The 4 Different Types of NFTs for Bringing Real World Assets On-Chain
Bringing real world, physical objects on-chain has long been a “holy grail” for the world of crypto. NFTs and the underlying blockchain technology offer new forms of value creation, making a Web3 transition the next logical step for industries dealing in physical goods.
There are a number of Web3 projects aiming to tether the physical world to the digital one. We’ve identified the strengths and weaknesses across different classes of “phygital” solutions to demonstrate where they succeed and where they fall short.
- “Digital Twin” NFTs
- “Checkout Receipt” NFTs
- “1:1 Physically-Backed” NFTs
- “Legal Enforcement” NFTs
1. “Digital Twin” NFTs
What if you could own a replica of your favorite pair of sneakers in the Metaverse? Digital Twin NFTs aim to solve the problem of bringing Real World Assets on-chain by creating a digital representation of the asset which can then be paired with the physical item.
One of the most popular ways to create a Digital Twin NFT involves the use of Near-Field Communication (NFC) technology. NFC chips have been around for over a decade, powering point-of-sale transactions, keycards, and smartphone interoperability.
Recently, projects like SmartSeal and Azuki’s PBT Chip have been proposed as a method of tagging physical items with NFC chips and linking them to a Digital Twin NFT of that item.
While conceptually accessible and easy to implement, NFC chips for Physical NFTs have limitations. The primary concern around NFC chip solutions is fraud. Even with tamper-proof tags, there is still room for sophisticated fraudsters to swap the NFC chip onto a counterfeit item before trading it on an NFT marketplace.
Additionally, NFC-tagged physical items might be sold in person, outside of an NFT marketplace. If the NFT is not transferred along with the physical item, there will now be two “owners” of the same item: The buyer of the physical item, and the original holder of the untransferred NFT. This creates a range of negative scenarios related to provenance, ownership, and future transactions.
While NFC chips for physical assets have their use cases, they do not solve the fundamental infrastructure problem for Physical NFTs.
2. “Checkout Receipt” NFTs
Another solution that has been explored are Checkout Receipt NFTs baked into a standard e-commerce checkout flow, much like a Shopify plugin. Checkout Receipt NFTs allow brands to sell their items as NFTs at the point of sale, with the NFTs getting sent to a user’s wallet upon checkout. An example of a project exploring this space is Venly.
Checkout Receipt NFT technology can be quickly plugged into an existing marketplace product, but it’s a bandaid solution that won’t survive without a more robust infrastructure.
Problems with this solution:
- The brand is still responsible for maintaining the inventory of the physical item, leading to increased storage costs over time.
- The brand must navigate complicated redemption logistics, and account for NFTs that are transferred to new wallet owners.
- These solutions do not include the foundational tech needed for storage / loss-damage fee management.
- Inventory management is still centralized.
- These solutions do not offer a good way to manage the intake, creation, or customization of NFTs in a collection.
3. “1:1 Physically-Backed” NFTs
One way to ensure that there is always a 1–1 relationship between an NFT and a physical asset is to securely vault the physical asset before minting a Physically-Backed NFT. This is where 4K Protocol comes in.
With a trusted logistics infrastructure and an easy-onramp for minting existing inventories, 4K Physically-Backed NFTs are ideal for Web3 marketplaces selling specialty goods like trading cards, fashion lines, or vintage watches. Physically-Backed NFTs are interoperable across the Web3 ecosystem, and can be redeemed for the physical asset at any time.
4K Protocol is the first Physically-Backed NFT solution to offer a fully decentralized network of storage “Guardian” nodes. Users can bid on storage Guardian fee rates and select from a wide variety of trusted storage nodes in the network. Due to the incentive structure around audits, staking, and fees, Guardians offer a vetted level of protection with loss/damage rates stored on-chain for any user to see.
4K Protocol provides the tools needed for any new entity to become a storage Guardian, but we do not hold onto the items ourselves. Users can choose from a wide variety of storage solutions, become their own storage Guardian, or spread their inventory across a number of different units.
We also handle all of the technical stuff — minting, redemptions, and logistics — making onboarding a breeze for brands, marketplaces, and collectors transitioning into Web3. We manage the operational heavy lifting, freeing you up to build the things that matter.
4. “Legal Enforcement” NFTs
A final interesting model being explored is one where legal ownership rights are enforced directly on the NFT Smart Contract itself. This type of solution provides legally enforceable mechanisms to protect against theft and fraud. If an NFT is ever misrepresented, lost, or stolen, legal action can be taken against the party at fault. Mattereum is an example of a project pioneering this solution with their concept of “digital passports.”
While the idea of enforcing dispute resolution mechanics is compelling, this model is not ideal as a plug-and-play e-commerce solution. With a high-friction on-ramp, and limited tooling for managing fees and collections, this model is more suited towards Real World Assets like real estate, hotel bookings, and intellectual property rights.
In the future, this type of model could act as a composable utility extension for the minting, vaulting, and redemption logistics solution provided by 4K Protocol. And as a reminder, 4K Protocol allows anyone to mint a Physical NFT in minutes with our Self-Serve Minting feature.
Get Started with 4K Protocol
4K Protocol is the first fully decentralized, trusted solution for bringing physical assets on-chain and into Web3. With our Self-Serve Minting, on-chain fee management, and full service logistics solution, anyone can mint anything as a Physically-Backed NFT. With 4K Protocol, you know your items are safely protected by a storage Guardian of your choice. Our solution ensures there will always be a 1:1 relationship between your NFT and the physical asset it represents.
Are you a brand, collector, or online marketplace? Get started with 4K Protocol today by minting things like:Your vintage Rolex
- Your sneaker collection
- Your first edition comic books
- Your next fashion line (see: gmoney <> 9dcc)
Bringing your physical assets on-chain unlocks new opportunities for DeFi, Merchandising, and Community Engagement. Check out how we tokenized a Rolex and secured a loan against it using DeFi lending protocol Arcade.xyz.
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