What is NFT?

Reporting from forbes.com, NFTs (Non-Fungible Tokens) are digital assets that represent real-world objects such as art, music, in-game items, and videos. NFTs can be bought and sold online, generally using cryptocurrencies, and NFTs are generally coded with the same basic software as other crypto assets. NFT is also known as a blockchain-based digital token whose each unit is unique, so it cannot be duplicated or exchanged (non-fungible).

Although it's been around since 2014, NFT is gaining prominence today as it's become an increasingly popular way to buy and sell digital artwork. Since November 2017, the value of NFT buying and selling transactions has reached USD 174 million.

NFT provides an opportunity for artists and content creators to monetize the goods they sell and offer. For example, artists no longer have to rely on galleries or auction houses to sell their art. These artists can directly sell their work directly to consumers as NFT, which also allows them to keep more profit.

In addition, artists can program in the form of royalties so that they will receive a percentage of the sale each time their artwork is sold to a new owner. This is an interesting feature because artists generally do not receive future results after their artwork is first sold.

Difference between NFT and crypto

Both NFT and crypto are built on blockchain, using the same technology and the same principles. Crypto is a currency where, like other currencies, cryptocurrencies have economic value and can be exchanged. For example, money worth Rp. 50 thousand will always be worth Rp. 50 thousand.

If 50 thousand rupiahs were exchanged into five 10 thousand rupiahs, the value would still be 50 thousand rupiahs. Likewise 1 ETH (ether, crypto currency) will also be worth 1 ETH. Meanwhile, NFT is basically a derivative of crypto that is not interchangeable and has value beyond economic value. NFTs are unique and are not the same as equivalent assets, such as paintings, or antiques in museums.

NFT risk

Some of the risks that NFT owners can face:

The value of NFTs is expected to fluctuate constantly, just like cryptocurrencies.

NFTs that have been owned or purchased can be lost. This usually happens as a result of hacker attacks. Citing Ubergizmo, an NFT collector and New York-based art gallery owner, Todd Kramer, has lost his NFT collection because it was stolen by hackers. The stolen collection is estimated to be worth around US$ 2 million or more than Rp 28.5 billion.

 

Can NFT be insured?

Current property policies such as the IAR Munich Re policy only cover direct physical damage to the property covered under the policy. The guaranteed properties referred to in the policy are for example buildings, production equipment and machinery, as well as stock that has a tangible physical form.

Meanwhile, NFT is an intangible asset and cannot suffer direct physical loss or damage, so NFT cannot be guaranteed under the standard IAR Munich Re policy. In addition, the IAR Munich Re Policy version 2.3 also excludes all forms of money, deeds and other securities.

IRMI (International Risk Management Institute, Inc.) states that NFTs are not covered under standard commercial property policies. Similarly, personal property policies that cover valuables such as works of art do not cover intangibles such as NFTs.

Reporting from instech.london, several international insurers and insurtechs have provided guarantees for digital assets. However, the insurance product currently only applies to exchangeable tokens such as cryptocurrencies, not NFT, and with limited guarantee capacity. Many international insurance companies are still hesitant to insure digital assets due to a lack of data.

Moreover, the NFT market is still relatively new and the risks associated with NFT are not included in existing insurance policies. So it is still difficult to calculate how much premium coverage will be charged and how wide the guarantee will be.

In addition, international insurance companies are also faced with the challenge of how to value digital artwork and assets in the form of NFT. In a typical art insurance policy, the valuation of the artwork can be based on the sales figures or the purchase price of the artwork. While for NFT the value always fluctuates, sometimes quite dramatically. So it is more difficult to determine the value of the NFT that will be part of the insurance coverage.