How are objects sold as NFT's ("non-fungible tokens")?

Question

I'm familiar with "blockchain" and the theory and technology behind cryptocurrencies, tokens, and the economics behind why such things are capable of having monetary value, however I've never been able to wrap my head around "non-fungible tokens" (NFTs).

As I understand it, NFTs and, say, Bitcoin are in principle one and the same. Both are units of data stored on a tamper-resistant public ledger, NFTs being special in that each "token" is "unique" in a way that Bitcoin/etc. are not. That these things can hold value makes some sense. What I don't understand is how NFTs are used to sell "physical" objects (digital art, music files, etc).

Access to the original object or file is not restricted to the owner of the token. As I understand it, the only relationship between the token and the object is that the seller decided to represent the object by the token. And then people are willing to pay absurd amounts of money to "purchase" these objects, in effect receiving only some string of numbers that the seller decided would signify ownership of the object. How is this any different from, say, purchasing some work of art at auction and being handed an ID number, never actually taking possession of the artwork.

How are objects "associated" with these tokens, outside of someone more-or-less deciding that some token will serve as an "identification number" for the object? I admittedly don't know much about the topic, however I suspect there must be more to it than what I understand.

Answer 1

Usually, the NFT has no ties to the physical object. And anecdotally I have heard of many cases where an NFT represented some intellectual property, but did not come with rights, and if the owner of the NFT tried to distribute the corresponding media, then he/she would be in violation of the copyright.

One could potentially sign a contract saying, "whoever legitimately possesses this NFT has these rights," but I have never heard of that being used for a real world object or intellectual property.

Further more, the cryptographic security provided by the block chain is moot because the original creator of the NFT could create arbitrarily many NFTs for a real world object and dishonestly claim that they are the only NFT for the object.

If there is a painting I liked, and someone gave me the choice of either a corresponding NFT or a fancy looking signed certificate that says "whoever owns this certificate is the honorary (but not actual) owner of [the artwork]," I would take the certificate because I could hang it up on my wall and the physical form may give it a higher resale value.

Answer 2

An NFT is proof that you are the owner of the NFT. It gives you the ability to sell it: I give you money, bits get moved around, and then i have proof that I am the owner and you don’t have any proof anymore. The question is whether anyone is willing to pay for that deal.

An interesting use case is the Cologne Cathedral: They sell NFTs for about €200, with any profit going towards the upkeep of the almost 900 year old cathedral. For your money you get a nice certificate, and a very nicely engraved polished metal flash drive, with a high quality image of the cathedral and the actual NFT. So you have proof that you are owner of the NFT, the actual NFT, a flash drive proving physical ownership, a certificate proving that you paid a largish donation.

It will be hard to sell your NFT because new ones are produced as needed. And the intent is not investing/gambling, but donating money for a good cause.

Answer 3

"And then people are willing to pay absurd amounts of money to "purchase" these objects"

They can't always do that. Whilst I'm not a solicitor, most articles suitable for NFTs come with a huge set of commercial and intellectual property rights. There is a great example here in a BBC documentary of how this goes horribly wrong. In summary, they sold NFTs of Star Wars Stormtrooper helmets without first asking LucasFilm whether they could. The main protagonist now lives with his parents and had to sell his new Bentley at webuyanycar.com.

"How are objects "associated" with these tokens, outside of someone more-or-less deciding that some token will serve as an "identification number" for the object? "

Like this, where the blocks belong to some Ethereum derived chain:-

But notice that the digital asset is typically held off-chain on some server due to it's size (bytes). When that server goes 'poof', so does the asset. Whereas a clay vase might exist for 1000's of years (unless a 4 year old child breaks it).