I don’t think that the financial sector should be allowed to name things anymore. These people gave us gems like “derivatives” (which is just betting on price changes) and “debentures” (which are just a kind of loan you give to a company). Now we get to thank them for “non-fungible tokens,” or NFTs, which sounds super new and different. But they are really just e-collectibles on a blockchain platform. We’ve had collectibles for a LONG time and have had e-collectibles pretty much since the advent of computers (i.e. Ray Tomlinson has been sitting on the very first email ever received, which he sent to himself in 1971).
What makes NFTs interesting is not that they are something new but that the platform they are on has been shown to be super-duper reliable. If I buy the very first email ever sent and it is delivered over the email platform, I can’t really ever know if I am the sole owner of that email or even if the email is authentic. Email just can’t be trusted very much. But blockchain can. In fact, blockchain can be trusted in ways and to degrees that seem unprecedented. Text messages, emails, cash, bond certificates, credits in an online game, etc. can all be forged. With some effort, you can spot forgeries—but if you do it too late, you will have engaged in transactions based on trusting the forgeries. If someone forges a blockchain token, the system just purges the forged token from the system. You don’t have to do anything.
In the world of collectibles, trust is a major factor and fortunes have been made and lost due to forgeries. Mark Hofmann is a famous example of a prolific forger. Frank Abagnale (the inspiration for Catch Me If You Can) is another. Because of risks related to authenticity, time and money are lost mitigating those risks. When you have a platform that has a reputation for 100% authenticity, those transaction costs disappear. It makes sense that people interested in collectibles would be highly interested in NFTs.
To be clear, just like collectibles, NFTs have no significant utility value. You can’t DO anything with them, just like you can’t really DO anything with a 5th-century Germanic sword. You just own it and the owning of it is what creates the value. There is not even a direct link to the intellectual property of the associated art. The author of the art can sell you the NFT and keep the IP rights to the art without any trouble. The author can then make prints of that exact same art and sell those prints, even though you own exclusive rights to the NFT. I’m getting a lot of questions about NFTs lately, which is interesting because NFTs are just as related to IP rights as collectible art is related to IP. The author keeps all the rights unless you have a written contract otherwise. If you own a print, you own the print, but not the rights to make more.
Some people have described NFTs as being a sort of “receipt” of the transaction, which I think is fairly accurate but does not quite capture the essence of what the token represents to the market. It is an accurate and trustable accounting of itself and, within the platform, is guaranteed to be unique. Where this goes beyond just a “receipt” is that it does a very good job of creating the kind of connection that makes collectibles so valuable. It connects the owner to something/someone in a way that they can trust, maybe more than they could ever trust anything else. And that connection means something to us even though we can’t directly do anything with it. I’ve never had a receipt make me feel that way.
My prediction is that as long as NFTs are capable of evoking that feeling of connection in their owners, they are going to be capable of carrying tremendous value. I think it is really interesting that people with a tremendous net worth place such a high value on connection. It makes me wonder if I properly value the connection that I have right here and now.
About the Author
Jason Webb is a Pearson Butler attorney who focuses his practice on intellectual property law. His past work includes the successful negotiation of licensing and settlement agreements for clients with Fortune 500 companies, as well as extensive work in the entrepreneurial and non-profit worlds. He also has a background in computer science, physics, and chemistry, providing him with a skill set unique among IP attorneys.
For a free consultation with Attorney Webb, contact our Utah law firm online today.