What Are Non Fungible Tokens? NFT Company Co-CEOs Explain
Over the last few months, NFTs have been getting a lot of attention and have been commanding high prices in a relatively new market. Saturday Night Live did a music video about NFTs a few months ago which brought the cryptocurrency some mainstream attention. Paris Hilton tried to explain NFTs to Jimmy Fallon on The Tonight Show. They pop up in other places too. The NBA’s Toronto Raptors just announced a NFT collection, rock band Kings Of Leon released an album as an NFT. Photos from Chris Cornell’s final photos shoot are being sold as an NFT. Old and new companies including Anheuser-Busch and TikTok are getting in on the NFT game.
But perhaps SNL‘s video or Paris Hilton didn’t explain it completely. So, what are NFTs? We reached out to RECUR Co-Founders and Co-CEOs, Zach Bruch and Trevor George to ask them a few questions. RECUR is a company that, per their website, “designs and develops on-chain branded experiences for fans to buy, collect, and re-sell NFTs.”
What is an NFT, in basic terms?
ZACH BRUCH: An NFT is a non-fungible token, which means that it is unique (or not exchangeable for a totally identical product). Fungible tokens and products, for example, can be exchanged for the same item. Dollars can be exchanged for dollars. Because NFTs are unique, they serve as a great foundation for digital collectibles. These digital collectibles are anchored to a blockchain, but do not serve as money because they are not “fungible,” meaning that each individual NFT is totally unique in a globally verifiable manner, by using the blockchain’s public ledger to store the NFT data. The blockchain is used for NFT verifiability to establish the individual NFT’s provenance (meaning who has owned the NFT over time) and the NFT’s digital scarcity (meaning the ability to prove that there are only a limited number of the collectible, each with its own unique identifier or serial number).
An example that illustrates the value of NFTs well is a physical world collectible, such as a trading card or a classic car, each with its own unique production number unit, scarcity, and unique characteristics that make that particular collectible attractive and valuable in the market. Many items that are collectible in the physical world have an opaque and broken system for tracking attributes such as scarcity, authenticity, and item provenance, each being broken apart by market, item type, and geography amongst other things. For example, with respect to cars, gathering a full perspective on a specific collectible car would require checking CarFax for provenance, AutoTrailer, Kelley Blue Book, BringATrailer, and other websites to ascertain a market value, and contacting individual auto manufacturers or searching scattered online resources to verify the item’s scarcity.
What makes an NFT special? Is this like a digital version of (for instance) a limited-edition vinyl LP or book that is numbered? For example, I recently bought a vinyl LP that was only pressed 333 times. I have number 168. It’s “unique” in that I have the only #168 version of this record. Is that a fair comparison?
ZACH BRUCH: Yes, that’s a great comparison. Digital rights management (DRM) has been a major area of debate and innovation since the launch of Napster in the late 1990s and led to paradigm shifts in the way consumers engage with music and compensate artists for their creations. To continue with the music industry example, NFTs offer the next phase of innovation following in the footsteps of iTunes standardizing the way music is sold online and Spotify spearheading the shift toward paid music streaming subscriptions. With NFTs, both artists and record labels alike will be able to have granular control over how, where, and when music is shared and be compensated throughout this process rather than the current model where once a music file is downloaded there is a limited amount of control left in the hands of creators as the downloaded file spreads across the web and teams of people doing manual processes are required to enforce DRM.
And if you own a limited-edition book or record, it doesn’t mean you own the copyright to that intellectual property.
TREVOR GEORGE: It is still very early days in the NFT industry’s evolution and each NFT platform and service provider likely has a different take on intellectual property, but the general idea is that NFT technology allows for digital “ownership” of a particular item or collectible online in the same way that buying a collectible or item in the physical world works. In the physical world, when you purchase an item, it does not give you ownership of the copyright, rather it lets you use this item for its particular use case (i.e. playing a card game, listening to a record, or watching a movie you purchased). You can certainly buy multiple copies of a movie or pairs of sneakers and resell them on secondary market platforms like eBay for instance, but this does not grant the “owner” of the item control over the IP.
Can you explain what it means when an artist releases an album as an “NFT?”
ZACH BRUCH: When music artists release songs or albums as an NFT, it means that each individual record is linked to a unique identifier anchored to a blockchain that serves as a digital “proof of authenticity” for the fans that purchase the NFT-based work of art. Not only does this allow the fan to have more engagement with the artist and a sense of pride at having one of a limited set of these NFTs, it also allows the creator to track who is engaging with their work due to the provenance visibility NFTs offer.
When someone buys it, can they back it up? In other words, if they have it on their phone or computer and the hardware is destroyed/stolen/lost, do they still retain their ownership of the content that they bought?
ZACH BRUCH: Yes, just like with most blockchain-based items or services, end users are able to ”back up” their NFTs once they have been minted to the blockchain and store them in their physical or software based “wallet.” As the NFT space is still in its infancy, most users and platforms are not taking control of their NFTs in their own wallets and rather are trusting the service providers to safely store their digital goods in the same way consumers trust services like Google to store documents, emails, and spreadsheets.
What is different about your company, RECUR?
TREVOR GEORGE: RECUR’s approach to the NFT space is inherently unique compared to anything else currently available on the market in terms of both NFT platform and branded experience. We will be fundamentally changing the NFT market through the creation of a first-of-its-kind eco-system industry standardization on recurring royalties, with the goal of making NFTs chain-agnostic and keeping NFTs and royalties decentralized. RECUR has also designed its software to optimize the experience on both the user and institutional brand side. Ultimately, RECUR is bringing digital asset ownership into the future, and for the first time allowing the NFT owner to take the asset and interact with it anywhere they want, on-chain, without being tied to a specific blockchain or platform. With this industry-wide standard we are creating, for the first time, once an NFT leaves its originating website and re-sells elsewhere, the original artist, brand or IP hold will receive a recurring royalty – forever.
How is this different for artists? What is the benefit to fans when they pay for NFTs through RECUR?
TREVOR GEORGE: When fans engage with their favorite artists and brands through RECUR, they can know they are supporting their artists in a more direct and powerful way than they can anywhere else because the artist will earn royalties on the NFT sales, not only on the initial fan purchase but on purchases in the future when those NFTs are sold on secondary markets.
Do you feel that Saturday Night Live helped or hurt the sales of NFTs with this video?
TREVOR GEORGE: NFTs are such a powerful technology, but large-scale awareness is still on the horizon. The more exposure the NFT space gets, the better it is for consumers as more fans discover what NFTs could mean for them and brands begin exploring if there is a place for NFTs in their business model to help them engage with their fan bases in new ways.