NFTs as Cryptoassets: The Next Dot-com Bubble?
The late 1990s to early 2000s were a time when the internet – still in its infancy – was akin to the wild-west; new, uncharted, and rapidly growing in usage and adoption. The accompanying excitement over this new technology fuelled a stock market bubble caused by untenable speculation on dot-com companies. The bubble finally burst in March of 2000, resulting in the NASDAQ ‘falling by more than 75 percent between March 2000 and October 2002, thus wiping out more than $5 trillion [USD] in market value.’ Given the similar rise and the prominence of Non-Fungible Tokens (‘NFTs’) in the headlines over the past year, one cannot help but draw parallels with the dot-com bubble. This poses the question of whether we are in middle of the next dot-com bubble and, should it burst, how much would be wiped off the value of the NFT market. In this article we discuss what NFTs are, their potential uses and how burgeoning regulatory and legal landscape might provide a formal framework through which they can employed.
What are NFTs and what is their purpose?
The word ‘NFT’ is an initialism which stands for ‘Non-Fungible Token’. Broken down:
- Non-Fungible means non-interchangeable. Currency (e.g., USD) is an example of a fungibleasset, whereas a piece of art is an example of a non-fungible asset.- Token means a unit of data stored on a blockchain (a digital ledger) that can be sold andtraded.A blockchain in essence, is a database (or digital ledger) shared across a network of computers whererecords are added to a chain, and their authenticity is verified by participants in the network. Thismakes the chain difficult to alter or manipulate. It is on this chain of records where NFTs live.As for what an NFT is, in simple terms it could be described as ‘a certificate of authenticity for anobject, real or virtual… that means that the chain of custody is marked in the file itself permanently,and it’s practically impossible to swap in a fake’. If NFTs are unalterable digital certificates, theyenable users – according to the Ethereum Foundation (the blockchain on which most NFTs are‘minted’, or created, as at the time of writing) – ‘to assign or claim ownership of any unique piece ofdigital data, trackable by using Ethereum's blockchain as a public ledger.’In theory, this means that a user could use an NFT to record ownership of any non-fungible asset, such as amongst others, digitaland non-digital artwork, deeds to a car or a house, legal documents, invoices, by evidencing theirownership in a digital medium which is in principle invulnerable to tampering and or alteration withregard to its authenticity.