The definition of a digital asset is changing. If you think it’s the smartphone in your pocket as you stroll along Sauchiehall Street – listening through bluetooth state-of-the-art noise cancelling headphones to AC/DC’s Cyberspace or an equally eardrum bursting Wagner celestial finale – you’re correct.
Lately, however, the term has become significantly more than mere tangible objects and difficult to actually get your hands on. Welcome to the confusing, convoluted and opaque virtual world of non-fungible tokens (NFTs), a term that doesn’t exactly roll off the tongue.
NFTs aren’t easy to explain out but I will have a go because they appear to be here to stay. They represent the digital equivalent of a real-world object. There we go, that wasn’t difficult. A one-of-a-kind belonging to you and you only. Irony time, get set to transport back in time. The ownership is logged on Dickensian-sounding ‘distributed ledger technology’ (DLT). Visions of Bob Cratchit come to mind, slaving away at his rickety perch to ensure Tiny Tim gets fed that night.
DLT is an online protocol enabling simultaneous access, validation and record updating in an immutable manner, where once it’s logged, it is there to stay, recorded on what is known as an online blockchain. Another term to wrestle with.
Edinburgh’s SICCAR, a DLT/blockchain specialist, describe the process as enabling full control through an automated data sharing platform that significantly reduces risk of duplication, tampering or loss, as it is endowed with levels of encryption and resilience from cyber-attacks. The outfit works with customers as diverse as Food Train, delivering medical and voluntary sector dietary support and monitoring in the home, to investigating distributed ledger opportunities on behalf of the Scottish Government.
Investopedia defines the ‘fungibility’ of commodities, common shares and options, whereas examples of non-fungible goods include diamonds and land because each unit has unique qualities that add or subtract value. There, now we know. Well, not quite. Fungible items can be easily replaced with another item practically the same, such as wood or paper currency. You can even have a ‘fungible person’, a worker who is virtually indistinguishable from another in terms of the value of their contributions in the workplace. Sounds very Orwellian.
Other examples of fungible goods include oil, bonds, gold and other precious metals, money, even unopened consumer products on supermarket shelves. The term derives from the Latin verb fungi meaning ‘to perform’ but no relation to noun fungus and its plural fungi . Yep, that confused me too. It often shows up in political and especially legal circles, also economics where a fungible asset is something with units that can be readily interchanged, such as money.
NFTs, on the other hand, can really be anything digital – music, drawings, artwork – that can be ‘tokenised’ creating a digital certificate of ownership to be bought or sold. Pundit Mitchell Clark at The Verge goes as far as to theorise that a brain could be downloaded and turned into artificial intelligence, although the latter seems rather extreme.
If you think with NFTs we’re losing a sense of the fabric of reality, well, what’s new? A quick dip into Google’s arts and culture website reveals: (1) Thomas Edison’s electric bulb was met with disdain, described as set to become a ‘conspicuous failure’; (2) John Logie Baird’s television, it was claimed at the time, would be a commercial and financial impossibility; (3) airplanes were ‘interesting scientific toys’ but would never take off and had no military value; (4) the automobile would never be as common as the bicycle; and (5) early computers were unnecessary to have at home while laptops would suffer a ‘tragic demise’.
So, NFTs – practical applications? Not quite yet. In fact, early stories out there could easily convince any sane person that individuals with more money than sense are indulging in cyberflights of fancy. Along with digital coins, ie cryptocurrencies and the embryo metaverse, the idea of which has one’s avatar double gambling along in internet virtual playgrounds to their heart’s content, it’s easy to simply dismiss the concept altogether.
There is growing evidence of NFTs gradually impacting on and hitting the mainstream of popular culture. Take the following recent headlines:
The Beatles and John Lennon memorabilia to be sold as NFTs.
Twitter founder Jack Dorsey’s tweet on NFT attracted £2 million bids.
Christie’s £50 million sale of NFT Beeple digital art sets new record.
Paris Hilton says metaverse will be future of partying.
Coinbase and Mastercard Partnership prompt NFT Legal Concerns.
YouTube hints NFTs could be added to creator platform.
Kanye West wants paparazzi photos royalties with help of NFTs.
Germany: new regulations to cover digital euro and NFTs on the rise.
NFT marketplace online bug undervalues tokens nabbing £550,000.
What are NFTs and why are some worth millions?
Dwelling on the last one – a BBC report – it highlights a young girl who became an internet sensation of her looking unimpressed, with the original image selling viral for thousands of pounds in an online auction. As I said at the onset, welcome to the new world of NFTs, a way of owning an original digital image. Where Bitcoin is hailed as the digital answer to current money handling, NFTs are being touted as the digital answer to collectables. Sceptics expect NFT is a bubble ready to burst.
So, as you continue your stroll casually switching over on that smartphone to listen to BBC News, you might very well hear former Christie’s auctioneer Charles Allsopp conclude of NFTs: ‘The idea of buying something which isn’t there is just strange. I think people who invest in it are slight mugs, but I hope they don’t lose their money’.
Cryptocurrencies, only last week, halved their value globally, accounting for an eyewatering £1 trillion in losses, such is their volatility. Distributed ledger technology and blockchain, on the other hand, are online authentication practices growing in reputation in the mainstream. Let’s hope non-fungible tokens do not spoil the show by going down the same rocky cyber-road as the digital coin. The big question: is that NFT digital certificate of ownership worth the paper it isn’t written on?
Former Reuters, Sunday Times, The Scotsman and Glasgow Herald business and finance correspondent, Bill Magee is a columnist writing tech-based articles for Daily Business, Institute of Directors, Edinburgh Chamber and occasionally The Times’ ‘Thunderer’
By Bill Magee | 2 February 2022