This blog was written by Raluca Gondor
Digital artwork and non-fungible tokens (NFTs) are gaining significant traction as part of a new era of collectibles, with a growing number of creators putting out exclusive digital content. The ten-year anniversary version of the Nyan Cat meme, Nike’s Cryptokicks, and a Tweet about Fyre Festival’s infamous cheese sandwich are just a few NFTs that have hit the market in recent months.
Wait… what exactly is an NFT?
An NFT represents a digital certificate of ownership linked to a unique asset like a song, digital artwork, or collectible. Unlike cryptocurrency, each NFT is one-of-a-kind, making it “non-fungible” or not directly interchangeable in a one-to-one ratio. Since NFTs are based on a blockchain, once a transaction occurs, an immutable record is created signifying the change in ownership of the original asset. Although digital artwork can easily be copied and accessed by anyone with Internet access, the certificate of ownership of the original belongs exclusively to the purchaser.
Can anything be tokenized?
Theoretically, an NFT can be anything unique that requires provable ownership, and there are an increasing number of use cases for it. I could even try to sell this blog post as an NFT, but whether people would want to buy it is another thing…
While they may seem overhyped, to collectors, NFTs are a piece of the Internet to call your own – for a steep price. Digital artist Beeple sold an NFT for a whopping $69.34M USD at Christie’s earlier this year, making Everydays: The First 5,000 Days the third most expensive auctioned artwork by a living artist. You may be wondering how such frivolous assets can sell for such extreme prices, especially since digital content can easily be copied and reshared for free. However, their appeal to NFT enthusiasts is the ability to own exclusive title to the original asset. From this standpoint, the more copies of the artwork are created and reshared, the more value is generated for the original by the market.
Implications for your estate
As an artist
NFTs vastly reduce the barriers to entry for artists, as anyone can create a song, graphic, or website, and sell it through a marketplace like Nifty Gateway or SuperRare. If you’re feeling creative, NFTs may be a great way to not be a struggling artist and leave your digital legacy. Even deceased rapper XXXTentacion’s estate announced it will begin selling his unreleased songs as NFTs. As an artist, your estate would receive the proceeds of the sale and potentially royalties on subsequent resales.
As an NFT holder
Like other digital assets, NFTs can only be accessed via your unique password/personal key. This means that if these passwords are forgotten or misplaced, any NFTs you own would be forever lost. There have been numerous instances of people who lost access to their crypto wallet keys, making what could be millions of dollars’ worth of digital assets get lost in cyberspace. This makes it even more important to document your personal key and store it somewhere safe for your Executor to access on your passing.
Aside from your personal key, in your estate plan, you should consider how and when you would like to transfer ownership of NFTs to your beneficiaries. To make this information readily accessible to your executor, you should create a digital legacy plan outlining your intentions.
As applications for NFTs continue to grow, these tokens could easily be linked to physical items like real estate, vehicles, or anything else that could require proof of ownership. For instance, an Executor could sell a real estate property using Ethereum’s smart contracts-based platform, creating an immutable and easily verifiable record on its ledger. Any transfer of title to an estate’s beneficiary would similarly create a record on the blockchain. Over time, this has vast implications for the real estate industry, as it would largely eliminate the need for intermediaries like real estate information and increase the transparency around these transactions. Some start-ups are considering using NFTs as collateral for loans as part of the growing industry of Decentralized Finance (DeFi), making the possibilities endless.
Leaving a Digital (and Environmental) Footprint
Unfortunately, NFTs also come with substantial environmental impacts. Many artists are unaware of the greenhouse gas emissions associated with them due to a lack of industry transparency. Since NFTs on Ethereum rely on resource-intensive “proof-of-work” to create and validate tokens, a singular NFT can produce emissions equivalent to an EU citizen’s energy consumption for a month. While there has been growing interest in making crypto assets more sustainable, this is still in progress and there is a long way to go so before adding NFTs to your assets, consider whether their environmental footprint is worth it.