First of all, what is a non-fungible token or NFT? It’s a unique cryptographic token that exists on a blockchain. They are getting so much attention because they can’t be replicated and so they can represent real-world items like artwork and real estate. Non-fungible tokens can also represent individuals’ identities, property rights and more. Other examples of ways non-fungible tokens are being used include representing things like in-game avatars, digital and non-digital collectibles, domain names, and event tickets. Non-fungible tokens can also be used to represent fractions of things where there could be multiple owners such as real estate or art.
If these real-world tangible assets are “tokenized” in this way, then buying, selling and trading them can be more efficient and also reduces the probability of fraud. Another benefit is they can remove intermediaries, make transactions simpler and create new markets because they are based on blockchain technology. This means artists can connect directly with buyers, as with the case of Beeple, who sold a group of non-fungible tokens for more than $69 million. This artwork collage was made up of Beeple’s first 5,000 days of work.
Unlike cryptocurrencies, which are fungible, these tokens are non-fungible. That means each one has its own value. By contrast, at any point in time, one bitcoin is always equal in value to another or a single unit of ether is always equal to another. But since each non-fungible token is unique and irreplaceable, they are more like digital passports because they contain a unique, non-transferable identity. Another interesting attribute is that you can combine one non-fungible token with another to create a third, unique non-fungible token.
The applications aren’t just for art, real estate and the like. They can also play a role in business supply chains. For example, a case of premium goods that is identified by a non-fungible token can make it easier for those involved in the supply chain to interact with it for steps along the way including origin, production and sale.
Because the guidelines and uses are still evolving, it’s always wise to have a legal firm involved that specializes in blockchain technology and can ensure you’re meeting all requirements around taxes and other considerations. A premier firm in this area is Bull Blockchain Law – experienced lawyers as well as thought leaders in this emerging technology.