What’s the point of an NFT?

Last week, to the likely chagrin of many an Aussie cricket fan, Steve Smith became the latest public figure to hop on the NFT gravy-train, joining Glorious Digital, a Kiwi-owned NFT studio and marketplace launched by former All Blacks rugby great Dan Carter.

The deal will see Smith put his face and name up for sale as digital tokens, shilling this new form of online memorabilia for a hefty price tag. On Instagram Smith wrote, “I can’t wait to connect with you guys in new and innovative ways.” 

But what does ownership of a Steve Smith NFT actually mean?

What are NFTs?

NFTs, short for Non-Fungible Tokens, are units of data stored on a blockchain, which is a type of digital ledger that records ownership. 

In blockchain technology, the information about each transaction is recorded in a “block” which is broadcast to every computer or network in the system. The block contains data about the transaction and the identity of the blocks before and after it, so that all the blocks can be linked in a chain. This makes them completely secure, because blockchains are replicated across every computer linked to the network. If one user’s copy of the blockchain differs from the rest, then it’s clearly a fraud. 

“If nobody is in charge, then everyone is in charge,” said Mark Ferraretto, an IT legal specialist who spoke to Cosmos last year. “Blockchain reflects this by allowing anyone to become part of the blockchain.”

Blockchains are most famously used to record cryptocurrency, but NFTs aren’t actually a cryptocurrency, though they work in a similar way and are often purchased using cryptocurrencies like Etherium.

So, what’s the point of an NFT?

Generally speaking, an NFT is a token of ownership. It gives its owner rights to a piece of digital media, like an artwork, photograph, GIF or meme. That’s why it’s been leapt upon by digital creatives as a new way to market their work. 

Some NFTs have famously made people absurdly rich. Last year, a piece of digital art by the artist Mike Winkelmann – professionally known as Beeple – sold for US$69 million through auction-house Christie’s. Paris Hilton, celebrity heiress, owns more than 150 NFTs, including a virtual Chihuahua preening on a marble pedestal designed as an ode to her deceased pet, and which she displays on screens around her house.

But ownership of an NFT is a tricky concept. NFTs have in-built smart contracts that specify the owner’s rights. In some cases, owning an NFT might grant you exclusive rights to the art or media it encodes, but in many cases owning an NFT of an artwork only gives you the rights to the NFT itself, while the original artwork may well be freely available elsewhere, on the internet or in the real world. 

An artist can transfer the copyright of the work to the purchaser, but they may also retain the copyright. Which begs the question: what exactly is the point? Do NFTs have actual value? 

Like many economic products, an NFT’s value is exclusively tied to the fact that people perceive it to be valuable. Whether the value of any or all NFTs will hold depends on the power of the market. The average price of an NFT sank by 70% between February and April last year, but some commentators ascribed that to the weeding out of “gimmicky” tokens. 

For some people, an NFT is a collectible, like an insanely expensive but less tangible football card. As for Steve Smith NFTs? Think of them as digital memorabilia, and play on.