Q&A: What are NFT’s and Why Are They Significant?

NFTs have gotten a lot of buzz lately. But, what exactly are they? Connor Borrego, who runs 3MRGNT Digital, explains.

3MRGNT is a digital operations and growth agency, specializing in fields including digital marketing, business intelligence and web development.

What exactly is an NFT?

Borrego: An NFT, short for non-fungible token, is a tool used by software developers working on blockchain databases to give pieces of data, like an image or video, a serial number and keep track of it in this third generation of internet infrastructure. The blockchain technology behind these serial numbers is what gives the tool its major superpower of being both privately owned, but publicly trackable. While most of its use cases today are centered around recording ownership of digital and physical collectibles, its future lies in disrupting the big data economy, with better user privacy options.

What are the different ways NFTs are being used?

Borrego: Today, there are 4 popular business models built around NFTs’ unique properties. The most well known use case of NFTs is for the sale of digital or physical art, who’s chain of custody and transaction history are incredibly important to understanding its current value. The remaining three types also leverage this record keeping and market value based approach in different contexts for Video Games, Social Clubs, and the tracking of other luxury goods or important documents; because the latter is so similar to our first example we’ll cover Video Games. The meta-verse, which actually refers to meta-data, is often thought of as virtual reality, augmented reality, or just online gaming, and NFTs have been introduced as playable game components like land, avatar decorations, and in-game resources that can be purchased using the games native cryptocurrency. Lastly, NFTs for Social Clubs is one of the most popular use cases, where users purchase one of a predetermined number of collectible images that acts as a key to both in-person events, as well as different online spaces like chat forums & ecommerce shops.

Are NFTs safe and secure?

Borrego: When it comes to NFTs they are no more safe and secure from an investment standpoint than purchasing other rare collectibles such as stamps, handbags, or sneakers, where value is in the eye of the beholder. When it comes to the technology behind NFTs it is an incremental improvement in the safety and security of online data, because it provides a way for users to be the ultimate decider on if, when, and how much their information will be sold for, or if they even want to sell it at all, which is an improvement on our current system. Since NFTs are powered by blockchain technology and rely on the public private key system for demonstrating data ownership, it is very unforgiving as a profile/account manager, and losing or giving out your password is a much bigger issue, and raising the incentive for internet scammers to phish your password from you.

What is “blockchain” technology and how does it work with NFTs?

Borrego: “Blockchain” is a new type of cloud computing software that enables software developers to build applications, where users can manage their online profile and plug it into whatever app they download to use. Because blockchain, like the cloud, is a database technology it requires tools to help software developers to connect apps to it, and NFTs as serial numbers for data enable it to be used to manage data in a system that doesn’t have a database administrator in charge of it. Bitcoin, the original blockchain technology, is a database that keeps track of who owns what Bitcoin and how many of them. The Bitcoin itself exists within the system to pay all the computers for storing and securing the record on the database.

How can NFTs transform digital platforms and the work of content creators?

Borrego: NFTs are poised to have the largest immediate impact on the work of content creators and digital platforms that monetize their work, because their emergence as a tool to provide transparency around the value of advertising placements on their media, which is currently obscured by the black box algorithm approach of the large adtech companies currently dominating the space. Transparency around placement value will empower the content creator to maximize the value of individual pieces of content and force adtech providers to provide a more competitive revenue sharing model between creator and platform to draw creators to post on their platform.

How can different sectors benefit from NFTs?

Borrego: NFTs will lead to the standardization of the storage of various common uses of business datasets to lead to an industry wide collaborative intelligence pool that can be a base level of operating intelligence for all sector participants. These sector wide shared pools of data would allow true market demand to be more predictably satiated, as well as open up new streams of revenue to participants in exchange for contributing and maintaining their business’ data profiles. Business data has long been regarded as proprietary and confidential information, and while we don’t expect that to stop being true, we do believe that the value of collective intelligence for businesses in the long-tail of their sectors marketplace will negate the competitive advantage of large scale organizations data silos by pooling their data resources and inevitable drive sector wide adoption of the technology.

Please explain NFTs and data privacy, ownership and monetization:

Borrego: The data economy is estimated to be larger than $3T dollars annually, of which the advertising industry accounts for nearly 20% and is most directly involved in the buying and selling of individual citizens’ private internet activity without clear consent. There is a belief among many computer engineers that the original sin of the internet is not designing for user privacy, as they are the primary producers of data on the internet through their various activities online. Whether or not this belief arose in hindsight of understanding the immense value of the data economy and its foundational input, questionably sourced dataset, data privacy is and the right to it is at the heart of the conversation.

Existing software systems like apps and websites rely heavily on the development of unique identifiers, like NFTs, to manage the use of data and media on their sites, so their role in the development of decentralized applications is essential to enabling users to manage their online profile across the multiple sites and apps they visit them, as well as the context in which them, personal vs professional. Using crypto wallet technology a user’s social media profile, banking profile, browsing history, and other sensitive digital breadcrumb trails can be stored with the user. It would open up the ability to run a transparent data market exchange with fair market prices that are going directly to users for various attributes, should they decide not to operate through the internet ecosystem anonymously. The value of NFTs is that their properties would enable users to have a choice in whether or not their digital identity is being bought and sold without care to any buyer.