4 Common Misconceptions About NFTs and Their Role in Web3

NFTs are more boring than people think.

Okay, this probably doesn’t sound like an incredible start to an article about NFTs. They are revolutionary right? Don’t worry, we will get there.

First, we must set the record straight. NFTs can be boring. They are not so exciting. At least, not for the reasons most people seem to think they are. The truth is that the essence of what an NFT represents, its true state, has been lost in the broader discussion of their merit.

Instead, the term non-fungible token seems to have become inextricably tied to an image of an ape, a grainy avatar, or some scheme where victims lost sizeable amounts of money.

This is unfortunately due to a combination of bad marketing, bad security, and an overall desire to make a technical concept thrilling.

In practice, an NFT purely ties an asset to a contract. Nothing more. It doesn’t go to the moon and it doesn’t guarantee wealth. What it does do is redefine the entire notion of how we as a society treat and define ownership of…anything. To help clarify these points, we have broken out answers to the most common points of confusion below.

How are NFTs so revolutionary if they only relate to images I could copy and paste myself

Contrary to what most people believe, NFTs aren’t inherently tied to images only. An NFT defined under a smart contract (more on smart contracts in a future post) could help define terms of ownership for music, digital apparel, podcast episodes, and more.

If you do not believe in a future trend towards a global metaverse or do not care about online assets, it is important to note that NFTs work with physical assets as well. That could include concert tickets, cars, and even homes.

You’re saying NFTs can relate to physical items but they only exist online. How does that make sense

All an NFT does is tie an asset to a defined contract via code. This is similar to how lawyers can draft a contract via text that relates to an item.

If you give away the keys to your house, a contract drafted by a lawyer states that the purchaser must give you money in exchange when ownership of that home changes. An NFT could help define the same principles.

Instead of the judicial system ensuring the contract is correct, participants in the blockchain ensure that all terms of the contract are correct. In both instances, ownership of a physical item is defined by written contracts. One is written in a spoken language (e.g. English) and the other is written in code (e.g. Solidity).

So I purchased an NFT that represents a podcast episode. I can do whatever I want with that podcast now right

Not necessarily. The NFT simply ties terms of ownership to an asset. Purchasing the NFT does not necessarily mean you have full ownership of the intellectual property.

For example, you still might not have the right to profit off of the podcast without paying the creator a percentage fee.

Okay, I get it, so is everything tied to a blockchain secure

Blockchains may be secure, but external projects built on top of the technology may not be. What if a user claims they have ownership of an NFT that they don’t? On a marketplace platform, they could try to fraudulently sell the token.

On a social media site, they could try to fraudulently use the associated image. The potential issues are endless. That’s why third-party developers need to ensure they have taken the time to ensure they are using this technology effectively.

So we now know that NFTs tie non-replicable assets to contracts. They aren’t constrained by asset type or by the color of an ape’s coat (although blue is preferable). Instead, they can tie any item to a binding document fulfilled through the blockchain.

If you’re still with me, you’re one of the select few who truly understand the significance of these token types. Boring to some, thrilling to others.