Discover NFT’s: It’s not just a picture!

6 June 2022

Everyone has heard about non-fungible tokens, or NFTs as they are better known. Celebrities like Eminem bought a Bored Ape NFT for half a million dollars. The mainstream media went viral and said they could take a screenshot and have the same thing. But is this the same thing?

Let’s look at the words “non-fungible token”:

  • “Non-Fungible”: means it cannot be changed whenever created.
  • “Token”: Small piece of data

It is important to note that no NFT is the same as another – they are always different. Therefore, NFTs cannot be split up, and they must be distinguishable from something else.

What am I buying?

Most of the NFTs you know about today are digital art, and you think you are purchasing that digital art. You are not in reality.

When you purchase an NFT, you are buying a Token ID paired with an image URL on a third-party website. The third-party website says that the Token ID represents the image, although there is technically no image data on the blockchain.

The Token ID is simply a pointer, saying I represent that image over there. The actual image file is then uploaded to a server.

You purchase a piece of data that points to a server that hosts either an image or a gif. It is important to note, that the server could change or that the image or gif could potentially change. Therefore, you only own the specific data on the blockchain, not the access to the server and neither the image/gif but only the tiny piece of data that points to the image or gif.

That small piece of data that you buy represents something larger.

Value of NFT?

To be able to justify and understand the value that some of the NFTs hold these days, one should look at the factors involved, namely:

All these factors need to be considered when buying an NFT. It is possible that the NFT you are looking to buy is, in fact, only hype and, perhaps in a year’s time, it will only hold a fraction of its original purchasing price. Answering the questions above is crucial in understanding and distinguishing if this is, in fact, an asset you would want to have in your portfolio or perhaps you only like the picture and would want to hold that piece of data.

Can NFTs be copied?

Yes, like all artwork in our tangible world today, the image or gif can be duplicated. However, NFTs are all stored on the blockchain, and as the blockchain is a public ledger, the original NFT address can then be traced to the creator of the NFT. You will be able to see every transaction history of that original NFT on the blockchain, making ownership identification known to all.  The “copied” NFT would only look like the original NFT’s image.

Future vision

Some known players in the field believe NFTs will be used for house deeds, car leases or medical records, but it is safe to say we cannot tell you precisely what NFTs will be used for in the future. However, the technology involved is revolutionary, and it is exciting to see the direction it is leaning towards.

The music industry is the loudest around NFTs at the moment. In the music industry, it is a known fact that musicians and creators have been unfairly compensated for years. NFTs are a solution to this problem. NFTs have the possibility to revolutionise the music industry.

Artists would be able to make their albums, music, songs, and lyrics into NFTs, earn from it and perhaps make royalties and build their unique communities. Kings of Leon released the first NFT album last year, and since then, artist like Snoop Dogg & Shawn Mendes, to name a few, have been getting involved in the adoption of NFTs.

How can we help?

We are future-focused accountants who are passionate about Crypto, DeFi and going bankless. We have a deep understanding of the blockchain, liquidity & staking protocols, ICOs / IDOs, NFT ecosystem and other DeFi nuances. Partner with us for all on-chain tax and accounting.