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Here's why NFTs may be the next era of licensing technology

Nft Hero
Nft Hero (Image credit: Windows Central)

Non-fungible tokens. NFTs. What are they? Tokens that represent digital ownership. Proof that you own something. But much like any piece of digital content on the internet, what stops "ownership" from being trivialized when someone right-clicks your goods?

These are the non-fungible questions Windows Central sought to answer with the insights of experts. Spoiler: There's more to this topic than some might have you believe.

Not so different

UK Currency

Source: Her Majesty's Treasury (Image credit: Source: Her Majesty's Treasury)

We already pay for .jpg files and the like. Getty Images and Shutterstock embody the same basic philosophy as NFTs: Any company that doesn't want to risk getting sued pays up for the mere right to use a few kilobytes of imagery. Small-timers who aren't big enough to be sued just right-click and move on.

Anshel Sag, a senior analyst at Moor Insights & Strategy, agreed that there's a similarity between existing licensing models and what we've seen of NFTs thus far. However, he noted distinct attributes of the emerging tech.

"I think the big difference is that having these transactions on the blockchain makes them easier to track and verify once the transaction has occurred, and the original creator doesn't need to keep a local record of all transactions to verify ownership and authenticity," he said.

More than meets the eye

Arthur Morgan in a shootout in Red Dead Redemption 2

Source: Rockstar Games (Image credit: Source: Rockstar Games)

It's not just convenience that puts NFTs in their own category, though. There are aspects of the tech that can uniquely benefit creators. "For example, many of these image license firms don't really fully reward the original creator for the total earnings that the licensing entity can make from an image," Sag stated. "A small creator would need to negotiate (and be in the position to negotiate) a certain rate with the licensing entity rather than simply setting their own terms on an open marketplace and allow anyone who wishes to purchase their creation to do so under the terms of the smart contract."

Sag also highlighted that images are the tip of the iceberg and shouldn't define NFT tech. Non-fungible tokens aren't a right-click-wins-all situation, since it's harder to copy a 3D asset or specific audio file. In other words, depending on what's being sold, theft may not be easy to commit.

Gartner Distinguished VP Analyst Avivah Litan brought up similar points to Sag, reiterating that NFTs come in a variety of forms and grant creators unique capabilities that classic licensing models don't often afford. Similarly, Litan noted that if one wants proper ownership of an NFT, the blockchain-based contract is essential (ergo, right-clicking is a no-go for big businesses that need to operate by the books). However, the onus still falls on the creator to sue if their property is stolen, much like how existing digital content services have to manually go after parties using their works without permission.

The intersection of environment and economy

Rich's Gaming PC

Source: Windows Central (Image credit: Source: Windows Central)

Beyond the aforementioned topics, one other big question hangs over NFTs: Are they harmful to the environment, and if so, how harmful?

"Bitcoin cannot support NFTs since they are essentially smart contracts and Bitcoin does not natively support smart contracts," Litan stated. "On the other hand, Ethereum does support the vast majority of NFTs. Ethereum is moving to using the Proof of Stake consensus algorithm this year (2022) which uses modest amounts of energy, so the entire energy argument against NFTs will be moot. Further, other blockchains that support NFTs (for example Solana and Ronin) do not use Proof of Work but use Proof of Stake or Proof of Authority instead."

Right now, Bitcoin and Ethereum use the Proof of Work model, which is the energy-hogging algorithm causing much of the ruckus around NFTs. As Litan highlights, non-fungible tokens will soon be exempt from this particular conversation once Ethereum hops ship. There are many resources available if you want to learn more about Solana and blockchain tech in general.

"NFTs are far less energy consuming than cryptocurrencies, but there are some connections in the sense that some of these NFTs rely on crypto blockchains like ETH for their transactions, which ties them to the energy consumption discussion," Sag stated, before highlighting alternative options for those concerned about the environmental impact of their actions. "Moving blockchains to Proof of Stake from Proof of Work is another way to save on energy consumption. Palm is a very popular blockchain for NFTs and claims a 99.9% energy savings over Proof of Work-based blockchains alleviating concerns about NFTs consuming too much power on the back of cryptocurrencies like Ethereum."

If Palm sounds familiar, recall that Microsoft's M12 recently helped out Palm NFT Studio in the funding department. In other words: Some big parties are paying attention to Palm.

The NFT debate, in summary

Twitter

Source: Android Central (Image credit: Source: Android Central)

To boil down the non-fungible quagmire to its core NFTs aren't entirely defined by easily copied images. They are, in a lot of ways, the evolution of existing licensing services that major corporations already play ball with, but made of new tech and armed with more potential creator benefits.

While the sillier NFT projects are attracting ire for good reason, the tech as a whole is still in its infancy. Time will tell whether they replace existing services used for similar functions.

As outlined in Gartner's 2021 Hype Cycle for Emerging Technologies report, "NFTs have yet to demonstrate lasting business models and monetization for content creators, sellers and buyers, meaning that adoption is currently low." The full realization of this technology has yet to come, and fresh obstacles for creators and buyers are still emerging. But underneath that is a core concept that could, in time, be useful to the future of digital ownership.

Robert Carnevale is the News Editor for Windows Central. He's a big fan of Kinect (it lives on in his heart), Sonic the Hedgehog, and the legendary intersection of those two titans, Sonic Free Riders. He is the author of Cold War 2395. Have a useful tip? Send it to robert.carnevale@futurenet.com.

14 Comments
  • "That is the question bamboozling many" Bamboozle is the right word. It means "scam." There is zero value here. You have to be paranoid or dumb to think this adds anything to our existing ability to check our own receipts. When was the last time a digital outlet told you, "No, we have no record of your buying our game or app"? How would this ever prevent a platform from blocking you if they wanted to? Like everything else related to the blockchain, this is a solution in search of a problem, and finding only cretins who think Bitcoin is Jetsons money and a good inflation hedge (which it is absolutely not). It started out as a neat but ultimately useless idea. These days it's mostly just a scam. And that's not even getting into the utterly pointless energy requirements of mining. I will give the author credit for at least looking into this.
  • For a more detailed look at the fraud within NFTs, I suggest watching the (very) long video from Folding Ideas https://www.youtube.com/watch?v=YQ_xWvX1n9g But the TL;DR is to convince you that something that has no value actually has value, thus increasing the value of the currency so the large financial firm, or wealthy individual, that controls the currency can continue to increase their wealth. (I hope I summarized that right. Watch the video.)
  • Thanks. I'll give it a watch. I've been dubious about crypto/NFT since they were created.
  • Thank you for sharing the video. While I wouldn't take Folding Ideas' description of the housing bubble and today's US economy too seriously (everybody's an expert!!), he is right that the blockchain hype is a bubble and like previous bubbles, it's driven by speculation by novice investors (think: Reddit) who are likely to lose big. Only a handful of savvy investors and miners are going to be left with any profit in the end. Note how many blockchain-related ads you see in a day (I'm guessing a lot); then note how many ads you see for the US dollar or US treasury bills (I'm guessing zero). About his analysis of 2008: He overplays the role of banks (which did very poorly in the crash and had to be rescued by the government) and demonizes mortgage-backed securities (which are decades old, not new, very much are safer than simply buying mortgage bonds individually, and whose markets work just fine in countries like Canada, Japan and Germany -- and the US today). He also misunderstands the importance of subprime borrowing and completely ignores the role of governments in pumping up the bubble (well-intentioned but clearly disastrous). Finally, he doesn't understand that the crash didn't come from the bubble, but from panic due to bank analysts then not being savvy about what their derivative securities held (did their MBS contain lots of bad debt or just a little?). The bad assets (mortgages that were never going to be paid off) were just too small (<< $1T, vs panic losses of >$8T). The guy is good at turning a phrase but it just hides the fact that he doesn't know what he's talking about. He's just another talking head "expert" on YouTube, not much different from the guys hocking crypto.
  • If an NFT depends on a server somewhere, then its by definition impermanent. The entire point of an NFT is to own it uniquely and forever, since that isn't able to be guaranteed, how can anyone trust it? If there were strong laws or a robust system in place to guarantee an NFT's permanence and preservation, so it could be passed down like an heirloom for a thousand years, then I wouldn't think it's a scam anymore.
  • "If there were strong laws or a robust system in place to guarantee an NFT's permanence and preservation, so it could be passed down like an heirloom for a thousand years, then I wouldn't think it's a scam anymore." That's a good point - especially since having laws that allow us to pass down software like an heirloom are impossible. Software is platform-dependent, and even if we could use NFT's to make permanent claim on a piece of software, it would provide no guarantee that the platform could block you from it. Besides, exactly what problem are NFT's solving? Changes in regular accounting could in theory add all the (actually possible) benefits NFT proponents are claiming (like a secondary market for downloaded software), no blockchain needed.
  • Great article - thanks.
  • No prob. I hope it provided some useful insights/food for thought.
  • "Licensing technology" is just a PR-friendly way to describe DRM. So basically you're arguing that NFTs are the next evolution of DRM - something that has already been proven to be unpopular. Not really the winning argument you think it is.
  • No one's arguing in favor of anything. Simply assessing possibilities. Chill.
  • Your title is "Here's why NFTs may be the next era of licensing technology." You'd have to admit PalZer0 can't be blamed for thinking what he's thinking.
  • "Here's why that may be a silly comment" If I highlight evidence for why your comment's possibly silly, it's purely observational. Not advocating for a stance. For contrast, and PalZer0's educational benefit, this is what an argument looks like.
  • Right, so your sarcasm gives even more credence to PalZer0.
  • More DRM = more cancer. Piracy happens is not because people don't want to pay, it's because people didn't get decent services for what they paid. For example like game with Denuvo, you bought the game will all those DRM crap and it runs worse than cracked/pirated version. So why would you pay for that game with terrible performance if you can get it for free and even runs better than non pirated? this makes DRM feels like it exists to rip off your wallet. Also those -Not So Different- are just straight lie.