Digitisation of Assets

Digitisation of Assets
As NFTs and cryptocurrencies usher in a new decentralised world of finance, issues of ownership, authenticity and integrity will naturally gain importance.

In a world that is constantly evolving, it is no surprise that money, as we know it, has transformed too! Non-Fungible Tokens (NFTs) have made a dramatic entry into the financial markets and successfully made inroads into diverse spheres of art, media, and print. In this milieu, the decentralisation of ownership and digitalisation of finance appears to be the future. But are we prepared for these dramatic changes?

Background

NFTs, despite their rising popularity, remain a very nascent market in its evolutionary phase, with limited public understanding around it. To put it simply, NFTs are digital assets that represent objects like art, collectables, and in-game items. In fact, they can be used to represent ownership of any unique asset. NFTs are based on crypto infrastructure and are generally encoded on a blockchain.

An NFT, in effect, means a cryptocurrency chit that proves that a marker connected to a unique piece of digital art, music or another item is owned by a specific buyer. Recently, the Economist has even sold their own cover as an NFT in order to understand and track the issue comprehensively. A glass ceiling was breached recently when the prestigious London auction house, Christie’s, sold a digital work of art for a resounding $69 million. There is no escaping NFTs today!

https://www.ibm.com/thought-leadership/institute-business-value/report/tokenassets

Analysis

NFTs, and the crypto infrastructure they work with, could potentially transform finance as we know it. Secured by the Ethereum blockchain, they can have only one official owner at a time.

Issues of ownership, authenticity and integrity naturally gain importance in this emerging environment. NFTs are attached to specific values with certificates of authenticity, which means that digital assets cannot be exchanged or replaced. Each NFT exists on a decentralised digital platform that is based on the blockchain technology of the Ethereum cryptocurrency. Like Bitcoin, the Ethereum blockchain creates permanent digital records of every transaction that uses that cryptocurrency. It also creates a verifiable account of all the NFT transactions.

Today, NFTs are already looking at expanding market coverage. Tokens could expand well beyond collectables into the realm of high finance. Moreover, NFTs and cryptocurrency present a new decentralised world of finance. As can be recalled, the latter does not exist in a physical form and is not issued by a central authority. It works through blockchain technology, which can also serve as a public financial transaction database.

Since the source is an open blockchain system, the history of transactions is available publicly. This makes it possible to code features into the contracts that govern how they are bought and sold. Moreover, digital artists can retain a stake in their work, which entitles them to a share of the proceeds if the original piece is eventually sold.

It is possible that NFTs might be used in the future for contracts and real-life property deeds. They have already been used in academia for raising money to fund research at The University of California, Berkeley.

Counterpoint

The high electricity usage of blockchains makes it an unworthy technology in an age of climate awareness. An infringement of copyright is also a possible limitation associated with NFTs. According to reports, some artists have already claimed misappropriation of their work. Decentralised systems might allow anyone to mint an NFT. Ownership too may be difficult to prove in the long term, as web-based records may not last forever.

Assessment

  • With so much still in the evolutionary stage, NFTs are clearly a space to watch out for! They are bound to expand in scope, both with respect to technology as well as utility.
  • Issues of integrity and authenticity gain centre stage as digital assets open up new forms of ownership. There is much that still needs to be figured out, but NFTs have ensured that the physical and digital spaces can overlap. More innovation is needed, but the fast-paced demand will ensure that this indeed takes place.

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