The value of your NFT

This topic comes up a lot and I got tired of writing the same general answer on chat every week, so here a quick starter on what NFTs are and what they are not.

The letters NFT stand for Non-fungible-token. Which in simple terms means that you have a piece of paper with some statement on it that can be sold and bought on the blockchain.

The neat part of such a statement is that it can say; "the bearer of this piece of digital paper owns a certain painting". And thus people can buy and sell the deed to a painting on the blockchain.

As a result a lot of people associate NFTs with art. You will see people say that it is similar to baseball cards and other rare things.

And they are very much mistaken.

What NFTs are not

It is important to realise that an NFT is simply a digital token that lives completely separately from the artwork, the physical object or whatever that NFTs is supposed to identify.

The NFT is smart because it uses blockchain and cryptography to ensure only one owner can exist and a random person on the Internet can't just steal it from you. While this is mostly true for the NFT itself, the artwork or object of value is a completely separate object and it very much can be copied or even stolen. The added value of having an NFT is thus not really there. The value is solely based on the illusion of that piece of digital paper being the same as your playing cards.

To illustrate this further, it is important to realise that any artist can create an endless stream of NFTs all linked to the same tweet, baseball card or even the Eiffel tower. NFTs are digital and thus you can create new ones for practically free. Unlike the things of value, NFTs themselves are absolutely not unique.

What NFTs can be

In the current society, if I sell my car I have to fill in some paperwork in order to let the government know who the new owner is. The result is that if a week from now I call the police and lie about the car being stolen, the one I sold, they will catch me in the lie since they look at the records first.

The concept of NFTs are a tool in a larger solution. Our current solution is government, men with guns and paperwork. And NFTs could replace the paperwork there.

Any solution involving NFTs requires some authority to avoid abuse. Threats of violence in the real world is needed to keep people honest and honour the link between the NFT and the real-world object. If someone steals my car and I still have my NFT, I will quickly realise that just having a token on a blockchain won't get my my car back. So the men with guns need to act in order for me to get my car back.

In games and purely digital artwork this becomes simpler. A gamemaker can build into his software the forces needed to link the NFTs and the virtual object it claims ownership of. This already exists and people are capable of trading game cards in a decentralized market.

In places like Lima there are much more local enforcement's and many neighbourhoods have their own "police". In this bigger solution NFTs could play a role to automate things and allow decentralisation to grow around a blockchain.

But in the end it is clear that NFTs are a tool, they have no value standing alone, they need to be part of a bigger solution.

If you still doubt, I've got an Eiffel Tower for sale!