NFTs — What are they good for?
Overview
Recently, there has been a resurgence of interest in Non-Fungible Tokens (NFTs) from the mainstream audience. The latest NFT mania has primarily benefited the creative industries, though opinions are divided on whether the influx of capital has benefited the artists themselves.
Most of the use cases making the headlines have revolved around gaming and digital artwork. Sony, for instance, launched The Six Dragons with its release of the PS5 gaming console. The Six Dragons is a role-playing blockchain game that features several NFTs based in-game items. Sony, makers of the Play station, are one of the first mainstream platforms to incorporate NFTs. Atari (also of the gaming console fame), has announced the creation of a company division that will focus exclusively on developing blockchain games.
There has also been a huge uptake of NFTs in the art sector, where they’re being used to certify the authenticity of digital as well as physical artwork.
What is a Non-Fungible Token (NFT)?
NFTs are digital tokens that represent a unique value. These tokens can represent a digital collectible, memorabilia, or anything that is one-of-a-kind. Unlike fungible tokens that are used to represent cryptocurrencies, NFTs are not divisible into smaller fractions.
A brief history of NFTs
Even though NFTs are currently popular, they have had a long history in the world of blockchains and cryptocurrencies. The first NFTs emerged as early as 2012 with the introduction of “Colored Coins.”
The idea behind Colored Coins was first discussed on a blog post as small denominations of a bitcoin that can be used to represent a multitude of real-world assets such as property, coupons, shares in a company, and much more.
Several papers later, the idea was abandoned after it became apparent that such a system would not work on the Bitcoin network given the significant transaction fees and rising transaction confirmation periods.
However, the idea of creating non-fungible tokens that live on the blockchain took root as the idea was picked up by two creative technologists (John Watkinson and Matt Hall) who developed the now-famous CryptoPunks in June 2017. CryptoPunks were first offered to Ethereum users for free. They included 10,000 unique cartoon characters on the blockchain.
Soon after CryptoPunks, CryptoKitties followed suit in October 2017, creating an NFT enabled virtual game that hit the mainstream. The hype was high, with some CryptoKitty NFTs selling for over $100,000 worth of Ethereum at the time.
How do they work?
NFTs are created through smart-contracts which run on one of the many smart-contract capable blockchains. The contract keeps track of who owns each token, handles transfers of tokens between owners, and also stores various metadata about each token.
Ethereum is the largest smart-contract capable blockchain, and many NFTs have been launched on it over the years. In fact it was the ERC-721 standard for Ethereum that first introduced a common interface for NFT smart-contracts, making it possible for marketplaces to spring up for trading NFTs created by a multitude of developers.
In a nutshell, the ERC-721 token standard allows blockchain developers to create unique tokens that can be used to represent virtually anything.
Newer blockchain networks such as Binance Smart Chain, Loom Network, and TRON have also adopted the ERC-721 token standard (with minor modifications), thus enabling developers in their ecosystem to deploy NFTs.
What are they used for?
Most people have already heard about NFTs due to their use in popular blockchain-based games and as digital collectibles, and while these particular use cases tend to grab all the headlines there are other industries that are putting NFTs to good use.
Finance
To date fungible tokens have been the lifeblood of the new decentralized finance industry, but now that’s starting to change. NFTs are becoming an integral part of the next generation of DeFi protocols as developers are coming up with all kinds of interesting uses for NFTs. For example, some DeFi protocols issue NFTs to liquidity providers that act as an entrance ticket for a secondary stacking protocol, providing additional incentives to users who boost liquidity.
The recently released Uniswap V3 uses NFTs to provide unique financial benefits to users, and a slew of DeFi protocols will no doubt copy Uniswap’s approach in the coming months — adding their own mind bending twists to keep things exciting.
Logistics
In this day and age it’s trivial to order something online and get it shipped to your door from the other side of the planet. You never really think about all the hidden complexity of getting that package delivered from point A to point B, at least not until it goes missing, or arrives damaged!
A blockchain can provide a central repository where details of freight shipments can be stored permanently and securely, while improving transparency by allowing all the relevant parties to track the status of each shipment. NFTs can be used to represent supply chain data on the blockchain, thereby enabling accurate tracking of each shipment as it travels from the origin to the final recipient.
Improved tracking means packages are less likely to go missing, and in the event that something does go wrong there will be a trustworthy record to help figure out who’s at fault.
Licensing and Certification
Given that most certificates and licensing documents are offered in the form of digital or paper-based documents, NFTs can be used to create a permanent proof of ownership so that the owner of a certificate can always have a proof of ownership even if the original physical copy of the document gets destroyed.
While there’s nothing particularly innovative about digital licenses or certificates, representing them as NFTs does make them a lot more accessible, which makes our lives just a little bit less tedious.
Using NFTs to represent such documents can also reduce waste, since there will be less need to print certificates and other licensing documents as long as they’re easily accessible and verifiable online.
By popular request, Loom Network is currently looking into introducing NFTs to certify completion of the Cryptozombies courses.
Ticket Sales
NFTs could transform ticket sales in many ways. Each ticket can be represented as an NFT on a blockchain, so the ticket holder will be able to provide a proof of ownership even if they lose their physical copy of the ticket.
It would also be easier for ticket holders to transfer their tickets when they are not able to attend an event. This is unlike current methods where ticket scalpers have a monopoly on the secondary market as they often buy tickets at retail prices and sell them at higher than face value. The current system is unfair to many ticket holders who cannot transfer their tickets even if they do not attend an event.
There are already a number of projects working with NFTs in the ticket sales business, such as TicketChain, EventX, and CryptoTickets. Most of these platforms aim to facilitate ticket issuance, resale, and transfer on a seamless blockchain-enabled platform for consumers in the events industry.
Summary
NFTs are a relatively new asset class that can be used to represent all sorts of things. They are easy to transfer, and can be traded with little overhead, which is why they have become so popular in the gaming community, and the digital collect-them-all community. However, there are many more things that NFTs can represent, and we’ve covered just a few of the less hype driven use cases in this article.
Loom Network’s Basechain fully supports the Ethereum ERC-721 standard, and makes it easy to transfer NFTs between Ethereum and Basechain. So if you have an exciting new NFT-based project in mind, consider building it on Basechain! We aim to build integration with the most populous networks to ensure developers can build dapps that reach the widest audience, instead of being siloed within a single network.
Loom Network is building an ecosystem of blockchains for the next generation of DeFi protocols, NFTs, and high-performance multi-chain dapps. At the core of this ecosystem is our Basechain network — already live in production, audited, and battle-tested.
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