Primary Applications of Non Fungible Tokens (NFTs)
This article serves to define NFTs and introduce potential use cases across a variety of industries. The basis of NFT technology is as such: cryptocurrencies are fungible, which means they are not unique. Each token is the same as the next, and millions or billions of identical coins or tokens can exist. Fungible tokens are stored on the blockchain, and NFTs lay just a step beyond this technology. NFTs are non-fungible, meaning that each token is unique and irreplaceable. The difference is the same as fiat currencies and valuable art — both hold value, they just differ in that a piece of valuable art is unique, while a currency offers coins and bills that all represent the same amount of value. However, the potential of NFTs goes far beyond art. The real advancement lies in the concept of being able to prove, through trustless code, that something is owned. Everything can be tokenized and become an NFT, and ownership can be proved without relying on trust and intermediaries; manipulation, replication, and falsification of data is impossible. To make these concepts clear, consider a few of the following applications of NFTs, starting with the prevalent trend of art.
NFTS IN ART
The current primary application of NFTs is in the art space. NFTs are both touted and teased as being monetizable jpegs and most people know of NFTs only through art projects like CryptoPunks and CryptoKitties and artists such as Beeple. NFTs just represent something unique, verifiable, and stored in a digital format — art has served as an easy bridge to attach something very visible to the not-so-visible technology of tokenization. NFT in art started out with the first ever NFT and has since scaled to $10 billion of volume in Q3 of 2021 (according to DappRadar) and individual pieces being sold for as high as $69 million. On a tangent, for those wondering — the CryptoPunk “sold” for $530 million wasn’t actually sold, but rather utilized flash loans to create an incredibly high transaction.
NFTS IN GAMING
In the current era of gaming, players work to earn in-game items, such as skins, abilities, levels, weapons, and so on. The items they own aren’t actually theirs and are rather owned by the gaming company, and it’s difficult to monetize. NFTs and Web3 enable a reimagined digital landscape: image platforms in which every in-game item is an NFT and items are earned through smart contracts; players legitimately own what they work for, and can easily trade and earn value for such items. Take Grand Theft Auto: as opposed to a map that players perform tasks on, what if parts of the map were separated into 10,000 plots of land, each of which players controlled? In NBA 2k, what if in-game players can be collected and traded as NFTs, and reflect the value of real players? In Fortnite, what if you could actually own your skins and transfer them into your digital gallery in a metaverse? These applications and more have already created massively popular NFT gaming experiences: Axie Infinity, Guild of Guardian, Idle Ciber, the Sandbox, Decentraland, and others already explore such possibilities, and trends point to many more in the works.
NFTS IN SPORTS
NFTs in sports allow athletes to utilize their brand to increase personal earnings and provide more and better ways to collaborate with fans. Collectibles in sports have historically operated through a few physical verticals — take baseball cards as an example. Baseball cards are largely valued by rarity and player performance. However, the number of a certain baseball card in existence is unknown, and athletes are rarely able to profit off cards, or at the very least can’t collect royalties. NFTs offer an alternative option: as an example, imagine that players mint their own digital cards. Fans who believe in the potential of the athlete can buy the card, and the athlete earns royalties each time the card is traded around. The exact number of cards in circulation is known, and value is easier to determine. NBA Top Shot did exactly this, and officially licensed digital NBA collectibles. The project has more than a million users and grossed over $700 million in less than a year. To compare, the combined market value of the entire sports card and memorabilia industry is estimated to be $5.4 billion — that’s valuation, not sales. Additionally, sports players are requesting contracts to be paid out in Bitcoin — most recently, Odell Beckham Jr. announced that his entire 2021–22 salary to be paid out in crypto, a deal worth millions. Some stadiums have joined in on the trend and offer crypto as a seat payment option, and the LA Staples Center was recently renamed the Crypto.com arena in a deal worth $700m. Across the board, sports players, teams, and organizations are exploring the ways in which NFTs and cryptocurrency can enhance the player and fan experience.
NFTS IN MUSIC
The current model for musicians involves a centralized organization (a record label) which pays out advances and royalties. Of course, artists can and do succeed on their own (many start their own record labels) but the industry standard deems signing with a label the only viable (at the very least, quicker) route to success. Musicians must also split money among agents, lawyers, distributors, and other parties. In applying non-fungibility and decentralization to the music industry, music tracks, tickets, merchandise, and albums can all be tokenized and provide a new model for artist-user interaction. Fan funding, especially, cuts out several layers of intermediaries and enables fans to become minters of music, receive unique access to artists and collections, fund projects, support their favorite creators, and profit off the growth and evolution of such creators (for example — a fan may provide 1% of the funds necessary to launch a track, and a smart contract provides 1% royalties directly to the fan). While these applications certainly have flaws and have yet to develop to a mainstream degree, artists such as Grimes, Shawn Mendes (through his Genies collection), Kings of Leon, Debon Welsh, Young and Sick, and Steve Aoki have incorporated NFTs into music in return for greater rewards than labels offer without the corresponding lack of control and directive.
NFTS IN THE METAVERSE
The “metaverse” may be defined in several different ways. Some define it as the singularity at which point our digital lives become more valuable to us than our real-world lives. Conventional systems think of it as fully immersive, virtual reality worlds. No matter how you define it, non-fungible digitized items play into the concept of a metaverse, since in a metaverse things must be owned just like in real life, and the only feasible route to truly being able to own digital items, as opposed to a central intermediary holding the items, is through NFTs. As opposed to occupying a plot of land created by a centralized company, you could irrevocably own a plot of land in a virtual world created through decentralized means. In the house you build on your plot of land, you may frame your NFT art on the wall. Then, you go play an immersive game in which you unlock an NFT skin, which you can sell to cover the cost of the materials used to build your house. In ways like these and more, virtual worlds will be a breeding ground for NFT imagination and implementation.
NFTS IN VERIFICATION
NFTs provide an unalterable means of verification; this use case expands across a multitude of industries and applications. Colleges can tokenize degree certificates to prevent fraud; sport organizations can tokenize tickets and collectibles to prevent counterfeits; governments can tokenize personal documents (birth certificate, ID, etc.) to irrefutably prove legitimacy. Any item or organization that benefits from provable history, in summary, can benefit from non-fungibility.
NFTS IN REAL ESTATE
Real Estate is innately non-fungible and transferring Real Estate to the blockchain is not such a large jump. The property rights of say, a house, can simply be added to the NFT, and ownership is verifiable and unalterable. In war-torn or unstable countries, applications such as these can prove incredibly useful, and in all real estate markets, NFTs cut out intermediates, save on cost, and increase speed.
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