Cover Story
NFT
means “non-fungible token”, but many associate this short acronym with much more. For some, NFT is shorthand for describing the latest hype and yet another get-rich-quick scheme; for others, it is an indispensable feature of a new, emerging digital world, the “metaverse”. Admittedly, the current popularity of NFTs may suggest an ‘irrational exuberance’, pushing many to jump onto the new bandwagon. However, the potential of NFTs, beyond the hype, is yet to be determined. When the dust settles, several novels and useful applications of this technology are likely to emerge, impacting a variety of industries. In the meantime, an objective look requires us to steer away from polarized opinions in order to understand what NFTs are as well as the key legal and regulatory issues affecting this new phenomenon.
WHAT’S AN NFT? In essence, NFTs are digital certificates consisting of non-interchangeable units of data stored on a blockchain, that is a digitally distributed ledger. Here, records (or “blocks”) are linked together using cryptographic chains; each block contains a reference (or “cryptographic hash”) to the previous block, a timestamp, and other transaction data. Even though the underlying technology is the same supporting cryptocurrencies such as Bitcoin, NFTs, unlike a cryptocurrency, are not mutually interchangeable (or “fungible”). Each NFT, even when part of a series or collection, is unique and distinguishable from others. The process of creating an NFT (referred to as “minting”) consists of turning a specific digital item – such as a picture, a document, or a sound file – into a record on the blockchain that will typically have a link to the item itself. Once in the blockchain, any attempt to duplicate, change or tamper with the record on the blockchain representing the digital item is virtually impossible. Hence, while the digital item can be duplicated (or screenshotted), its record on the blockchain is unique and immutable regardless of how many times the NFT changes hands.
