An introduction to NFTs By Alex Reppel, Department of Marketing, Royal Holloway, University of London
“The web as we know it has existed for over three decades. For most of this time, it was trivial to copy and share digital files, whether it be images, music or even video files. Sharing digital assets was the norm of what we now refer to as the ”open web”, or the part of the internet not controlled by large platform providers, such as Google, Facebook, or Apple.
Obviously, not everyone relished the thought of digital assets being reproduced, modified, and shared so easily. While creators want to at least maintain authorship of their creations, distributors want to be able to make money from assets they are supposed to distribute. Consequently, over the past two decades or so, multiple attempts have been made to restrict the unauthorised distribution of digital media.
A commonly employed technique is to attach what is known as “digital rights management” [DRM] to a digital asset, that is, to attach a set of rights to it that cannot be removed easily and specify what a user is and isn’t allowed to do with a file. Perhaps the most prominent example of that are music streaming services, each of which operates their own digital rights management.
While some perceive DRM as striking an acceptable balance between convenient access to digital files and the need for artists and distributors to be compensated for their work, critics point out that artificially restricting access to digital files disadvantages legal owners (what is often called “fair use”),making it difficult for users to consume digital content anonymously (including which song they play and when), and limits user choice as DRM protected files can only be used within the confines of the platform that manages those rights, which allows Spotify, Apple, and others to control access to their respective music services.
The same is true for most digital assets users may purchase on different platforms, whether it is an item in an online game, or a piece of digital clothing in a virtual world. If the platform on which all of this takes place goes out of business or decides to no longer permit use of an item, users’ loose access to it.
As an alternative to DRM, “non-fungible tokens” [NFTs] are gaining prominence, which are commonly described as unique (“non-fungible”) digital certificates (“tokens”) to record ownership of physical and/or digital assets on a public ledger, typically a blockchain. The ability to record ownership and provenance of an assets without relying on a specific platform is an appealing concept that has captured the imagination of many technologists, artists, and, increasingly, of marketers as well.
What NFTs and DRM have in common is that they both attempt to manage the rights associated with digital assets. While DRM attempts to “lock” an asset itself, that is, to make unauthorised access as difficult as possible, NFTs specify ownership and transfer rights using a combination of public record (typically a blockchain) and programme code (called a “smart contract”). Importantly, the code that specifies transfer rights is immutable and cannot be changed once recorded on a blockchain.
In that sense, NFTs and DRM are two competing technologies trying to achieve something similar, that is, to enable artists to maintain some form of verified association with their creations. Contrary to DRM, a digital asset referenced by an NFT can still be viewed, shared, and reproduced easily, with each copy being identical and thus “fungible”. It is the NFT or digital certificate that is non-fungible. Because NFTs can be traded, they make new and necessary business models around digital assets possible.
Instead of attempting to control access to the asset itself, as is the case with DRM, the value expressed with NFTs is the association with an asset. This can take the form of community membership for example, where the level of support provided by fans to a new artist is recorded through the purchase and ownership of an NFT to their music. While the music associated with the NFT can be accessed by anyone, it is the association with the artist that is of value. Who wouldn’t be proud of having supported their favourite band or singer long before they became a mainstream act?
It must be said, however, that while the idea of a non-fungible token is very appealing, the reality is, at least for now, a little more complicated. First and foremost, creating an NFT is not as straightforward as it may appear at first. Currently, it is also a scene riddled with scams and appropriation. This is not to say that it will remain so, but as of today, the hype does not necessarily match reality.”