If there is one sunny side to the Covid-19 pandemic, it has to be the boost of digitalisation. Global experts have agreed that the world has achieved many years’ worth of digitalisation in just a few months to keep the wheels of global economy running amid the outbreak of Covid-19.
The world is now going virtual with digital currencies becoming widely accepted and virtual real estate being tested. Over the past few days, a new phenomenon known as non-fungible tokens (NFTs) has conquered the world of technology and is gaining traction day by day. But what are non fungible tokens?
Nothing like the original
According to the European Commission, a non fungible token is a unit of data stored on a digital ledger, called a blockchain, that retains record of the purchase and prevents forgery.
Blockchain ensures authenticity of the property and adds a digital signature (virtual proof of ownership) turning it valuable and scarce to retain its price.
In the digital world, NFTs are unique assets that could traded like tangible property however this does not mean that they cannot be copied.
NFTs can be replicated however the original version will always remain unique because blockchain will hold its data. The earliest mention of non-funglible tokens dates back to 2014 hence it is a fresh phenomenon. However, it is also more complicated than cryptocurrencies. NFTs came into existence as a byproduct of cryptocurrencies hence they also utilise blockchain technology to store data. In fact, non-fungible tokens take the concept of cryptocurrencies one step further. While cryptocurrencies are fungible, NFTs, as the name states, are non fungible.
The fuss about fungibility
A fungible asset is one that can be exchanged with other individual goods or assets of the same type. For example, the worth of five one dollar bills is equal to a five dollar bill hence they are interchangeable however the value of one NFT is not the same as another NFT which makes it non-fungible. While one NFT could be valued in millions of dollars, another could be worth just a few hundred dollars. Hence they cannot be exchanged for one another.
Apart from this, non-fungible assets are also difficult to exchange and trade because each one is different. One person could hold an art NFT while another could possess a music NFT hence these two cannot be traded for one another. As such, cash has to be involved for the trading of NFTs.
Lately NFTs have turned widely prominent in the first world and several NFTs are valued at millions of dollars. Since they gained prominence in 2017, the market size of NFTs ballooned to $250 million by the end of 2020.
At present, the most common type of NFTs include digital art however music, books, blogs and even tweets are being exchanged as NFTs. All it takes to view the unique copy of the asset is an internet connection.
Since NFT promises authenticity, it has proved to be a blessing in disguise for digital artists who earlier used to struggle to safeguard their work from being replicated. Now, they can sell their art as NFT and scarcity, arising due to one original work stored in blockchain, helps drive up prices. In March 2021, the first tweet by Twitter founder Jack Dorsey was auctioned for over €2.4 million.
What the future holds
However, the European Commission remains uncertain over the future of NFTs as they have only recently increased in popularity. Moreover, buying an NFT does not mean that the purchaser will be able to sell it again for the same, or a higher, price.
On the other hand, Investopedia assumes an optimistic stance and states that NFTs can remove intermediaries, simplify transactions and create new markets. NFTs are at a nascent stage all over the world and they are expected to gain traction going forward however the concept is a bit confusing and difficult to grasp at present which is similar to how cryptocurrencies were perceived a decade ago.
NFTs in Pakistan
An expert, on the condition of anonymity, told The Express Tribune that slowly and gradually NFTs are becoming a buzz word in Pakistan.
“They are associated to cryptocurrencies as well therefore people are learning about NFTs alongside cryptocurrencies but NFT is a very complicated concept, much more than digital tokens,” he said. “Pakistan is lagging behind in emerging technologies such as digital currencies, internet of things and NFTs.”
He stressed that there is little to no knowledge about NFTs in the country as people are unable to grasp the concept of a digital property that doesn’t exist in the physical world.
In addition, there are lack of experts on the topic hence the analyst predicted that it will take a few years before NFTs become popular in Pakistan.
In first world countries, NFT auctions and exhibitions are held and people can visit them to view digital properties of others.
Finally, there are no laws regulating the misuse of NFT or NFT scams in Pakistan hence people are discouraged to learn about it, he said.
“Even in foreign countries, there is huge debate if a virtual asset has any value or it is just the hype which is driving up the prices,” he said.
Talking about the problems associated with NFTs, the expert said that Pakistan’s cybersecurity ecosystem was weaker compared to Europe hence there is always a threat of cyberattack or hacking and a stolen NFT would be near impossible to recover.
Secondly, he said there was no way of knowing if the person selling the NFT was its original creator or not. “This way, a stolen NFT can be sold and the real owner would lose money.”
He added that since it is a digital asset, hence owners would most likely protect it with passwords just like cryptocurrencies and forgetting the password can turn in inaccessible and hence useless. If the owner forgets the encryption key, the NFT would basically turn useless for him, he said.
He expressed concern that NFTs are hyped up at present and cheating is rife.
Finally, he said that at present, NFTs can only be purchased with dollars, cryptocurrencies, euros and a few other currencies. If it has to emerge as a global phenomenon, more currencies need to be added to the pool.
He was of the view that the pace of popularity of NFTs would remain sluggish for a few years but when it becomes a global phenomenon, its market size will soar just like bitcoin.