To understand the application of NFT technology, let's start here:
Let’s imagine a digital share, also represented by a visual image, like a jpeg.
Why does it have a value? Why does it represent a share of a company?
Digital assets have value, because there is a consensus between people, that they represent a real life value (like profit share or voting rights in a specific company). This consensus is so respected, that if any participant violates it (by not paying the due dividend, or by blocking shareholders to exercise their rights) the community will exert pressure, force on the participant that has violated it.
If there was no consensus, and acceptance by the community, the share would be worthless, just digital trash on a computer.
The consensus associates the digital data (representing the share) with real life values, such as rights, benefits.
The digital data is also important, because it offers the technology to be registered, kept in a database, transfer from one person to the other safely. These transactions however are managed by banks, broker houses, the financial establishment, in a system that’s not transparent to people, and not accessible to everyone.
If we replace the word „share” with the word „NFT” in the example, we come close to the understanding what it is. An NFT has no value itself, it’s just bits and pixels, but it can be associated with real life values by a consensus, and this consensus provides it with real value.
NFT technology however is much more advanced than the conventional technology of the financial establishment. It is based on the Blokchain, a global network of computers that’s accessible for everyone, fully transparent, and trusted by much more users than banks.
The problem with a share, that the only way to verify if a share really belongs to a person is a document issued by the financial establishment, which can be falsified easily. If you had to verify your status as owner of a share in the other corner of the world, how would you do it? The conventional technologies of the financial establishment are limited in time and space.
Thanks to the Blokchain, the ownership of NFT can be verified in real time, from any part of the world, by anyone basically.
Let me give an other example.
If you buy a property in a foreign country, what proves that you’re the owner? It’s a database, in which you’re indicated as an owner. Ownership itself is based on consensus, and gets verified by certain databases, that just like the register of shares, is limited in time and space.
NFT is a technology, that’s revolutionizing the concept of ownership right now. Tokenization of real life assets has already begun, and it will spread to all wakes of the economy and the financial system.
An NFT is a piece of digital data
- that can be transferred between crypto wallets instantly
- ownership and transaction status can be verified by publicly in real time
- it is not kept on one single server, that can be hacked or shut down, it exists in a global network of computers
An NFT attains it’s value through a consensus, that’s rooted in a legal agreement.
The Parties make an agreement to associate real world value with the NFT. If any of the parties break the agreement, conventional and unconventional legal measures can be taken to restitute lawfulness, just like in case of any other agreement.