire topic.
Love NFT or hate it. Love crypto or hate it. The early adopters picked up their choice. The criticism is still out there as various discussion points. Various regulators have their own view and reluctance about cryptos. Yet market-driven exchanges have boomed.
NFT market is here to grow further. Global brands have begun experimenting with NFTs, using the tokens to unlock a new class of digital-goods, newer distribution models. Thus, giving rise to newer ways of potentially of monetising digital ownership.
In 2019, Nike patented the concept of customised-shoes as NFTs, called as CryptoKicks - which gives the digital ownership concept of non-fungible tokens. NFT is also being tested to offer unique brand experiences.
Earlier this year, Microsoft launched a game that celebrates women in science. It then rewards the game users with NFTs that unlock secret games inside Minecraft.
Who creates NFT and how? 
NFTs are meant for designers and artists. In order to sell their works, designers need to get some kind of legal ownership of their works. After the NFT art is created, the process of tokenising the artwork using cryptocurrency service is initiated (blockchain).
The blockchain is a digital transaction system that records information in a way that makes it very difficult to forge the authenticity of the asset/information to which it is connected with. This is an extremely useful mechanism for tracking copyright, ownership and maintaining records of creating, thereby eliminating any uncertainty of ownership or authenticity.
Why buy NFT?
When you buy an NFT, you gain ownership of the content in question, but it can still travel freely across the internet, be viewed, listened to or saved by anyone who wants to do so.
The obvious next question is - “Doesn’t this reduce the value of an NFT?”. What good is “ownership” of a work of digital art if everyone has equal access to it? In reality, the more a file is shared and seen online, the more ‘popular value it accrues’.
But NFTs are there to give you something that cannot be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a MF Hussain ‘print’. But only one person can own the original.
NFT Trade economics
Royalties: You can buy an NFT through various online platforms. In this primary market transaction, the platform would take a fee shared by the promoter and creator. Then, if you decide to sell that NFT to a new buyer, which is known as a secondary transaction, you receive 90 percent of that revenue. But the original creator also gets a cut, generally 8-10 percent.
Unlike a traditional art purchase, when you buy an NFT, you not only reach the money to the artist at once, you also give them an untold number of future opportunities to make money down the road, all off one piece of that art.
Global reach: Previously, limited to the exclusives, in the illustrious world of art collecting and selling has been something that’s generally happened in physical spaces concerning physical artworks. Designers and artists made money from events like exhibitions and markets until recent world events meant that many of these avenues were stopped.
The rise of NFT trading means art collecting has been able to move online, opening it to many artists, on a global scale, who may not have previously had the chance to sell their work to buyers. Previously, graphic designers, were limited with the scope of work and had to do odd jobs to ensure that they perform odd or unrelated jobs to generate income.
The immediacy in which an NFT can generate income could, theoretically, open a tidal wave of opportunity for a huge number of creatives, especially those talented artists who are less-privileged.
The traditional art ecosystem is quickly catching on this new wave. Christie’s recently partnered with popular NFT artist Mike Winkelmann – more commonly known as Beeple – to auction off his crypto art to a traditional art collectors audience. Beeple’s piece sold on March 11, 2021 for almost US$70 Million – making it the highest crypto art sale in history.
The last laugh
As the boundaries between traditional and crypto-art continue to reduce, players in the industry such as musicians, artists, collectors, dealers, galleries, and marketplaces will need to account for NFTs’ cultural impact and cross-border-legal-implications around ownership and IP.
An optimal regulatory structure would be one that fosters innovation while reducing the risks posed by the fringe elements and the challenges of potential and perceived risks of cryptos.
In India, the regulatory-debate is still on about cryptos and NFTs’ popularity is dependent on crypto. The mega star Amitabh Bachhan recently announced launch of his NFTs. Now, actor Salman Khan has joined this celebrity launch queue, and many other celebrities are also eyeing the rapidly growing NFT market.
Dinesh Karthik’s famous last-ball six has become India’s first sports NFT, which will be auctioned at Rarible. WazirX also launched their own NFT platform and many more those are working to disrupt this creative-distribution construct.
Is your NFT art ready for upload?
— The authors Srinath Sridharan, is a corporate advisor and an independent markets commentator and Vishal Singhal is an art curator and founder of ArtZolo. Views expressed are personal
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