NFTs work by storing information that can identify them as unique. They store this information in smart contracts. Smart contracts are sets of instructions written in code and stored on a blockchain. These smart contracts allow for detailed information to be added and permanently tied to an asset.
Primarily, NFTs are used to prove digital ownership of a particular asset. This can range from collectables in a video game to ownership of gold bars. What NFTs provide is irrefutable ownership status that’s recorded securely onto a blockchain and can be sold/traded.
A common scepticism – particularly relevant to digital art – is that surely someone can just take a screenshot of the image, or download a digital file of it, so it’s not truly scarce. However, the same argument applies to any famous piece of art. I can download a picture of the Mona Lisa or visit the painting and take a photo myself; it doesn’t mean I own the Mona Lisa. People have always been, and always will be, willing to pay a premium for original work.
Furthermore, this critique helps to emphasise a crucial aspect of NFTs. They are a representation of ownership of an asset and do not necessarily represent the asset itself. The smart contract will provide details of where the associate digital asset can be found.
Their value is in proof of ownership of a valuable asset. NFTs are like certificates that verify owners as owners. These certificates can be used to trade assets in new and innovative ways.
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