Non fungible token (NFTs), useless, niche art thing or a great innovation?






Authors: Bibiana Barrera Suárez (more information here), Carlos Valderrama (more information here) and Diego Montes Serralde (more information here)


Context


How much money would you spend on your favourite artist´s work (physical art, physical assets, traditional art or real world assets) or buying a collectible comic book of your favorite brand such as Marvel or DC Comics?


Throughout history there have been different ways of reflecting something exceptional and making that something worth millions, for example it is known that the most expensive masterpiece “Salvator Mundi” from Leonardo da Vinci was sold in a Christie's auction for an historic amount of US$450,312,500.00 in 2017 (more information here).


Also, the “Action Comics #1 – CGC 9.0”, viewed by many fans as being the “holy grail” of comic collectables, was sold for a massive amount of $3.2 million dollars, making it the most expensive comic book in the world (more information here).

But, imagine if there were another kind of art or different types of collectibles, maybe in a digital form, do you think this form will make them less valuable?


Maybe you are thinking: “Yes, of course it is less valuable because it could be copied very easily”.


But, what if there was an alternative? Imagine a digital collectible or digital artwork or a unique piece of digital art that you can possess being the only copy in the World, specifically in the Virtual World. This are Non-fungible tokens or NFT tokens and are revolutionary.


The big question is, why something that is essentially scarce is more valuable? and what it has to do with fungible asset, nft art, digital collectibles, cryptographic token, virtual land, nft contract, nft ecosystem, virtual cats, nft market, social media, crypto collectible, digital cat, digital ownership, art world, token metadata, erc 20 tokens, ethereum network, blockchain network, game items, unique nft, non fungible digital assets, unique asset, token owner, digital token, digital currency, non fungible asset and other related concepts thereto? We invite you to discover it with Legal Paradox®.


1. Scarcity Theory


As human beings, we occupy a finite world in which we experience desires that can’t be fulfilled, we always seek what we do not have. The scarcity principle states that a limited supply of a good, followed by a high demand, results in a mismatch between the desired supply and demand balance.


This principle is related to the pricing theory, the price for a scarce good will rise until a balance is reached between supply and demand.


The Scarcity Principle is also related to Social Psychology, humans tend to maintain a sense of specialness and uniqueness so they place a higher value on goods that are scarce than on those that are abundant. When a good is perceived to be scarce, people want it more and are willing to pay higher prices.


(...) NFTs create a sense of scarcity that’s inherently artificial—the token is rare, not the artwork itself.”- Pitchfork March 5, 2021


2. Origin and definition of NFTs


Definition


NFTs or NFTs, stands for “Non-Fungible Tokens”.


NFTs are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, such as Bitcoin, they cannot be traded or exchanged at equivalency (more information here).


Not clear enough?


Non-fungible, more or less, means that it’s unique and can’t be replaced with something else. For example, a cryptocurrency is fungible — trade one for another, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different (more information here).


Think of it as a way of creating scarcity online, and to provide proof of authenticity and ownership. It’s most commonly applied to digital art, although it can really be applied to just about anything where uniqueness is the chief selling point (more information here).


But, how do NFTs achieve scarcity in a digital world?


ERC-721


The Ethereum blockchain (more information here) has various technical standards for different types of tokens on its network to allow its interactions to work properly.