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JAN. 07, 2022

The Tokenization Of Art

According to data from DappRadar, NFT sales amounted $2.5bn in the first half of 2021, compared to just $13.7m in the whole of the previous year. Among the pieces sold in recent months in NFT format is Jack Dorsey's first Twitter post ($2.9m) and the artist Beeple's work (sold at Christie's for $69.3m).

NFT stands for "Non-Fungible Token". The adjective "Non-Fungible" indicates a good that is not replicable and not replaceable because it has a specific singularity. An example of fungible asset is money, since a banknote of a given currency and quantity, if authentic and intact, is always replaceable by another banknote of the same currency and quantity. A "Non-Fungible Token" is a digital token with a certificate of authenticity and uniqueness. This token is issued using blockchain technology. NFTs are thus associated with a digital content, of which guarantee uniqueness and authenticity, giving the owner an actual certificate of the digital product owned by the NFT. Each NFT, thanks to the blockchain, is unique and therefore not fungible.

The mechanism of NFTs is based on the introduction of a digital content, the object to which the non-fungible token will be assigned, into the blockchain. Thanks to the properties of the blockchain and its register structure, which are based on decentralisation, disintermediation, immutability of the register, traceability and verifiability of its contents, movements and transfers, it is possible to reconstruct the actual authenticity of each artwork and the ownership of each NFT. The information contained in blockchain databases is decentralised, so stored on different and interconnected devices.

An NTF is so produced from a digital object, an image, a video, a gif, a piece of music and so on, saved by the author. The file corresponds to a binary code string, which is then compressed into a shorter one. This process is called 'hashing' and its outcome is called a 'hash'. The hash is then stored, either by the author himself or by a third party, in a blockchain, with an associated time stamp. The NFT contains, within it, the traces of the following operations of the hash. The path, when applied in reverse, allows to verify the authenticity and ownership of the artwork recorded with the NFT.

However, owning an NFT does not mean that you are the owner of a digital work, as it was created by a third party. Your ownership is limited to the NFT which allows you to claim a right to the item itself, making you part of the history of an work by registering you in the blockchain. Just being able to easily calculate the hash allows you, for instance, to recognise a copy from the original. As the blockchain is a decentralised, immutable, traceable and verifiable tool, you do not have to fear any damage to the memories of your devices: once registered on it, you can verify your purchase and your rights to the work. This is not always case: there are increasing platforms where the sale of a digital work and its NFT includes both ownership and authenticity rights.

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The FAM team