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Reading: Non-fungible token – Wikipedia
illustration of a non-fungible token generated by a smart contract ( a program designed to automatically execute contract terms ) A non-fungible token ( NFT ) is a fiscal security consist of digital data stored in a blockchain, a form of distribute daybook. The possession of an NFT is recorded in the blockchain, and can be transferred by the owner, allowing NFTs to be sold and traded. NFTs typically contain references to digital files such as photos, videos, and audio. Because NFTs are uniquely identifiable, they differ from cryptocurrencies, which are fungible. The market value of an NFT is associated with the digital file it references. Proponents of NFTs claim that NFTs provide a public certificate of authenticity or proof of possession, but the legal rights conveyed by an NFT can be uncertain. The ownership of an NFT as defined by the blockchain has no implicit in legal meaning, and does not inevitably grant copyright, intellectual place rights, or other legal rights over its associate digital file. An NFT does not restrict the communion or imitate of its consociate digital file, and does not prevent the creation of NFTs that address identical files. The NFT market grew dramatically from 2020–2021 : the trade of NFTs in 2021 increased to more than $ 17 billion, up by 21,000 % over 2020 ‘s sum of $ 82 million. [ 1 ] NFTs have been used as inquisitive investments, and they have drawn increasing criticism for the energy cost and carbon footprint associated with validating blockchain transactions vitamin a well as their frequent use in art victimize. [ 2 ] The NFT market has besides been compared to an economic bubble or a Ponzi schema. [ 3 ]
An NFT is a unit of data, stored on a character of digital daybook called a blockchain, which can be sold and traded. [ 4 ] The NFT can be associated with a detail digital or physical asset including but not limited to, art, songs, and sport highlights [ 5 ] and a license to use the asset for a pin down aim. [ 6 ] An NFT ( and, if applicable, the associated license to use, replicate, or display the fundamental asset ) can be traded and sold on digital markets. [ 7 ] The extralegal nature of NFT trade normally results in an informal switch over of ownership over the asset that has no legal basis for enforcement, [ 8 ] and so frequently confers little more than consumption as a condition symbol. [ 9 ] NFTs function like cryptanalytic tokens, but unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually exchangeable, and sol are not fungible. ( While all bitcoins are adequate, each NFT may represent a different underlie asset and therefore may have a different value. ) [ 10 ] NFTs are created when blockchains concatenate records containing cryptanalytic hashes —sets of characters that identify a hardened of data—onto previous records, creating a chain of identifiable data blocks. [ 11 ] This cryptanalytic transaction summons ensures the authentication of each digital charge [ clarification needed ] by providing a digital key signature that tracks NFT ownership. [ 11 ] Data links that are part of NFT records, that for example may point to details about where the consort artwork is stored, can be affected by radio link bunk. [ 12 ]
A diagram showing the proper to own of an non-fungible token and linked file. In most cases, it is heavily subject on the nominal ‘s smart contract. ownership of an NFT does not inherently award copyright or intellectual property rights to the digital asset the NFT purports to represent. [ 13 ] [ 14 ] Someone may sell an NFT that represents their work, but the buyer will not necessarily receive copyright to that ferment, so the seller may create extra NFTs of the same work. [ 15 ] [ 16 ] So an NFT is merely proof of possession [ clarification needed ] separate from copyright. [ 14 ] [ 17 ] According to legal scholar Rebecca Tushnet, “ In one sense, the buyer acquires whatever the art world thinks they have acquired. They decidedly do not own the copyright to the fundamental employment unless it is explicitly transferred. ” [ 18 ]
early history ( 2014–2017 )
The first base known “ NFT ”, Quantum, [ 19 ] was created by Kevin McCoy and Anil Dash in May 2014. It consists of a video clip made by McCoy ‘s wife, Jennifer. McCoy registered the video recording on the Namecoin blockchain and sold it to Dash for $ 4, during a live presentation for the Seven on Seven conference at the New Museum in New York City. McCoy and Dash referred to the technology as “ monetize graphics ”. [ 20 ] This explicitly linked a non-fungible, tradable blockchain marker to a work of artwork, via on-chain metadata ( enabled by Namecoin ). This is in contrast to the multi-unit, fungible, metadata-less “ colored person coins ” of other blockchains and Counterparty. [ clarification needed ] [ 21 ] In October 2015, the first NFT plan, Etheria, was launched and demonstrated at DEVCON 1 in London, Ethereum ‘s first developer league, three months after the launching of the Ethereum blockchain. Most of Etheria ‘s 457 corruptible and tradable hexangular tiles went unsold for more than five years until March 13, 2021, when renewed matter to in NFTs sparked a buy craze. Within 24 hours, all tiles of the stream version and a anterior version, each hardcoded to 1 ETH ( US $ 0.43 at the time of launch ), were sold for a full of US $ 1.4 million. [ 22 ] The condition “ NFT ” merely achieved wide custom with the ERC-721 standard, beginning proposed in 2017 via the Ethereum GitHub, following the launch of versatile NFT projects that year. [ 23 ] [ 24 ] The standard coincided with the establish of several NFT projects, including Curio Cards, CryptoPunks ( a plan to trade unique cartoon characters, released by the american english studio Larva Labs on the Ethereum blockchain ), [ 25 ] [ 26 ] and rare Pepe trade cards. [ 23 ]
Increased public awareness ( 2017–present )
- The 2017 online game CryptoKitties was made profitable by selling tradable cat NFTs, and its success brought public attention to NFTs.
- The NFT market experienced rapid growth during 2020, with its value tripling to US$250 million. In the first three months of 2021, more than US$200 million were spent on NFTs.
- In 2020, the U.S Patent and Trademark Office received three trademark applications for NFTs. In 2021, the number of trademark applications jumped to more than 1200. In January 2022, the U.S. Patent and Trademark Office received 450 NFT-related trademark applications. The growing list of brands being trademarked for NFTs includes the NYSE, Star Trek, Panera, Walmart, Elvis Presley, Sports Illustrated, Ticketmaster, and Yahoo.
- In the early months of 2021, interest in NFTs increased after a number of high-profile sales and art auctions.
- In May 2022, The Wall Street Journal reported, “The NFT market is collapsing.” Daily sales of NFT tokens declined 92% from September 2021, and the number of active wallets in the NFT market fell 88% from November 2021. While rising interest rates had impacted risky bets across the financial markets, the Journal said “NFTs are among the most speculative.”
normally associated files
NFTs have been used to exchange digital tokens that link to a digital file asset. Ownership of an NFT is frequently associated with a license to use such a linked digital asset, but broadly does not confer copyright to the buyer. Some agreements only grant a license for personal, non-commercial use, while early licenses besides allow commercial practice of the fundamental digital asset. [ 35 ]
Digital art is a common consumption event for NFTs. [ 36 ] High-profile auctions of NFTs linked to digital art have received considerable public attention. The sour entitled Merge by artist Pak was the most expensive NFT, with an auction price of US $ 91.8 million [ 37 ] and Everydays: the First 5000 Days, by artist Mike Winkelmann ( known professionally as Beeple ) the second most expensive at US $ 69.3 million in 2021. [ 7 ] [ 38 ]
Some NFT collections, including Bored Apes, EtherRocks and CryptoPunks are examples of generative art, where many different images are created by assembling a choice of simple picture components in different combinations. [ 39 ] In March 2021, the blockchain company Injective Protocol bought a $ 95,000 original screen print entitled Morons (White) from English graffiti artist Banksy, and filmed person burning it with a cigarette light. They minted [ jargon explanation needed ] and sold the video recording as an NFT. [ 40 ] [ 41 ] The person who destroyed the artwork, who called themselves “ Burnt Banksy ”, described the act as a way to transfer a physical work of artwork to the NFT space. [ 41 ] American curator and art historian Tina Rivers Ryan, who specializes in digital works, said that art museums are widely not convinced that NFTs have “ permanent cultural relevance. ” [ 42 ] Ryan compares NFTs to the internet artwork fad before the dot-com bubble. [ 43 ] No centralized means of authentication exists to prevent stolen and counterfeit digital works from being sold as NFTs, although auction houses like Sotheby ‘s, Christie ‘s, and diverse museums and galleries worldwide started collaborations and partnerships with digital artists such as Refik Anadol, Dangiuz and Sarah Zucker, selling NFTs associated with digital artworks ( via NFT platforms ) and showcasing those artworks ( associated with the respective NFTs ) both in virtual galleries and real number life screens, monitors, and TVs. [ 44 ] [ 45 ]
NFTs can represent in-game assets, such as digital plots of land. Some commentators describe these as being controlled “ by the drug user ” rather of the game developer [ 46 ] if they can be traded on third-party marketplaces without license from the game developer. [ 47 ]
- CryptoKitties was an early successful blockchain online game in which players adopt and trade virtual cats. The monetization of NFTs within the game raised a $12.5 million investment, with some kitties selling for over $100,000 each. Following its success, CryptoKitties was added to the ERC-721 standard, which was created in January 2018 (and finalized in June). A similar NFT-based online game, Axie Infinity, was launched in March 2018.
- In October 2021, Valve Corporation banned applications from their Steam platform if those applications use blockchain technology or NFTs to exchange value or game artifacts.
- In December 2021, Ubisoft announced Ubisoft Quartz, “an NFT initiative which allows people to buy artificially scarce digital items using cryptocurrency”. The announcement prompted criticism[ clearing needed], with a dislike ratio of 96% over the YouTube announcement video, which has since been unlisted. Some Ubisoft developers also raised their refer[ clearing needed] over the announcement. The Game Developers Conference’s 2022 annual report stated that 70 percent of developers surveyed said their studios had no interest in integrating NFTs or cryptocurrency into their games.
- Some luxury brands minted NFTs for online video game cosmetics. In November 2021, Morgan Stanley published a note suggesting that this use could become a multi-billion dollar market by 2030.
In February 2021, NFTs reportedly generated around US $ 25 million in the music industry, with artists selling artwork and music as NFT tokens. [ 56 ] On February 28, 2021, electronic dance musician 3LAU sold a collection of 33 NFTs for a total of US $ 11.7 million to commemorate the three-year anniversary of his Ultraviolet album. [ 57 ] [ 58 ] On March 3, 2021, an NFT was made to promote the Kings of Leon album When You See Yourself. [ 59 ] other musicians who have used NFTs include American rapper Lil Pump, [ 60 ] [ 61 ] [ 62 ] Grimes, [ 63 ] ocular artist Shepard Fairey in collaboration with commemorate producer Mike Dean, [ 64 ] and rapper Eminem. [ 65 ]
other associated files
NFTs representing digital collectables and artworks are a notional asset. [ 85 ] The NFT bribe rush was called an economic ripple by experts, who besides compared it to the Dot-com bubble. [ 86 ] [ 87 ] In March 2021 Mike Winkelmann called NFTs an “ irrational exuberance burp ”. [ 88 ] By mid-april 2021, demand subsided, causing prices to fall importantly. [ 89 ] Financial theorist William J. Bernstein compared the NFT market to 17th-century tulip mania, saying any bad bubble requires a technical promote for people to “ get excited about ”, with part of that enthusiasm coming from the extreme predictions being made about the product. [ 90 ]
NFTs, as with other blockchain securities and with traditional artwork sales, can potentially be used for money laundering. [ 91 ] auction platforms for NFT sales may face regulative imperativeness to comply with anti-money launder legislation. Gou Wenjun, the film director of the Anti-Money Laundering Monitoring and Analysis Centre for the People ‘s Bank of China, expressed that NFTs could “ well become money-laundering tools. ” Gou elaborated that there is increasing improper exploitation of assorted fresh cryptanalytic technologies, and that illegitimate actors often self-identify as innovators of the fiscal technology sector. [ 92 ] A February 2022 study from the United States Treasury assessed that there was “ some evidence of money launder risk in the high-value art market, ” including through “ the emerging digital art market, such as the practice of non-fungible tokens ( NFTs ). ” [ 93 ] The study considered how NFT transactions may be a simple choice for laundering money through art by avoiding the transportation system or insurance complications in trading physical art. respective NFT exchanges were labeled as virtual asset service providers that may be subject to Financial Crimes Enforcement Network regulations. [ 94 ] In March 2022, two people were charged for the execution of a $ 1,000,000 NFT dodge through electrify fraud. [ 95 ]
- In 2019, Nike patented a system called CryptoKicks that would use NFTs to verify the authenticity of physical sneakers and would give a virtual version of the shoe to the customer.
- Event tickets have been suggested for sale as NFTs. This would enable event organizers or performers to garner royalties on resales.
- Some private online communities have been formed around the confirm ownership[ clearing needed] of certain NFT releases.
Standards in blockchains
specific token standards patronize versatile blockchain use-cases. Ethereum was the first blockchain to support NFTs with its ERC-721 standard [ 100 ] and this is presently [ may be outdated as of March 2022 ] the most widely used. many early blockchains have added or plan to add support for NFTs. [ 101 ] ERC-721 was the first base standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Solidity chic shrink standard ; “ inheritable ” means that developers can create modern ERC-721-compliant contracts by copying from a reference book execution. ERC-721 provides core methods that allow tracking the owner of a unique identifier, american samoa well as a permissioned way [ clarification needed ] for the owner to transfer the asset to others. [ 100 ] The ERC-1155 standard offers “ semi-fungibility ”, ampere well as providing an analogue to ERC-721 functionality ( meaning that an ERC-721 asset can be built using ERC-1155 ). Unlike ERC-721 where a unique ID represents a single asset, the singular ID of an ERC-1155 token represents a class of assets, and there is an extra measure plain to represent the amount of the class that a particular wallet has. [ 102 ] Assets of the same class are exchangeable, and a user can transfer any amount of assets to others. [ 102 ]
Issues and criticisms
Unenforceability of copyright
As an visualize on the network, the digital art linked to a non-fungible token may be right-clicked and saved like any other photograph file Because the contents of NFTs are publicly accessible, anybody can easily copy a file referenced by an NFT. Furthermore, the ownership of an NFT on the blockchain does not inherently convey legally enforceable intellectual property rights to the charge. It has become well known that an NFT persona can be copied or saved from a vane browser by using a right field snap menu to download the reference image. NFT supporters disparage this duplication of NFT artwork as “ right-clicker mentality ”. One collector quoted by Vice compared the value of a buy NFT ( in contrast to an unpurchased imitate of the underlying asset ) to that of a condition symbol “ to show off that they can afford to pay that a lot ”. [ 9 ] The “ right-clicker brain ” idiom spread virally after its introduction, peculiarly among those who were critical of the NFT market and who appropriated the term to flaunt their ability to capture digital artwork backed by NFT with ease. [ 9 ] This criticism was promoted by australian programmer Geoffrey Huntley who created “ The NFT Bay ”, modeled after The Pirate Bay. The NFT Bay advertised a torrent charge purported to contain 19 terabytes of digital artwork NFT images. Huntley compared his shape to an art project from Pauline Pantsdown, and hoped the site would help educate users on what NFTs are and are not. [ 103 ]
NFTs that represent digital art generally do not store the consort artwork file on the blockchain ascribable to the big size of such a file. Such a nominal functions like a certificate of ownership, with a world wide web address that points to the piece of art in question ; this however makes the art itself vulnerable to link decomposition. [ 20 ]
NFT purchases and sales are enabled by the high energy custom, and attendant greenhouse gas emissions, associated with blockchain transactions. [ 104 ] Though all forms of Ethereum transactions have an impact on the environment, the conduct impact of transaction is besides pendent upon the size of the Ethereum transaction. [ 105 ] The proof-of-work protocol required to regulate and verify blockchain transactions on networks such as Ethereum consumes a large come of electricity. [ 106 ] To estimate the carbon footprint of a given NFT transaction requires a variety of assumptions or estimations about the manner in which that transaction is set up on the blockchain, the economic behavior of blockchain miners ( and the energy demands of their mine equipment ), [ 107 ] and the amount of renewable energy being used on these networks. [ 108 ] There are besides conceptual questions, such as whether the carbon footprint appraisal for an NFT buy should incorporate some assign of the ongoing energy demand of the underlie network, or merely the fringy impact of that particular buy. [ 109 ] An analogy might be the carbon footprint associated with an extra passenger on a given airline flight. [ 104 ] Some NFT technologies use validation protocols such as proof of stake that use much less energy per establishment cycle. other approaches to reducing electricity include the habit of off-chain transactions as part of minting an NFT. [ 104 ] A number of NFT art sites hope to address these concerns, and some are moving to technologies and protocols with lower associated footprints. [ 110 ] Others nowadays allow the choice of buying carbon offsets when making NFT purchases, although the environmental benefits of this have been questioned. [ 111 ] In some instances, NFT artists have decided against selling some of their own work to limit carbon emission contributions. [ 112 ] Though there are now “ eco-friendly ” NFTs, Ethereum still dominates the NFT market, resulting in an impact on the environment. [ 113 ]
artist and buyer fees
Sales platforms charge artists and buyers fees for minting, number, claim, and secondary coil sales. analysis of NFT markets in March 2021, in the immediate consequence of Beeple ‘s “ Everydays : the inaugural 5000 Days ” sell for US $ 69.3 million, found that most NFT artworks were selling for less than US $ 200, with a third gear sell for less than US $ 100. [ 114 ] Those selling NFTs below $ 100 were paying platform fees between 72.5 % and 157.5 % of that amount. On average the fees make 100.5 % of the monetary value, meaning that such artists were on average paying more money in fees than they were making in sales. [ 114 ]
plagiarism and fraud
There have been cases of artists having their sour sold by others as an NFT, without license. [ 115 ] After the artist Qing Han died in 2020, her identity was assumed by a fraudster and a number of her works became available for purchase as NFTs. [ 116 ] similarly, a seller perplex as Banksy succeeded in selling an NFT purportedly made by the artist for $ 336,000 in 2021 ; with the seller in this shell refunding the money after the case drew media attention. [ 117 ] The comfort of creating plagiarized NFT works, along with the anonymity of minting NFTs, makes it hard to pursue legal natural process against NFT plagiarists. [ 118 ] Some NFT marketplaces responded to cases of plagiarism by creating “ takedown teams ” to respond to artist complaints. The NFT market OpenSea has rules against plagiarism and deepfakes ( non-consensual suggest imagination ). Some artists criticized OpenSea ‘s efforts, saying they are boring to respond to takedown requests and that artists are subjugate to support scams from users who claim to be representatives from the platform. [ 45 ] Others argue that there is no market incentive for NFT marketplaces to crack down on plagiarism. [ 118 ]
- A process known as “sleepminting” allows a fraudster to mint an NFT in an artist’s wallet and transfer it back to their own account without the artist becoming aware. This allowed a white hat hacker to mint a fraudulent NFT that had seemingly originated from the wallet of the artist Beeple.
- Plagiarism concerns led the art website DeviantArt to create a bot that searches and compares user art to art on popular NFT marketplaces. If the bot finds art that is similar, it warns the user and instructs the user how they can contact NFT marketplaces to request that they take down their plagiarized work.
- The BBC reported a case of insider trading when an employee of the NFT marketplace OpenSea bought specific NFTs before they were launched, with prior knowledge those NFTs would be promoted on the company’s home page. NFT trading is an unregulated market in which there is no legal recourse for such abuses.
- When Adobe announced they were adding NFT support to their graphics editor Photoshop, the company proposed creating an InterPlanetary File System database as an alternative means of establishing authenticity for digital works.
- The price paid for specific NFTs and the sales volume of a particular NFT author may be artificially inflated by wash trading, which is prevalent due to a lack of government regulation on NFTs.
In January 2022, it was reported that some NFTs were being exploited by sellers to unknowingly gather drug user IP addresses. [ 124 ]
Pyramid/Ponzi scheme claims
The structure of the NFT grocery store resembles a pyramid or Ponzi scheme, in which early adopters net income at the expense of those buying in late. [ 125 ]
A “ rug pull ” is a victimize, similar to an die scam or a pump and dump dodge, in which the developers of an NFT or other blockchain visualize hype the prize of a stick out to pump up the price and then abruptly sell all their tokens to lock in massive profits or differently abandon the project while removing fluidity, permanently destroying the value of the undertaking. [ 126 ] [ 127 ] Rug pulls have become an increasingly common venture when buy NFTs, with the proceeds of some rug pulls being valued at hundreds of thousands or flush millions of dollars. [ 128 ] Rug pulls accounted for 37 percentage of all crypto-related victimize tax income in 2021, according to one analysis. [ 129 ]
In democratic polish
A comedy cartoon on the March 27, 2021, episode of Saturday Night Live featured characters explaining NFTs through rap to US Treasury Secretary Janet Yellen, as played by Kate McKinnon. [ 130 ] The 2021 Paramount+ television film South Park: Post Covid: The Return of Covid featured an pornographic version of Butters Stotch in his Professor Chaos persona tricking people into purchasing NFTs in 2061. The film portrays them as a poor investment, and Chaos has grown then adept at selling them that he is locked in a mental institution. [ 131 ]