Are NFTs really "non-fungible"? The PulseChain conundrum


Over the past year or so there has been an awful lot of hype surrounding NFTs or non-fungible tokens. If you don't already know a fungible asset is one where the individual units are basically interchangeable, i.e. money. It doesn’t matter which note or coin you own, it will still have the same monetary value and serve the same purpose. In the world of cryptocurrency an NFT, by contrast is a non interchangeable unit of data that is stored on a blockchain, which is essentially a form of digital ledger. Types of NFT data units may be associated with digital files such as photos, videos, or audio, which can be sold and traded on digital marketplaces. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin. There is a situation brewing in the crypto space that will in my opinion cause an awful lot of conjecture. The situation I am referring to surrounds the launch of PulseChain and the conundrum this is likely to cause in relation to NFTs and in this article I will explain why.


Token standards


Specific token standards have been created to support various blockchain use-cases. Ethereum for example was the first blockchain to support NFTs with what is known as its ERC-721 token standard and consequently it is currently the most widely used in the crypto space. Other blockchains have added support for NFTs due to their growing popularity.


ERC-721 is a native smart contract standard, which means that developers are able to create new ERC-721 compliant contracts by copying from a reference implementation that resides on the Ethereum blockchain. In effect this piece of code is able to provide core methods that allow tracking the owner of a unique identifier, as well as a permissioned way for the owner to transfer the asset to others.



Enter PulseChain!


PulseChain is a soon to be launched, fast, environmentally friendly blockchain. It is going to be a complete fork of the Ethereum network. This means that every coin, token, wallet, smart contract that has ever existed on Ethereum, will be copied and become freely available on PulseChain.


In contrast to Ethereum this new chain will have some significant upgrades; it will be faster, cheaper to transact on, the native coin will be deflationary, and by moving from a proof of work (PoW) to proof of stake model it will be an environmentally friendly network when it removes the need for expensive computing power of PoW miners while maintaining a high level of security.


Ok, so this blockchain is going to offer the market a better option to transact on than Ethereum, which is long over due, but you're probably asking what does this all have to do with NFTs?


When the PulseChain mainnet goes live instead of launching empty, it will contain the whole Ethereum system state ERC20s, NFTs, smart contracts and more via a snapshot. This will in effect reward holders and founders of Ethereum based projects. Nothing like this has happened before so when PulseChain launches it will be the largest airdrop in history. Thousands of Ethereum based token and NFT holders will receive their free PulseChain versions.


Because of the wide array of applications and platforms that are deployed on the Ethereum blockchain, it’s difficult to predict how any of the cloned assets will be valued by the community. Some of the contracts and applications will work immediately upon launch, whereas other contracts such as centralised stable coins are unlikely to be granted complete authoritative support behind.


Over time, a value of these assets will be found through the action of the market in the discovery phase.


NFTs and ownership


I would argue that the legal standing of NFT ownership is by in large unknown to those who participate and speculate in this sector of the crypto space. NFT ledgers claim to offer a public certificate of authenticity or proof of ownership, but as it stands the legal rights transferred by an NFT can be uncertain. NFTs in fact do not restrict the sharing or copying of the underlying digital files and they do not restrict the creation of NFTs with identical associated files.


The nature of NFT trading that tends to fall outside of the scope of the law usually results in an informal exchange of ownership over the asset that can't be enforced legally, in fact it provides little more than its use as a status symbol.


The ownership of an NFT does not fundamentally provide copyright or intellectual property rights to the specific digital asset that the token represents. Although in the digital market someone may sell an NFT that represents their work, the copyright privileges may not necessarily be received by the buyer when there is a transfer of ownership of the NFT. In effect the owner of the original is actually allowed to create more NFTs of the same work. One can only speculate whether they would do that in practice. In that sense, an NFT is merely a proof of ownership that is separate from a copyright.


So basically the purchaser acquires whatever the art world thinks they have acquired. They definitely do not own the copyright to the underlying work unless it is explicitly transferred as part of the sale, however typically when someone buys an NFT they do not generally acquire the copyright of the underlying artwork.


Digital tokens prove ownership of an asset which doesn’t exist outside of the digital sphere and which can therefore be replicated into identical digital copies have no intrinsic asset value. Even if you purchase an NFT, nothing is stopping someone else from simply right-clicking, saving it and using it as their own profile picture, for example – and no one will be able to tell the difference.



NFTs and PulseChain


So the question now arises: if you were to own a valuable NFT, after the Ethereum fork and subsequent launch of PulseChain, could you then sell your Ethereum version of the NFT to another person and then your PulseChain version to another?


The answer is no. Right? There’s only one hosted. It’s just being pointed to from another location with a fork; it isn’t actually a copy. Is it?


As you have already learned an NFT is a smart contract that effectively holds metadata on a blockchain, the image or media associated with the token is then usually stored on the Inter Planetary File System (IPFS), a protocol and peer-to-peer network that enables the off chain storing and sharing of data in a distributed file system. IPFS allows users to host and receive content in a manner similar to BitTorrent. As opposed to a centrally located server, IPFS is built around a decentralised system of user-operators who hold a portion of the overall data, creating a robust system of file storage and sharing.


So the metadata is the same with the same owner and it will point to the same hosted location. By stating that there is an IPFS "copy" is just conceptual here.


When someone sells an NFT on the PulseChain it will be recorded on that blockchain and not the Ethereum blockchain. In essence two copies of the unique identifier code will then exist on the 2 blockchains.


The NFT is just a token with some information, say: {http://pic.jpeg}. Both the Ethereum and PulseChain copies will look the same. But the media that is hosted on http://pic.jpeg (i.e. - the actual webpage) is only 1.


But what people are trading in digital markets is the { .... } bit, not the actual photo that is on the webpage.


Serial numbers loosely related to a Jpeg


This is why some proponents call NFTs 'serial numbers loosely related to a jpeg file', because people are essentially buying/trading the references and not the actual underlying piece of artwork (which is hosted on a webpage somewhere).


If you have ownership of the NFT, then the content still needs to be stored online somewhere. The various media is not stored on Ethereum or when it launches PulseChain. So in essence when the fork occurs and the NFT appears on PulseChain if the owner then sells the NFT on only one of the two chains there will be 1 digital media file but 2 owners, which is certainly an interesting conundrum.


The NFT would indeed be a copy, so two buyers in this example. That's why NFTs are just jpegs loosely tied to a serial number that may or may not be hosted on the internet. Furthermore, as has been previously mentioned, the legality surrounding the copyright and intellectual property rights of the underlying digital media is not readily transferred across to any new owner.


Great, the craziness over these copies is just about to begin! I wonder if the NFTs that will be airdropped on PulseChain to the owners of the Ethereum NFTs are going to start calling them PNFT?


Given the money that has been involved with some of the purchases of media associated with the Ethereum NTFs I am sure that copyright issues and/or intellectual property rights are going to create interesting challenges over what the PulseChain fork will create, especially when there is the realisation that firstly owners now don't actually have a unique token, which in effect makes their NFT just an 'FT', and secondly what will happen when people start to sell them. I am certainly looking forward to the conversations that will surely take place and I will definitely have my popcorn ready and waiting.

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