The Millionaire Market of Non-Fungible Tokens (NFTs)

FINATRAX I 12:14 pm, 20th January

Non-fungible tokens (NFTs) are one of the latest trends in the world of technology and art. But what exactly are they and what are their possible implications on the art world as we know it ? SnT’s Alexander Rieger, member of FINATRAX, a highly interdisciplinary research group from the University of Luxembourg, tells us about NFTs, his research and the future of blockchain in Europe. 

Let’s start at the very beginning. What is an NFT ?

NFTs are unique representations that can be used like digital collector’s items. Owning an NFT is a little bit like owning a painting. Other copies may exist, but they are just that — copies. Only one person can own the original. Non-fungible just means unique — when something is non-fungible there isn’t anything fully equivalent that can be swapped for it. We might trade a Monet for a Rembrandt, for example, and perhaps the trade might be fair, but in the end, what we each have won’t be exactly the same. Paintings are non-fungible, and so are NFTs. What makes NFTs different is that, unlike paintings, they only exist digitally — they are just tokens on a public blockchain. Which is another way of saying they are just data on a publicly visible database. This public proof of digital ownership and the ease of transferring, trading, or selling it is an innovation that has turned into a hype. Artists, fans, and technology enthusiasts are selling and buying these NFTs on dozens of new, specialised NFT marketplaces. Even Christie’s just auctioned off their first piece of digital art, and it sold for a breathtaking $69 million USD. To put that into perspective, one of Monet’s water lilies paintings sold in 2014 for “only” $54 million.

Wait. So a piece of visual art that only exists digitally was just sold for $15 million dollars more than a real-life Monet ? What exactly do customers get for that kind of money ?

That is the question : what exactly do customers get? Right now, benefits remain unclear, and counterintuitively, NFTs may not even be really “unique” after all. For instance, an artist acting in bad faith could produce a second, identical NFT on another public blockchain right after selling the first one. On top of that, regular people like you and me can easily and legally access digital copies of the same artwork. Unlike traditional fine art, the difference between a “copy” and an “original” piece of digital art isn’t as clear. You can’t hang digital art in your living room. There are no special optical qualities to the original that copies don’t faithfully replicate. So what exactly is it that consumers pay for ? While some may think NFTs grant them special rights to use the artwork or pieces of the artwork, this may not necessarily be the case. For example, artists selling NFTs may reserve their copyright and even retain royalty rights to their artwork. In the end, you may not even own the copyright to your purchased artwork and remain susceptible to copyright infringement claims. With NFTs, it is a lot easier to distribute and use the digital art that you’ve purchased, which also makes copyright violations a lot more likely. 

How did you originally become interested in NFTs ?

I’ve been doing research on blockchain technology for about four years now, looking specifically at how we can leverage the benefits of blockchain applications in administrative, social, and business contexts. NFTs are the next hot use for blockchain in social and business contexts. While some may find research into the latest trends appealing, I actually prefer the more “down-to-earth” applications. Like my work, for example, with the German Federal Office for Migration and Refugees (BAMF), where we are working on a project that uses a much less flashy blockchain approach to modernise information exchange between authorities. For that project, we are mapping a private blockchain network onto the existing decentralised structure of Germany’s asylum procedure. In the long run, we hope to make this new system fully interconnected and interoperable with the various authorities’ systems, while still preserving local independence and privacy compliance. The aim is to improve the overall efficiency with which authorities can process asylum procedures and maybe help simplify and speed up the asylum application process.  

What do you think the future of blockchain more generally in Europe might look like ?

Here in Europe, blockchain will probably have the most impact where it can help to support and improve existing systems within their traditional institutional framework, such as in Germany’s asylum procedure. It sounds, perhaps, a bit conservative, but I believe that applications focused on facilitation rather than disruption will ultimately have the most impact on European society. By training, I’m more of an application side person, but I work closely with tech. I hope to bridge the gap between technologists and the real world. Working at this intersection, I’ve realised if we look for real-world opportunities to apply blockchain that align with our existing institutions and traditions, we start to see a number of opportunities to use it to help implement and express our shared European values. Creating digital identities, for example, that can give individual citizens more control over their personal information online is one of those opportunities and perhaps the one I am most excited about.  

So what’s next for your blockchain research ?

When I first started working on blockchain, I just jumped from one interesting application to the next to explore the technology’s different potentials. Now, I am more focused on cutting-edge projects that deliver real value to people. I want to make a meaningful contribution with sensible innovation, so I will continue exploring ways to adapt blockchain in real-world context where it has the most impact. To me, that means focusing on blockchain applications that comply with existing institutional frameworks, for instance our legal requirements and social values. Practically, that means my research needs to move forward from an interdisciplinary perspective at the intersection of law, business, and technology.

This article was originally published on SnT

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