Busting Crypto Myths: You Own Nothing When You Buy An NFT

For the uninitiated or cryptocurious people, non-fungible tokens (NFTs) they represent one of the most colorful sectors of the cryptocurrency industry.

How is it that seemingly duplicable, often wacky pieces of digital art can fetch extraordinarily high prices, and why do people flock to buy these intangible items?

It is certainly a difficult topic to understand, but let’s try.

What exactly is an NFT again?

First of all, it’s important to note that when you buy an NFT, what you’re actually buying is a digital token that simply points to a specific computer file that exists somewhere else on the internet.

This can be anything from a music file to an in-game costume to a picture of a cartoon animal.

Think of it like a digital deed to a parcel of land. The deed represents ownership of that particular property but, in real terms, the deed is not the parcel itself.

Similarly, the NFT is NOT the digital element itself.

So while it may seem like it’s all one thing, there are actually two separate components involved.

He digital element itself (an image of a cartoon monkey, a GIF of an animated cat with a Pop-Tart torso, etc.)
He non-fungible digital token containing unique identifying metadata pointing to the item above, i.e. file location, item name, unique features, contract address, etc.

An NFT is simply a tradable digital token that stores important metadata (digital information) related to the associated digital item. This information is unique, so even if you were to screenshot or duplicate the desired file and create a new NFT to represent it, it would contain different metadata and therefore it would be easy to identify which was the original and which was a copy. .

Just as you can’t “copy” real estate that a deed describes, you can’t simply copy the digital object that an NFT describes. Sure, you can take a picture of a plot of land or right-click on a funny cat NFT, but the object the NFT relates to stays the same.

This ease of authentication is due to the immutable, transparent and free nature of block chain technology in which all NFT tokens are stored.

When you buy an NFT, the data that says that that specific digital token that is tied to that specific item is tied to your crypto wallet The address is stored in the blockchain as part of the transaction. If you choose to sell the NFT, the data on the blockchain is updated to reflect the new owner’s crypto wallet address.

With that review in mind, go back to what you have.

What do you really own when you buy an NFT?

The ownership part of NFTs is not as straightforward as you might think.

For one thing, when you buy an NFT, you’re essentially buying a token that gives you bragging rights so you can tell everyone “there may be hundreds of copies of this digital image on the internet, but I have the original and here is the immutable evidence (in the form of a unique digital token) to prove it.”

But on the other hand, while you may be the “owner” of an original digital item, that doesn’t necessarily mean you have any rights in that item, for example, using it as a commercial logo or creating and selling souvenirs based on In of it Often those intellectual property rights remain with the person or persons who first created the item, but this often differs depending on the collection of NFTs.

That is not to say that there are not NFTs that grant the use of open licenses, because there are many. It’s just that most of the time, unless expressly mentioned by the creator, buyers shouldn’t assume that these rights automatically transfer upon sale.

So, in short, what you own is a digital token that immutably points to an original digital item giving you the exclusive right to sell it. Beyond that, holders of certain NFT collections like Bored Apes Yacht Club (BAYC) they have found ways to increase utility by establishing their own exclusive communities. These private channels allow like-minded people to share ideas, information, and receive benefits like early access to new NFT releases.

advances in DeFi The protocols also mean that holders can now rent their NFTs to others in some cases.

What happens if the digital file is deleted?

If you only own the NFT and not the digital file itself, what if the original creator decided to delete the file or accidentally deleted it?

This is one of the main drawbacks of NFTs at the moment. In a rush to capitalize on the growing NFT trend, many creators fail to adequately protect their NFT data. That means if that data is lost or corrupted, the NFT will point to nothing and lose its value.

A recent example of this is the widespread loss of many NFTs minted on the now-defunct FTX exchange. Instead of hosting NFT data using a blockchain-based decentralized storage solution like storj either yes, FTX hosted them on FTX US servers that are no longer operational. As a result, affected NFTs no longer link to their original files, but instead direct users to an FTX webpage that describes the company’s insolvency. Unfortunate events like this once again illustrate the importance of decentralized NFT metadata storage and will hopefully set new standards for collections in the future.

Learning how NFTs work now will help you navigate the future of the metaverse and digital ownership. Many are betting that we could eventually end up buying and selling digital products in the same way that we sell physical products. After all, we’ll still need cool shoes, t-shirts, and jewelry whether we’re in a real or virtual bar.