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Comment by OnlineGladiator | Hacker News Reader

> “In 2021, the world woke up to the potential of NFTs to unlock utility and economic empowerment across a vast set of industries, communities and creative categories,” said Devin Finzer, one of the founders and the chief executive of OpenSea.

Can anyone explain to me the utility of an NFT? I don't understand why it's anything other than some code (written on a blockchain) saying you own this. But people can just copy whatever you own (assuming it's digital like an image). And if it's a physical thing with an NFT attached to it, why is an NFT better than a certificate of ownership?

I guess a better question is: what problem does an NFT solve?

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The utility of an NFT is for the seller, and that utility is an opportunity to make money by selling it to someone. When you buy an NFT you gain the ability to sell it, and that's about it. People buy NFTs hoping that they can sell them for more money than they bought it.

To enrich the people selling digital tulips (or 256-colors GIFs, whatever you prefer).

Just like Bitcoin... https://henvic.dev/posts/bitcoin/

It enables models of funding work that allow you to set the financing terms with less(not necessarily zero) oversight from an enforcing body. The main concepts of most NFT markets today are inherited from existing art markets, but done cheaper, with less human involvement.

As a speculative instrument, art ownership has always been a bit detached from the physical art, with many works simply sitting in storage while a certificate is traded. Anyone can view a photo of a famous painting - access in a general sense usually is not the issue with the art world, today. Moving it on-chain is just a further move towards centering the finance of it. The net outcome is that you have more artwork being made than before, since there is additional financing opened through this channel, and with more complex terms made possible by using smart contracts. (At large scale, it's hard to engage with royalty payments, etc without automation)

From there, the actual utility of the tech can be discussed. Because you can make these cheaply(Ethereum's current gas fees notwithstanding, other L1 chains like Tezos demonstrate that they can be made with truly "micro" payments), you can use them as giveaways, tickets, passes, incentives etc. So they can be multipurposed into something beyond a link to an image and turned into a form of access - they are just "unique identifiers" after all. And those parts are still developing in the background.

Of course, we're still working through the hype cycle part of it. And the art makes for a good story.

I'm not a huge fan of NFTs, but they do actually solve a problem. They allow you to prove that you own a digital asset, without having to have anyone "vouch" for you. I can prove I own it myself. They also allow me to trade that digital asset without being encumbered by arbitrary or unclear rules.

For example, an NFT could be a usable as a game license. It's nice that I could trade the game license to someone else without having the game developer approve it.

Now the practical applications for this are pretty limited at the moment, largely due to the fact that the larger/more secure chains such as Ethereum are very limited in their transaction rate, and as a result transactions cost a lot. This restricts the use case to multi-thousand dollar digital assets, such as dumb rock jpegs or digital real estate.

To most reasonable people, this looks dumb. I agree that it is. However, if the transaction rate goes up dramatically (which is currently possible on layer 2), then the use cases open up dramatically to things that normal people might actually be able to use.

We aren't there yet (I do think we will get there, but really it's totally fair to criticize NFTs before we get there).

> They allow you to prove that you own a digital asset, without having to have anyone "vouch" for you. I can prove I own it myself.

Well, no. They prove you own an NFT, but they don't prove you own anything other than the crypto asset.

That NFT might be a fake NFT, that is not issued by the artist/game themselves.

Instead, it is the central authority, of the artist themselves, that determines who actually owns the asset.

Or, in other words, you do need someone to "vouch" that you actually own the real digital asset, and that the one you have is not just a fake.

No, you do prove that you own a digital asset. Now whether that asset is blessed by some third party, and whether that blessing is considered valuable, is largely unrelated. I never said that you own an image or anything the NFT references. I said you own a digital asset, which in this case is the ability to trade the NFT.

You can certainly have someone sign an NFT, or issue a certificate, and that may be valuable to someone. But whether or not this occurs, if you own a digital asset, then you can easily prove it. That's the novel invention.

"I said you own a digital asset, which in this case is the ability to trade the NFT." ... you realize you just repeated their statement right?

> Now whether that asset is blessed by some third party, and whether that blessing is considered valuable, is largely unrelated.

No it is related when people are talking about if it solves an actual problem. And without that blessing you're spending money to own a token with no meaning, so there's no problem being solved. It's literally buying a receipt with no purchases written on it and then claiming "well the receipt is a purchase!"

NFTs rely on centralized systems to actually do anything. If you own a Bored Ape and get invited to a party, the people at the party don't have to let you in just because you showed them proof you own some NFT: https://www.theverge.com/22824387/bored-ape-yacht-club-nft-p...

If you use an NFT to show ownership of a video game, the publisher doesn't have to respect your ownership, if they revoke access tied to your NFT token, what difference does it make vs the pre-NFT world where you could have proven ownership with a paper receipt?

In any situation an NFT is literally a token. A widget that you can prove you own without relying on a specific 3rd party.

A widget that has no value until said specific 3rd party agrees to tie your widget to some asset. But once you rely on the 3rd party to make your widget actually do something, you've essentially recreated a digital copy of your receipt with extra steps and killed all usefulness of the decentralized aspect.

> Now whether that asset is blessed by some third party, and whether that blessing is considered valuable, is largely unrelated

It seems pretty directly related, in fact, it seems to be the only distinguishing factor between one NFT and another, without the blessing of the central authority the NFT is fundamentally interchangeable with any other ublessed NFT... making it quite fungible.

So I think we're talking past each other. For NFTs, there is the minter and the current owner. You can have third parties sign NFTs or validate their provenance, but ultimately the NFT's value is determine by the market (offers from buyers). Typically these buyers will value an NFT due to the rarity of the NFT. An NFT cannot exist without a minter. If this is the authority that you are referencing, then they only have authority at the moment of the minting. Past that point, more NFTs of the same type cannot be created. Even if the exact same parameters were used to create a new set by the same minter, it would be a different set of NFTs. No central authority is needed after the minting.

So you're trying to imply:

> Typically these buyers will value an NFT due to the rarity of the NFT

This is burying the lede, rarity of the NFT matters once the 3rd party is tying something to it.

Think about this for a second, what is an NFT allowing? Allowing you to prove you own the NFT. When do you prove you own the NFT? ... when someone 3rd party that asks to check it. And why do they ask to check it? Because they've added some sort of meaning to it by tying it to a non-NFT asset.

If a 3rd party does not assign some value to it... who's going to check you own the NFT? To what end will they check you own the NFT? An NFT with no 3rd party value is essentially a non-fungible cryptocurrency, and what good is a non-fungible currency?

> this is the authority that you are referencing

You know it's not. You're replying to an article about how the centralized agency that maps NFTs to non-NFT assets held by 3rd parties is now valued at 13 billion dollars.

Without the provenance of the minter assured, the NFT is worthless. If the central authority states "those NFTs were actually minted by an imposter" they would rapidly trend towards a value of 0 (minus gas fees of course).

Obviously. It’s just not a 3rd party. It’s the 1st party.

> It's nice that I could trade the game license to someone else without having the game developer approve it.

These concepts break down extremely quickly in practice.

For the above to work, the game developer would have to support all of this and code it into the game. There's nothing inherent to NFTs that makes a game license automatically transferable, nor does the game developer have to code their game such that the NFT-ed license continues working after it has been sold to someone else (all transaction history is part of the blockchain).

What would really happen, in practice, is that the game developers would almost certainly require the NFT contract to involve some kickbacks to them. For example, you can trade the NFT license, but the contract requires sending X dollars to the game developer. Do you really think game developers are eager to leave money on the table?

Not to mention, NFT transactions are bonkers expensive right now, at least on Ethereum. It's fun to think about trading game licenses on the blockchain, but if the transaction is going to set you back $50-100 USD just to make the contract go, you're not going to be trading anything on the blockchain that can be bought new for $10-$50.

> game developers would almost certainly require the NFT contract to involve some kickbacks

Perhaps. But I think you may be jumping to conclusions there. The truth is that licenses have not been easily transferable in the past. So there's the effect here that the value of transferring the license can be accounted for by the user. If one platform (Steam/GOG) begins to utilize NFTs, then it's very possible that could cause market expectations to rapidly change.

Imagine if cars were not transferable easily, then one day they were. What do you think would happen to the car market? Certainly, I'm sure if car manufacturers could have their way, they would make it impossible to transfer used cars because it artificially constricts supply. Yet under this hypothetical I don't believe that would occur. Instead, the car makers would need to adapt to having a secondary market.

I think the main confusion is about "ownership". In the analog world ownership means enforcement if someone takes it from you. In digital world such things are not quite possible. We have a history of law enforcement enforcing some digital ownership (fighting piracy and such), but we do not have any experience law enforcement enforcing ownership of NFTs, simply because it is very young tech and it remains to be seen how it will interact with analog world.

Can someone prove they own it without a massive energy consuming network, though? That’s my main concern, the sustainability of blockchains in their current form just aren’t very sound.

Yes, eventually I believe proof of work will be replaced by other protocols such as proof of stake. This is already the case on many chains. The cost for proof of stake is minimal, as in you can run a full node on a raspberry pi.

Check out Tezos, Cardano, et al.

assuming you trust the issuer (contract, in blockchain) there is a public and verifiable record of your ownership of an individual item

paired with signing messages to prove your blockchain identity, you can prove to others your identity and assets in your control

think if the contract was for movies from hbo, and by logging in you can view and download movies you own nfts of.. this is obviously not the case today, but may help highlight what the future may look like. you can of course think of and read about similar use cases for assets we ‘own’ today.

a lot of the push in blockchain is for decentralizing authority and democratizing access, where the above example is only solving the former

> think if the contract was for movies from hbo, and by logging in you can view and download movies you own nfts of.. this is obviously not the case today

No, it is the case today, at least for services that sell videos. Let's say today proof of ownership is your bank statement and an email from Amazon saying you bought a movie:

You can buy a movie from Amazon Video. You can have proof of ownership. Amazon is not contending your proof of ownership. Amazon agrees you clicked "Buy" and paid money. Amazon reserves the right to pull the movie from their site.

You still have your proof of ownership, Amazon just... doesn't care. Their servers will not serve you bits of data anymore.

Now let's replace your bank statement with an NFT:

You still have your proof of ownership, Amazon just... doesn't care. Their servers will not serve you bits of data anymore.

See the difference?

Value in price is whatever someone is willing to pay for the product. There is 0 requirement for it to be logical or make any sense. Any commodity can be valuable given a market demand for it.

(I think Trading jpg files is stupid)

The purpose of an NFT is to launder money. Also, there is a small subset of folks who have been collecting them.

> what problem does an NFT solve?

It automates and simplifies the identification of Tusser opportunities.

No, they can't just copy what you own. The double spend problem is one of the core problems solved by blockchain. You can't copy and paste a Bitcoin. A blockchain is a ledger. The ledger is validated by a network of thousands of nodes using deterministic logic and cryptographic signature verification.

Likewise, NFTs are records in a smart contract that has been deployed to a Turing-complete blockchain. Following the ERC721 standard (which is the most popular but not the only example), the contract must implement an interface consisting of several methods that define how rules for ownership transfer are handled and what metadata defines the NFT.

An NFT could be better than a certificate of ownership, due to the ease and universality of on-chain verification. You can observe the entire chain of ownership of something if it begun as an NFT. You can also use an NFT in software programs to provide token-gated content, or to customize the user experience. Another major benefit is worldwide markets with 24/7 liquidity. It's also trivial to fractionalize or place into the custody of a DAO (on-chain organization). By no means is this list exhaustive, but there is a few.

NFTs provide a way to "own" something digital, except unlike DRM, the asset is based on an open standard and easily transferable without any intermediary. It's easy to verify the creator and prove you're the owner. Combine that with speculative price discovery and you have a pretty fun way to bet on art online.

Money laundering

Tax evasion

Making tech bros richer

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