NFTs have been a huge part of the cryptocurrency and blockchain ecosystem for a while now. They are digitized versions of real-world assets. These assets can be stored in a blockchain like any other cryptocurrency and can be transferred from owner to owner. This property allows NFTs to be sold and traded normally.
NFTs can be made from anything. From music, pictures, art, or even a screenshot of a tweet containing a single letter. Some of these NFTs even go as far as selling for millions of dollars.
It is easy to get confused as to why a simple picture taken on a smartphone can be worth as much as a million dollars or more. That's where the term 'non-fungible' comes in.
Fungibility refers to the property of a commodity that makes it easily replaceable with another asset of its kind.
Regular cryptocurrencies are fungible assets. This means that if Tom has one bitcoin and Harry has one bitcoin, Harry and Tom have assets of equal value at any point in time. One bitcoin will always be equal to one bitcoin. The same applies to Ethereum and all the others.
This isn't the case with NFTs. Each specific NFT has a different and completely independent value. This is because NFTs represent different real-world assets. Therefore, the value of these tokens depends entirely on how much the seller is willing to sell and how much the bidder is willing to buy.
For one, NFTs and blockchain technology solves the problem of counterfeits and fakes. Every transaction on the blockchain is recorded on the public ledger and cannot be changed.
This means that it is impossible to create a fake of an original NFT. It also means that anyone can see when an NFT was sold and for how much. Artists and creatives, for example, have complete control of where their work goes.
Digital art is one of the biggest aspects of the NFT marketplace, so it might be easier to assume all NFTs are digital art pieces. For the sake of this article, at least.
An art creator who is worried about the issue of ownership and royalties can preprogram royalty conditions into their NFTs. This ensures that the original creator receives a certain percentage whenever the NFT is sold.
Consider a situation in which two or more artists contribute to a piece. There can be no disputes as to who created the original and who gets paid how much. This is because the artists must have added ownership royalty conditions before the very first sale.
This way, all of the artists receive fixed percentages regardless of when, where or how many times an NFT is resold. This is not the case with the sale of physical art.
If the question is whether NFTs solve the problem of royalties and ownership, the answer is yes.
It is much easier for creatives to have complete control over their work. What's more, receiving royalties and commissions from sales NFTs is completely automated and requires no outside intervention.
Creators sell NFTs and receive a commission whenever their work is resold, no matter how many secondary sales come after the original one.