FAQ what are NFTs?
Everything you need to know about what NFTs are and what they can represent, as well as about rights and how you can get started yourself as a creator. Where do the opportunities lie and what are the snags/complications?
A Non-Fungible Token (NFT) is a digital ownership certificate. NFT literally means a token that is not replaceable or interchangeable. In other words, a unique object. These NFTs are created and traded in a blockchain: a chain consisting of blocks of saved transactions. A blockchain does not have an owner or authority and users are anonymous. Cryptocurrency transactions are stored on a blockchain and those transactions are visible to everyone. So a NFT is a place on the blockchain where something is located. You own this link, not what it points to (in a copyright sense).
You can only buy a NFT with cryptocurrency. You need a digital ‘wallet’ for this, which is where your cryptocurrency and NFTs are stored.
If you want to create and sell your own NFTS, you must choose on which blockchain you want to track these transactions and through which platform you want to make the NFT accessible. There are lots of these platforms, primarily abroad.
Applications of NFTs
An NFT consists of code in which a ‘smart contract’ is incorporated. Digital applications of the NFT may be included in this code. An NFT may, for example, refer to a digital artwork, such as an image, photo or video. As a buyer, you can exhibit these at home, for example, via a Token Frame: a frame in which you can display the art. However, it doesn't have to stop there. An NFT can also provide access to a concert in the physical or digital world (the metaverse). Another example is ‘ownership’ of a song, where you receive part of the royalties. Some more examples? How about some of the visuals that were used during a concert? Or clothing or sneakers for your 3D avatar in the metaverse?
In addition, you also have generative art NFTs, which generate a new NFT upon request on the basis of code and often artificial intelligence. Crossovers to the physical world are also possible. For example, an NFT that gives access to an exclusive part of a club. Or a digital artwork as NFT that you can exchange one-time only for a physical version, such as ‘The Currency’ by Damien Hirst.
The NFT may have a certain value, because we attach value to it as people. The NFT itself is not, in fact, worth anything. NFTs are seen as a risky product, because they are not linked to something that is index-linked, such as gold, silver or a stock market index. The value fluctuates on the basis of market movements, economic trends and, for example, social media (what is trending?). To a certain extent, this can be compared to the value assessment of art in general, in which the value that we attach to it also plays an important role.
Getting started yourself
NFTs offer a lot of room for creativity and unique (digital) applications. In addition, NFTs are attracting a new (younger) audience. NFTs have a potentially large reach and a resale right that can be easily embedded, with which royalties (copyright fees) are arranged properly. You create NFTs (in most cases) with a view to selling them. That presents the same challenge as in the traditional, physical art market. A sales strategy and a well-thought-out marketing plan can help you to achieve more success. Your network can also help a lot when building a (brand) name. We will go into this in more detail in the Step-by-step plan creating NFTs.
When selling an NFT, there is no automatic transfer of the intellectual property rights, unless this is included in the ‘smart contract’. This means that you, as the creator, remain the owner of that which you sell as an NFT. It also means that you can still duplicate this (with a small variation each time, because an NFT is never exactly the same) or you can use it in a different way.
Rights of use and exploitation rights are also not transferred automatically upon sale, unless this is specified in the ‘smart contract’. If the seller wants to transfer this, they must, of course, hold these rights. Always check this carefully if you want to buy an NFT with such rights, because it’s easy to commit fraud with this.
You can include royalties, or rights, on future sales of your own NFT in the so-called ‘smart contract’. An example of this is a percentage of 5-10% on future sales. As a result of this, the ‘resale right’ – which is part of the copyright – is arranged properly.
You may have noticed it already: some people are wildly enthusiastic about NFTs, while others are very critical. Where does that criticism come from and what is it based on?
- Warnings from the Dutch central government
Trading in cryptocurrency is considered very risky by the central government, because your token (crypto coin or NFT) may be worth twice as much or nothing at all tomorrow. The central government also warns against digital bank robbers. Hackers empty out wallets or batches of crypto coins disappear. In addition, you have no legal guarantee in this market, such as the deposit guarantee scheme that safeguards the money in our Dutch bank accounts. There is also insufficient supervision in this market. They are working on regulation at a European level, but there is still little legislation at present.
- Abuse of existing copyright
There is no monitoring of the ownership of what is ‘tokenised’ (the creation of an NFT). Because you can create as many wallets on the blockchain as you want anonymously, abuse is easy.
- No security or insurance
You can insure a physical artwork against damage, for example due to fire or theft, but that is not the case with NFTs. The police can do little to help you in the event of theft. In addition, the current ‘smart contracts’ often leave a lot open to interpretation still. It’s easy for promises not to be kept or for them to be twisted, because blockchain has no central authority.
- Problems when converting cryptocurrency into scriptural money
In practice, converting cryptocurrency (that you have earned with NFT sales) into scriptural money may be refused. This is due to the current legislation, or rather the lack thereof.
In the download ‘Points to consider NFTs’, we will discuss the points above in more depth.
The museum value of NFTs
Heritage specialist Rosemarie Kramer, who graduated from the Reinwardt Academy in 2022, researched what the value of NFTs can be for museums. She used 'Op de museale weegschaal’ (On the museum scales), a methodology developed by the Cultural Heritage Agency in order to determine the museum values of works. One criterion that raised questions was the ‘condition’ criterion. Are there differences in the condition of digital material, for example, and how do you determine and incorporate this with the valuation? What is looked at and what is valued? Here you can read more about her findings (in Dutch).