by Zain Jaffer
Many people who misunderstand crypto, blockchains, and things like Non Fungible Tokens (NFTs) express initial shock at why people would pay thousands, if not more, for “jpegs” or digital images. They will then go on to say that they can just as easily download those digital images for free or pay a minimal fee, and then they have that same image on their device.
First a quick lay friendly definition. The blockchain is the underlying digital network technology that tracks who owns what, who paid who, who owes who, and so forth. Crypto is the digital unit of account and method of payment for that particular blockchain network. A particular crypto, like Bitcoin, Ethereum, Solana, and others would have the same “spot” price at any given moment, much like the US dollar or the Japanese Yen have the same spot price at any given moment.
An NFT is more like a certificate of ownership, except it is digital and resides on a particular blockchain network. Your house is probably worth different from a neighbor’s house, because your lot area and the type of house, plus its actual location, is also different. Hence you cannot let a crypto token represent your house in terms of ownership, because it would mean then that all houses would have the same “spot” price.
Since all these real estate assets are priced differently, you would need a digital ownership certificate that reflects how paper ownership certificates can be priced differently. The same goes for fine art, luxury bags and watches, ships, boats, planes, and other real world assets. The key to representing ownership in the digital blockchain world is an NFT.
Now that we have defined an NFT as a digital ownership certificate on the blockchain, it becomes clear why downloading a jpeg digital image is not the same as owning its NFT. Take note that although an image (like a digital artwork) can be an NFT, an NFT can also be used to represent ownership of other real world assets such as those described earlier.
So why is it taking so long to jump from digital artwork to NFT certificates for homes, cars, boats, paintings, and the like. One reason is that most countries around the world have contract laws that use possession of the paper titles of ownership as the basis for legal protections. Although some of these countries are starting to integrate (or even replace) paper titles of ownership with digital NFTs, it is still in its infancy.
One advantage of NFT titles of ownership to centrally issued paper titles is that in certain countries and jurisdictions, there have been instances where if the centralized repository (e.g. safe, file cabinets, servers) of a government agency or bank have burned down, the titles have a hard time being restored.
For certain blockchains that are sufficiently decentralized such as Bitcoin and Ethereum, because there are so many servers around the world keeping redundant records of who owns the asset through its NFT, even if some of those servers get damaged, there would still be enough to ensure that your ownership of an asset remains yours if you have its NFT.
Are NFTs just fancy expensive digital images on your phone or device? No. Instead it is a safe and convenient way to track your ownership of your assets. It just so happens that right now the technology is in its infancy, and exchanging cute images of animals is just a way for people to test it out before they start using it for serious assets like houses, cars, and other things.
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