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NFTs and Cryptocurrency
Why They Are Changing How the World Does Business
DBy Bart Galvin
igital assets such as Bitcoin and non-
fungible tokens (NFTs) are transforming
global capital markets and the art world, with market capitalization reaching $2 trillion and digital artworks packaged through NFTs regularly selling for millions of dollars. As these assets gain prominence in the marketplace, it is increasingly important to understand why these assets appeal to investors, how they represent value, and how they function under the hood.
NFTs and Digital Art
NFTs have exploded in popularity in the past year, with notable examples like CryptoPunks, which are
cial use of the art, while others might grant you the copyright in the work.
Cryptocurrency and the Rise of Bitcoin
Bitcoin has been the most prominent crypto- currency since its introduction in 2008, but many other cryptocurrencies exist, such as Ethereum, an important part of many ‘smart contracts,’ and Tether, which is pegged to the value of the U.S. dollar. Bitcoin accounts for about half of global cryptocurrency mar- ket capitalization.
At the end of March, the price of one Bitcoin was approximately $60,000. Unlike a cryptocurrency like
able, practically irreversible, and publicly verifiable. Second, blockchain transactions are not limited by jurisdictional or national boundaries. The trans-
action’s terms are dictated by computer code, not local law. Perhaps more importantly, the code is self-enforcing, which limits opportunistic behavior. Parties do not need to appeal to the judicial sys- tem to enforce an agreement because it happens automatically.
Third, blockchains are not subject to a central point of control or a central point of failure. Blockchains work by interconnecting users running the same soft- ware over a peer-to-peer network on the internet. No one party controls the blockchain. All new transac- tions are shared over the network, and they become final only when a majority of users determines that the transaction is valid. If a user doesn’t own the digi- tal asset they’re trying to transfer, or tries to transfer it twice, the transaction will be rejected.
Fourth, blockchain transactions are publicly vis- ible and verifiable. A blockchain serves as a ledger of transactions and all the transactions that came before them, allowing anyone to view and verify the trail of activity occurring over the network.
Fifth, blockchains allow parties to transact pseud- onymously (not quite anonymously), without need- ing to trust or even know each other. All you need to know is your counterparty’s digital address or ‘wallet.’ And because transactions are practically irreversible and verified by the consensus of the network, the opportunities for fraud are heavily curtailed.
The Future of Blockchain Technologies
In the world of blockchain technology, Bitcoin and digital-art NFTs are the tip of the iceberg. There are already countless blockchain-based technologies, and new ones are invented every day. The block- chain is highly flexible and has tremendous untapped potential for consumer transactions, private con- tracts, corporate structuring, securities and deriva- tives, and even public administration. If your busi- ness is not using the blockchain yet, it’s only a matter of time. u
Bart Galvin is an attorney at Bulkley Richardson, where he is a member of the Blockchain and Cryptocurrency practice group; (413) 272-6200.
“In the world of blockchain technology, Bitcoin and digital-art NFTs are the tip of the iceberg. There are already countless blockchain-based technologies, and new ones are invented every day.”
Tether, the value of Bitcoin can fluctuate wildly. Indeed, it has increased tenfold in the past year, dwarf- ing its previous peak
of $17,000 in Decem- ber 2017. The value of Bitcoin is determined almost entirely by what purchasers believe it
is worth, and investors speculate on that value, driving price fluctua-
collectible, algorithmically generated pixel artworks, as well as the works of Mike Winkelmann (known professionally as Beeple), who recently sold a piece of NFT art at a Christie’s auction for $69 million.
An NFT is a unique digital token representing an interest in something else, which could be a piece of art, a share of stock, a stream of royalties, or even, in the case of Unisocks, entitlement to a physical pair of socks. NFTs are ‘non-fungible’ because, unlike cryp- tocurrencies, they aren’t interchangeable — your NFT corresponds to the specific entitlement or right to the underlying thing.
The eye-popping price tags of many digital-art NFTs poses the question: what exactly are you buying when you purchase an NFT? In its most basic form, an NFT is simply verifiable proof that you are the pur- chaser of whatever the NFT represents. But the devil is in the details. The rights granted by an NFT are entirely up its creator, so some NFTs have strict terms and conditions that prohibit exhibitions or commer-
tions. These price fluctuations can have a snowball effect, whereby widespread speculation in Bitcoin that drives the price upward can lead investors to believe Bitcoin will be adopted more widely, leading to further speculation that its value will increase.
Why Do People Care?
Cryptocurrencies and NFTs represent a funda- mentally new way of transacting. The reason is in the revolutionary qualities of their underlying technol- ogy: the ‘blockchain.’ A blockchain can be thought of as a tamper-resistant digital store of data, constructed using computer cryptography and distributed among participants over the internet. Here’s what makes the blockchain special, and why people are jumping on board.
First, the blockchain allows parties to transact without intermediaries. No banks or clearinghouses are needed to execute or verify transactions since the underlying technology ensures that transfers are reli-
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