KT explainer series: Understanding the curious world of NFTs

For Emirati business developer and entrepreneur Mohammed Al Jasmi, non-fungible tokens, or NFTs, are the most significant thing since the internet.

"Last year, when Meta (formerly known as Facebook) announced its Metaverse, it blew my mind. At that moment, I realised everything is going into the digital world," said Al Jasmi.

In the year since NFTs have exploded in popularity, 'pictures of bored apes' have sold for millions of dollars, the internet's best-known meme 'doge' was purchased for $4 million, and an NFT version of iconic whistleblower Edward Snowden's portrait 'Stay Free' was sold for $5.4 million. Yet, these are some of the least outrageous NFTs out there.

Anonymous NFT artist Pak's piece 'Merge' officially became the most expensive NFT ever sold on December 2, 2021, with almost 30,000 collectors pitching together for a whopping $91.8 million.

In the UAE, Access Abu Dhabi and the Abu Dhabi Investment Office (Adio) have partnered with Web3 identity platform and NFT domain name provider Unstoppable Domains to provide free crypto domains to all women residing in the UAE capital. Organisations from e& (formerly known as Etisalat Group) to Emirates Airlines and the Museum of the Future announced plans to launch their NFT collections.

An explosion of news from the blockchain world has left several UAE citizens and expatriates wondering, 'what's going on here'?

The fourth edition of Khaleej Times' explainer series on digital assets deep dives into the curious world of NFTs and answers questions that are on every non-NFT expert's mind – why are digital images selling for millions of dollars? Can everything be converted into an NFT? What are their practical uses?

Experts from across segments have lent their expertise on what makes non-fungible tokens the most exciting thing since the invention of the world wide web. Here's what they have to say:

What are NFTs? What's so special about them?

Let's delve into the basics. Non-fungible means something unique and cannot be replaced with something else.

For example, a Bitcoin is fungible – one can trade one for another Bitcoin. However, a one-of-a-kind trading card is non-fungible. NFTs are part of the Ethereum blockchain (click here for a refresher on blockchains) though other blockchains have implemented their versions of NFTs. While Ethereum is also a cryptocurrency like Solana or Bitcoin, its blockchain also keeps track of who is trading and holding NFTs.

How exactly do NFTs work?

Non-fungible tokens live on the blockchain, and most of them are housed on the Ethereum network.

"Specifically, the ERC-721 or EIP-1155," said Nikita Sachdev, the founder and CEO of Luna PR.

"These tokens that live on the blockchain represent ownership of something else. It could be a car, and it could be a song, it could be digital art by an artist," she said.

How can you buy NFTs?

Investors could buy them on marketplaces like Opensea or Binance NFT using cryptocurrencies.

"All you need is a wallet, which is completely free and easy to make, like the one on Metamask, and get some crypto in there, which you could buy from an exchange or Moonpay with your card, and then you could buy some NFTs," added Nikita.

What do NFTs have to do with intellectual property rights?

According to Mohammed Al Fayed, founder and CEO of GrubTech, NFTs are closely associated with intellectual property (IP) rights. An NFT seller, or creator, can transfer the IP rights to the buyer. However, the IP must be assigned to the buyer in writing in a smart contract to do so.

"It is no different than a deed of a house. You could take any IP and tokenise it," said AlFayed.

"It depends on how people interpret it. For example, if I wanted to get a picture of the Mona Lisa. I can search for it on the internet, see the picture and save it as a jpeg. Theoretically, I do not have the right to use that picture," he explained.

"We need the rights to use pictures found in the media world. Be it a snipper of code, a video, an apartment, or anything – you need to show proof you have the license to use it and own it. That's what NFTs do - it records ownership of digital assets on the blockchain," he added.

While owners can move the ownership of the NFT from one wallet to another, the data can never be changed or manipulated once it is recorded on a blockchain, he added.

Can you explain how NFTs use blockchain?

Ryan Rivera, the head of crypto operations at MContent, said, "Each NFT minted (created) gets a unique number on the blockchain. This is why each one cannot be replicated, because of its specific number."

"For example, if governments link passports to NFTs, they will all have a unique number that can't be copied since it is non-fungible.

"Both companies and governments can use NFTs to make sure their product (high-priced bag, piece of content, passport, etc.) is real," he said.

What is the potential of NFTs?

According to AlFayed, the potential of NFTs is only limited by an individual's imagination.

"Take, for example, a giant interactive billboard on Sheikh Zayed Road. The billboard owner could fractionise each pixel of the asset and sell the pieces as NFTs. Now, every time a brand uses the billboard for advertising their product, each owner of each fraction receives a cut from the sale," he explained.

"Similarly, individuals could slice up popular podcasts into minutes and sell them as NFTs. Each time an ad plays on the segment, the NFT owner gets a fraction of the ad sales," said AlFayed. Similarly, government bodies can also convert land ownership and title deeds into NFTs.

"Assuming that the blockchain it is on lives forever, there will be no dispute on who owns the property," he said. However, the NFT market is risky, volatile, and fast-moving at the moment.

"In the current state, it's designed for early adopters," said AlFayed.

But what utility do NFTs have?

"That is the beauty of the blockchain. Creators can convert anything physical into a digital asset," said Emirati NFT and crypto enthusiast Mohammed Al Jasmi. The total trading volume of non-fungible tokens (NFTs) went from $200 million in 2020 to over $12 billion in the first quarter of 2022.

"It is still too early to comment on the real-world use of NFTs; however, they have the potential to be more than just picture files on the blockchain," he said.

"One of the best-known utilities of NFTs is on the metaverse. Brands like Gucci, Prada, Adidas, and Nike have already launched their NFT collections. Your avatars can dress in these brands by purchasing these NFTs while inside the metaverse," said Al Jasmi.

How much has the NFT market grown?

"The NFT market may not have hit mainstream consciousness yet, but it is growing incredibly in Dubai. Many NFT investors are making Dubai their new home every day because of its zero per cent personal income tax regime, amongst other big favourable factors. Several crypto platforms have recently launched dedicated NFT marketplaces," said Robin Philip, the founder and director of the award-winning Dubai-based business consultancy A&A Associate, specialising in setting up crypto and NFT business for new investors in UAE.

In March earlier this year, the annual Art Dubai fair saw the debut of 'Art Dubai Digital', a real-life marketplace for non-fungible tokens and digital art.

"The event generated not only record attendance but huge volumes of sales. This only shows the appetite people of Dubai and UAE currently have for NFT businesses," said Philip.

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Why are NFTs so expensive? Are all NFTs expensive?

Al Fayed said two components drive the price of NFTs.

"You've got the hype and scarcity component. The technology has been adopted and promoted by many influencers and celebrities, which blows up its value," he explained. However, the value of NFTs would increase once they start to pivot into metaverse utility, he added.

However, not all NFTs are expensive.

"You could buy NFTs for as little as a dollar. But make sure that you know what you are buying. There are a lot of scams and empty promises made in the space. Do your research, and stay safe," said Nikita.

• Dubai