In 2020, I was listening to Gary Vaynerchuk (aka Gary Vee) talk about Nonfungible Tokens (NFTs) and how he was looking to them as the “next big thing” since he has been picking big things for over two decades. After learning about blockchain and the world of cryptocurrency over the last two years, I was like, "Seriously?” as there was now more to learn in world of digital assets, arbitrage, and the predicted new, big trend.
After seeing NFT artwork and NBA video clips being sold as NFTs, I have to say that it received my attention to learn just what the heck was going on in the world of Nonfungible Tokens. Is it a fad? Does it make sense? Should I dabble?
It all starts with the notion of "fungibility." As defined by Investopedia, "fungibility is the ability of a good or asset to be readily interchanged for another of like kind." Paper money is an easy example — one dollar bill can be readily exchanged for another without any impact to the owners. While the bills have different serial numbers, they are functionally the same and can be exchanged at will. Assets that are not interchangeable — even if they are similar or nearly identical — are nonfungible. Consider two bicycles, one used and rusty and one brand new. While they are similar, they are not the same, and an exchange would impact both parties in terms of performance and value.
In the realm of digital payment, bitcoins are fungible. While they have unique markers, one is functionally identical to another. NTFs, meanwhile, represent unique digital assets that people cannot duplicate or directly exchange with another of equal value. At least that is the concept.
The result is that NFTs are a fun idea, in theory. Instead of a fungible asset like physical cash that can be broken into its component parts and still retain value, NFTs have unique properties that cannot be altered. One of the most popular mediums for NFTs is art; digital representations of physical images that go to the highest bidder. As noted by the New York Times, one of these tokenized JPGs recently sold for $69 million.
What is important to note is that owning an NFT does not confer ownership of the physical asset itself. Wait, what? It only confers ownership of the unique digital token. In the case of the art piece above, the artist retains the rights to the original work and the rights to produce or sell copies. The NFT owner, meanwhile, has a record of the token transaction along with a hash code showing ownership. They cannot sell the asset itself but can resell the token if they wish.
Think of it not as the photo that was taken to create a 1 of 1 sports trading card, but that the 1 of 1 card is now an NFT – a token – and you own the only one. The photo of the front and back of your card is still online for all to see, but you own that token of it and can sell that token if and when you choose.
Bottom line? NFTs offer a unique approach to blockchain-based interactions that could offer a new way to transfer and hold digital value.
Just like winners and losers in the search engine world, where Google and Yahoo won while hundreds perished, or the online shopping world where Amazon and Alibaba are the big winners, there will be a few NFT entities that end up on top and hundreds that will go by the wayside. If you choose to "play," choose wisely.
NFT Security
As with any new, valuable asset that is interlaced with technology, there will also be attempts at theft and/or ransom. Now, businesses and individuals must account for these NFTs from a security aspect on what needs to be protected and through what increased and evolving measures.
The "nonfungibility" coupled with their blockchain-based nature is making NFTs a solid long-term investment for many businesses. However, NFT marketplaces have been subjected to attacks such as phishing, distributed denial of service, and ransomware. Yes, they are not immune, so IT teams and managed service providers must keep a close eye on assets in response to emerging threats. There is also a need to monitor intellectual property stored on corporate networks as it is important to ensure that threat actors do not exfiltrate it and convert it into an NFT without your organization even knowing it.
If attacks can compromise business accounts and gain access to blockchain credentials, they could transfer NFT ownership without a trace. Given the one-way nature of secure blockchain transactions, getting these assets back, even with proof of wrongdoing, is sadly difficult or impossible. Improved, zero-trust architecture is an ideal way to help solve this problem before it starts.
Along with "zero-trust" security, businesses must also deploy active network monitoring tools capable of pinpointing possible exfiltration issues before blockchain access occurs. By moving beyond simple access and authentication tools to proactive behavior monitoring and AI tools learning to adapt their alert systems, organizations can proactively terminate potentially problematic sessions before attackers are able to infiltrate NFT data.
River Run's R-Security provides the proactive AI tools and 24/7 monitoring team as well as security experts to help protect our clients and their data, assets, people, and clients. We can help.
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