Knowledge Series: What is an NFT?

May 22, 2023

In our humble opinion, NFT’s may be one of the most misunderstood technologies to have made it to the mainstream Zeitgeist. The ability to convey value and ownership through bits is a double-edged sword: on the one hand, having a decentralized protocol for respecting digital property rights is a zero-to-one moment for the possibilities of internet-native commerce, and on the other hand, it has offered us a new medium for speculation. Realistically, it’s the latter use case that has gained mass adoption, as art (a speculative asset class) seems to be the function of NFT’s most familiar to the majority of people. While we admire the opportunity NFT’s have given to independent artists, it’s just a snippet of what we think is possible by leveraging this new technology. Specifically, when the co-founders of Uptop started the company a little over a year ago, it was the idea of NFT’s as digital property rights that captivated and sprung them into action to harness the technology as a means for designing more compelling and effective loyalty and rewards programs.

In this knowledge series, we aim to dispel some of the myths around NFT’s, empower our readers to understand how NFT’s work, and give them a taste of what Uptop’s brand partners find so appealing about the technology. NFTs will have profound effects on how we shop, store our property, and live.  

We view NFT’s as a gateway technology to a new Internet, where users can freely exchange unique digital assets and valuable data between each other without the need for third-party intermediation.

To start with a fundamental concept, NFT stands for Non-Fungible Token. The operative word here is “non-fungible", which, in essence, means unique. To better understand it, compare NFT’s to the U.S. dollar or any other traditional currency that is fungible. If you exchange a dollar bill for another, you'll still have exactly the same thing—a dollar. However, NFTs are different; they are one-of-a-kind assets in the digital world that can be bought, sold, and traded like physical assets, but they have no tangible form of their own. Unlike a dollar bill, which is interchangeable with any other, each NFT is unique and holds its own distinct characteristics.

OK – now a little more detail about the technology. NFT’s are accounted for on blockchains, like Ethereum. In a nutshell, these networks simply store a record of who (technically, which account) holds which NFT at any given time. Protocol standards like ERC-721 then inform users about where to search the Internet for the metadata that corresponds to a given NFT. So, when someone wants to see the artwork that corresponds to a particular Bored Ape, for example, a call to the blockchain that conforms to the protocol standard tells them to look here.  

Artwork doesn’t have to be the only thing stored in NFT metadata. In fact, these structures are incredibly flexible, such that they could hold an image, a song, a book, really anything one can represent through data.

So, what does this mean for our everyday lives? Consider this: in the current digital economy, digital property rights management is complicated. Take e-books, for example. When you "buy" an e-book, you're essentially buying a license to read it, not the actual ownership of the book. The same goes for digital music, movies, and so on. With NFTs, this could change fundamentally.

Suppose that a book publisher issues an NFT for each copy of an e-book. This NFT would then effectively represent your ownership of the book. If you decide to sell it, you can do so, just like a physical book. The same applies to digital art, music, or any digital product. NFTs could very well rewrite the rules of digital ownership.

In addition to ownership, NFTs have potential in sectors such as loyalty and rewards programs. This is the avenue that Uptop is exploring. Traditional loyalty points are, frankly, boring. They're often complicated to use, they may expire, and the rewards are sometimes underwhelming. But imagine a world where your loyalty points are NFTs. These could be rare collectibles, exclusive digital art, or even tickets to events, and you own them outright. They could be traded, sold, or collected, adding an exciting new dimension to reward programs.

We view NFT’s as a gateway technology to a new Internet, where users can freely exchange unique digital assets and valuable data between each other without the need for third-party intermediation or externally enforced property rights (like through rule of law). While government enforcement of property rights is nice, it’s much more efficient to utilize a decentralized protocol like NFT’s on Ethereum to manage everyday peer-to-peer digital asset transactions. We can’t wait to see what the future holds for this technology, and will continue to explore its possibilities through our knowledge series. Follow our Twitter and Linkedin for more!