Blockchain basics — NFTs (Non Functional Tokens)
In the Matrix movie, Morpheus offers Neo the blue or the red pill. Neo chooses the red pill to know the truth which eventually leads him to wake up in the real world. Now, you might wonder, what does this have to do with Blockchain and NFTs? Well, I would say the act of accepting the red pill was transfer of ownership of Neo’s consciousness to Morpheus, allowing Morpheus to trace Neo’s consciousness from the metaverse of the Matrix to locate his body and consciousness in the real world!
NFTs or Non Fungible Tokens are as the name says “non fungible”. They represent a unique tangible or intangible items and are therefore not interchangeable. For example, a token that represents ownership of a specific Mozart composition is not equivalent to another token that represents ownership of a Beethovan composition. They may be issued by the same “music composition ownership token” system; but each token is unique (with its own serial number) and not comparable or transferable with one another.
Now, in the movie, Neo is offered a choice — if he takes the red pill, he consents to seeing the real world; if he instead chose the blue pill, he would have no memory of the encounter with the hackers (Morpheus, Trinity and crew) and wake up happy in his bed. This probably captures the Counterparty Risk element in a token economy. Whereas in theory, any asset in the real world can be represented by a digital token and ownership transferred through the token; there is an additional risk that the custodian of the actual asset may not recognise (or allow) transfer of ownership based on the transfer of a token (such as a certificate, deed, title or digital token). Whereas Counterparty Risk would not exist for assets intrinsic to the metaverse (like a digital plot of land in the that HSBC recently bought in TheSandbox metaverse), it does exist for assets in the real world (like a painting or a car). Token issuers and owners may still depend on real-world, non-smart contracts (outside the blockchain environment) for the extrinsic assets. Incorporating the custodian into a blockchain (intrinsic)organisation or DAO (Decentralised autonomous organisation) does remove counterparty risk though for extrinsic assets too.
There has been a proliferation of NFTs in recent years. I have shared a few references in the Appendix section for those curious to read about some of those. The judge is still out though whether NFTs are a fad or add value. NFT mining like any other crypto transactions are energy hungry. The Ethereum platform where a number of NFTs are issued and transacted is estimated to require all of the amount of energy that the whole of Zimbabwe to operate. The assets (like paintings etc) that NFTs link ownership to are visible online; the NFT is currently just receipting ownership to those assets. I would argue though that the real value of NFTs would be realised as the metaverse takes shape and is more widely adopted. Then the owner of the NFT for example of the Mona Lisa painting or the Kohinoor Diamond may earn royalty for allowing the digital representation and experience in the metaverse!
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Now, back to reflect on Neo and the blue pill…
In the Matrix, Thomas Anderson works as a computer programmer while maintaining a double life as a hacker, under the alias “Neo”. He is restless and driven to learn the meaning of cryptic references to “the Matrix” appearing on his computer. Infamous hacker Trinity contacts Neo and informs him that a man named Morpheus can tell him what the Matrix is; however, the three Agents arrest Neo to prevent him from collaborating with Morpheus.
Undeterred, Neo meets with Morpheus and confirms that he wants to learn more about the Matrix by choosing an offered red pill. After swallowing the pill, Neo abruptly awakens in a liquid-filled vessel, connected along with millions of other people to an elaborate electrical structure. He is rescued by Morpheus and brought aboard a levitating ship, the Nebuchadnezzar.
Appendix:
Some useful references on NFTs:
Use of NFTs to support scientific research: https://www.nature.com/articles/d41586-021-01642-3
