Unique digital certificates (NFT): technology that will change the idea of proof of ownership

The digital proof of ownership has a number of edges

Fragments of an art installation that became the prototype for the world’s first NFT trophy appeared in the streets of 2020 Euro host cities last weekend. A digital award that combined physical perception and digital technologies appeared for the first time in the history of world football, and it will be awarded for the best goal at the European Championships. An art installation of Russian artist, futurist calligrapher Pokras Lampas became the foundation for the prototype. Balls appeared near landmarks, popular leisure sites and sports venues in Amsterdam, Baku, Budapest, Bucharest, Glasgow, Copenhagen, London, Munich, Rome, Saint Petersburg and Sevilla. In another column for our newspaper, Realnoe Vremya’s columnist, economist with long-term banking experience Artur Safiulin explains what the non-fungible token technology is, how it will upend our understanding of ownership and if one can earn from it.

Will an investor earn from the NFT?

Today I would like to talk about a non-fungible token (NFT). Perhaps, you have already come across this abbreviation in art news blockchain and cryptocurrencies rapidly conquered. It has recently become trendy to create NFTs for collages sold for $70 million at auction, here we mean artist Beeple sold at Christie’s. Billionaire Mark Cuban put one of his motivational quotes up for an auction for $1,700 in cryptocurrencies in an NFT format. In May, Elon Musk published a post on Twitter saying he had created a song about the NFT as a token and displayed it for sale. He was immediately sent an offer — artist Winkelmann offered $69 million he received from the sale of a collection of pictures at Christie’s. Moreover, it was the first lot sold for a cryptocurrency in history. We don’t know if the deal was sealed, but the fact that now songs, video clips, images and even words in a new format make us think about what technology it is and why it is necessary and if it is necessary in general, if a private investor can earn from it.

I’m selling this song about NFTs as an NFT pic.twitter.com/B4EZLlesPx

— Elon Musk (@elonmusk) march”="">https://twitter.com/elonmusk/s... 15, 2021

So, a non-fungible token. To put it simply, it is a technology that allows digitalising the interaction with any virtual and physical products. Non-fungibility remains the keyword in this name. In other words, a token has unique features and is impossible to be replaced with the same token. And a classic currency is an example of a fungible asset: any ruble is equal to another ruble.

A token, simply speaking, is a denomination of existence in blockchain-based systems. Thanks to blockchain, now information about all transactions is stored in thousands of computers, that’s to say, there was achieved absolute decentralisation. As a consequence, information cannot be destroyed and falsified. Cryptocurrencies became the first to use blockchain. All the information about all the cryptocurrency transactions is stored in a myriad of machines and is updated, this is why no bank is needed for such a currency. The further, the more. With the appearance of Ethereum, so-called smart contracts started to be used — it didn’t need a human anymore to control the execution, a machine code did it. So complex deals with digital assets became possible. Until recently, blockchain services used fungible tokens such as bitcoin, litecoin, ether and others. But it was understood that not all assets are equal and mutually interchangeable, while it would be a top-class performance to transfer information about them to blockchain and make deals with them with the help of smart contracts.

This is how the NFT (non-fungible token) appeared, it is a digital certificate that is a kind of unique object — an image, video, audio and so on. A token contains all the information about a product and it grants an exclusive right to a product. Consequently, in a token transaction, we make transactions with the product itself. Since tokens are stored in an open and distributed blockchain, the information about the product, owner and history of transactions will always be available and credible. In general, the NFT technology allows tokenising even physical goods (there are still some difficulties here but they are already fixed), and it is ideal for digital products. For instance, digital art, games (weapons, characters), objects in virtual universes (earth, for example). Imagine that you created a gif image, and it went viral on the Net. With an NFT, you become an owner, and everybody will know this.

How to create a token on your own

One can create a unique token and back an asset (art objects, collection, things, content) by it on one’s own and free in specialised cryptocurrency services. In fact, you will have a digital analogue of proof of ownership certifying the uniqueness of your copyright.

Specialists forecast that we are going to see tokenisation of other unique objects as an NFT in the future: real estate, transport, even personal identification. In other words, a token will be connected with a person to identity legal documents, personal data and so on. There will be no need for intermediaries in deals who are guarantees for both sides. Now the authenticity of documents and identity can be verified with an NFT. This is, of course, hard to imagine now, but it will be a routine for our children and grandchildren. Digitalisation is full steam.

Finance will be pleased to accept this format, for example, to tag bearer shares that don’t have the owner’s first and last name, they can easily be stolen and appropriated. Also, the introduction of the NFT will allow suddenly reducing costs of national depositories to keep registries.

It is necessary to note that the technology is starting to seize the world of art too, it has accepted it with pleasure as a more loyal sphere to new methods of self-expression. Experts assume that the technology will enter other spheres in the next 10-15 years.

Index platforms and tokenised baskets of NTFs

As for a private investor, here one can earn a bit from arbitration by purchasing digital art objects and reselling them later with a profit. Also, one can consider the purchase of NFT Index to make a profit from the exchange difference. Let’s see where and what can be done. There are two types of projects: NFT index platforms and tokenised baskets of NFTs.

Index projects:

  1. NFTX is a platform for creating NFT-backed index funds. It offers single fund tokens and combined fund tokens.
  2. NFT20 is a decentralized exchange for NFTs. The platform lets collectors deposit into a given NFT pool without permission in exchange for another NFT or for ERC-20 tokens representing a position in said pool.
  3. B20 is a token rolled out by the Metapurse team. It is a token representing a basket of NFTs centred around Beeple whom we have talked about earlier. B20 offers investors the ability to easily take up fractionalised positions in this basket, which includes no less than 20 Beeple 1/1 NFTs and other prized NFTs.
  4. Whale a project launched by prolific NFT collector WhaleShark, is a social currency that is underpinned by a trove of rare, valuable NFTs secured in “The Vault.”
  5. NIFTEX isn’t a fractionalised NFT collection itself, though it is a protocol for fractionalising individual high-value NFTs or larger NFT collections. This fun has a lot of interesting things.

Tokenised baskets of NFT

Both types can be purchased on Uniswap and SushiSwap.

In conclusion, I would like to note that this technology opens new horizons in the digital world making any digital compositions unique, raising their market value. We live in the era of the birth of a fully-fledged digital world. And it is even hard to imagine what the future world of our, let’s say, great-grandchildren will be like. It will be interesting to see the further spread of NFTs.

Artur Safiulin

The piece is not advertising. The purchase of NFT digital art objects doesn’t guarantee profitability, full responsibility rests with a private investor. The author’s opinion doesn’t necessarily coincide with Realnoe Vremya’s position.