The term “NFT” can be quite generic, so let’s break down some of the confusion. A “fungible” asset is one that is mutually interchangeable. Think dollar bills, where each one is identical and interchangeable with another.
According to , “NFTs (or “non-fungible tokens”) are a special kind of crypto asset in which each token is unique. Because every NFT is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate or pets.” The distinction here is around the asset itself vs the authenticated ownership of the asset. As Nic Carter , “the NFT should be understood as the autograph, not the art.”
Take for example digital art. The art itself is a simple jpg or gif file that can be shared anywhere, and is entirely fungible with limited intrinsic value. However, the NFT of that same picture is unique, and serves as the socially-recognized record of ownership over that same picture. It lives on the blockchain as a unique token (dubbed an ), where anyone can see whose address it belongs to.
Viewed from this light, if you own an NFT, what do you actually own?
It’s not a legal claim on the 0s and 1s that make up the digital art. There are no legal rights involved.
It’s not physical ownership of the picture, NFTs are entirely digital
It is a digital token that lives on a blockchain, which contains metadata that points to the art in question, and is freely transferable
It is a socially-recognized record of ownership. The artist themselves (or whoever minted the NFT) bestows upon the owner special status as the owner of this artwork
That last part is the special sauce. NFTs are a social coordination game, where creators and communities can collectively assign and recognize ownership over digital goods. But it also belies an important point: the value of NFTs are directly tied to the issuer. For example, nobody would care if I minted an NFT of Jack Dorsey’s tweet — I am not Jack Dorsey. But it’s a different story if the NFT .
In other words, NFTs are a sort of liability of the issuer, it is up to the issuer to honor the importance and provenance of the NFT, and whatever other special properties the NFT may bestow.
Today, most cryptocurrency products live only in a digital format. But NFTs may begin to mark a transition where we may eventually be able to map real-world assets onto a blockchain in meaningful ways, perhaps including some sort of legal framework that secures actual ownership. In this future, imagine if a sports franchise like the LA Lakers tokenized their season tickets as NFTs? They could live in their fan’s wallets, secondary market price discovery could happen with P2P price discovery, and they would be immortalized as NFTs that live in this expansive, composable, digital metaverse.
The opinions expressed on this website are those of the authors who may be associated persons of Coinbase, Inc., or its affiliates (“Coinbase”) and who do not represent the views, opinions and positions of Coinbase. Information is provided for general educational purposes only and is not intended to constitute investment or other advice on financial products. Coinbase makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information on this website and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Unless otherwise noted, all images provided herein are the property of Coinbase.
This website contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of Coinbase, and Coinbase is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. Coinbase is not responsible for webcasting or any other form of transmission received from any Third-Party Site. Coinbase is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by Coinbase of the site or any association with its operators.
Around the Block
Dec 5, 2023
Dec 4, 2023
Americans’ #1 objection to using cash in the current financial system is that there are too many fees to access and move their money. Stablecoins offer consumers all the benefits of cash without the drawbacks, including being cheaper and faster to move.