NFTs represent unique digital assets. While NFTs are not the assets themselves, the use of the term now abstracts away their core feature as an irreplicable certificate of ownership controlled via smart contracts.
The first popular use of NFTs in the crypto community has been to enable people to demonstrate ownership of unique pieces of art. These NFTs may be minted or traded on secondary markets. Such art may be generative such as CryptoPunks and CryptoKitties. Alternatively, they may be "classical" digital art such as the current Guinness Record-holding Jonathan Mann's songaday sold on OpenSea. Common to both is that they only exist digitally, i.e., they are digital NFTs (dNFTs). In the metadata of the NFT's smart contract, are the terms and conditions for the ownership of that NFT. The creators of art may retain aspects of control, such as stipulating royalties to earn income every time ownership changes, for example.
However, NFTs are not limited to the realm of digital assets: they may also provide proof of ownership of a physical asset (pNFTs). pNFTs may also be minted to establish attendance at, or contribution to, a real-world event (in which case, the NFT is a POAP, or Proof of Attendance Protocol).
The interesting issue posed by NFTs, especially by pNFTs, is that they depend on a robust compliance chain to demonstrate proof of ownership (or proof of attendance).
It is relatively easy to verify the ownership of dNFT assets and transfer them – just as you would transfer tokens between owners, thanks to their being held on distributed ledgers such as Ethereum.
However, due to the challenge of verifying pNFTs, secondary market places are generally not well placed to handle both dNFTs and pNFTs. OpenSea, the most popular NFT marketplace, for example, places full responsibility on the seller with regards to ensuring the legality of the transfer and coordinating with the buyer in order to ensure the sale proceeds as anticipated.
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