It is the phenomenon of the moment, and it is not surprising that Spotify mentioned it in a passage of its “Wrapped”, the personalized account of music ratings of 2021. Behind the acronym NFT there are two keys conflicting reading: a great technological revolution and a large speculative bubble. Two sides of an identical coin showing the same reliefs: the complexity of the theme, beyond the headlines that often happen to read as soon as a digital work with several zeros in the background; but above all, the absence of a legal framework within which to regulate the phenomenon, which exacerbates the underlying problems.
To explain what NFTs are, it is necessary to start from the full name: “ Non-Fungible Token “. The first part of the concept (that is, Non-Fungible ) contains a bit the gist of the whole speech: it is a piece, or rather a ” token “if you look at the noun that makes up the entire acronym NFT , unique in its individuality. Unique because non-fungible , unlike money, Bitcoin and any other replicable and replaceable object. Just to be clear, a ten euro banknote can be easily replaced with another banknote of the same value; for the NFT , on the other hand, the exact opposite is true, each referring to a different product.
This exclusivity explains well the meaning of the Non-Fungible Token , which is a way to uniquely identify a digital product created on the Internet. A bit like a certificate of ownership, but with the fundamental difference deriving from the fact that this mechanism has no legal relevance and even poses some problems in terms of copyright and copyright, as we will see later. There can be many digital objects: from kittens in digital format – in fact the precursors of the NFT market – to posts on social media, passing through videos, photos, audio, texts and even GIFs and memes. , but we could also continue with many other examples and facets. The element that binds all these contents is that, where “signed” with NFT , it is as if above there was the signature of its author, who therefore recognizes its authenticity and originality .
The object may not necessarily be single: the author has in fact the possibility of reproducing a series in a limited edition, where each piece is “branded” by its exclusive NFT : in this case it is speaks of standard LRC1155 , where a smart contract is worth more tokens. It is important to underline that what you buy is the certification of the digital work, and not the work itself, which instead continues to circulate freely. With all the problems that can arise.
In order to function, Non-Fungible Tokens use the blockchain , which can be imagined as a sort of “digital register” in which transactions are recorded using an unalterable code. This system, supported by many computer terminals – which has also raised sustainability issues , given the serious impact on the environment – guarantees the authentic character of transactions, through a series of metadata saved on a differentiated multitude of computers. The mechanism is basically the same on which Bitcoins are based, but transposed into several other areas. However, it is important to reiterate the non-fungibility, the element that distinguishes cryptocurrencies from NFT .
The functioning of the NFT can be summarized in three steps: creation, storage on the blockchain through the “smartcontract” and the sale. First, the digital version of a work is generated, which can be for example an image file, an audio track or a video file. It is not uncommon for trading platforms to place limits on file size: for example, the Open Sea marketplace sets a limit of 100 megabytes, while advising creators not to exceed the 40 mb threshold.
The digital version is nothing more than a sequence of numbers, compressed – through a procedure known as hashing – into an even smaller sequence, called hash . This technique guarantees some typical peculiarities of the NFT , such as integrity and security, to which is also added indestructibility, the latter characteristic dictated by archiving on the blockchain via smart contract, a sort of contract drawn up with an IT protocol which contains the main terms of purchase. The person who owns the original digital document is able to calculate the hash, while the opposite is not true. The hash generated in this way is stored on a blockchain with an associated timestamp (which serves to document the date of insertion in this computer system) and can then be exchanged on different marketplaces (Open Sea is one of these, but we will also mention others ) against a payment, usually in cryptocurrency .
To give an example, the first work NFT sold by the historic auction house Bleepe (“ Everydays – The First 5000 Days “) was acquired by an entity known under the pseudonym of Metakovan and founder of Metapurse, the largest NFT fund in the world. In the present case, Metakovan shelled out nearly $ 70 million to buy a JPEG file placed in a digital wallet, made unique by a smart contract and made up of a long string of pixels and bytes. Therefore, it does not have the availability of the file – which is found elsewhere – but the rights to it, crystallized through the possession of the metadata. In any case, thanks to the hashing method, the NFT keeps in memory all the data relating to the transfer of ownership, allowing the simple and immediate demonstration of possession even without the aid of a third party. At least as long as the blockchain that will host the token remains active. And here are some of the legal problems related to the Non-FungibleToken market.
The most accessible platform is Open Sea and is based on Ethereum. But there are also other marketplaces where you can negotiate a Non-Fungible Token, such as Nifty Gateway and other slightly more specialized places: see for example NBA Top Shot Valuables for the purchase of the tweets and CyptoKitties for the lovable digital kittens.
Although not required by law, the NFT are not prohibited. However, it is clear that this phenomenon poses some problems of a certain weight, such as the lack of legal validity of the blockchain and the inapplicability of the rules on copyright. As a result, those who bought for example Jack Dorsey's first tweet – auctioned for the monstrous figure of 2.9 million dollars – will not be able to prevent it from being shared by third-party users. And the reason is obvious: the purchase of further rights on the work would require the activation of the classic methods present in the legal systems, such as the contract and its protections.
But there are many other issues that certainly make the purchase of NFT insidious: what rights does the holder of the token have in case of removal of the digital work signed by the NFT ? And in the event of variations in a single microscopic pixel of a digital content on which the Non-Fungible Token insists? Apparently, no one could prevent the author from doing it: by varying the pixel, the hash also varies, and this would allow the same author to resell the same work to other subjects, albeit with a new NFT. It is clear that, if we can speak of remedies, the latter would be only contractual. Without forgetting, moreover, the prejudices regarding copyright.
