Non-Fungible Tokens: Future Applications and Challenges
This week saw an amazing group of entrepreneurs, engineers, developers and investors come together in Berlin for Blockchain Week. As part of this, we hosted an event on the future of non-fungible tokens alongside our friends Cryptodecks. We were joined by some stellar speakers from the infamous Cryptokitties, to Codex and Centrifuge. For those of you that missed it here’s a quick write up :) For anyone that would like a refresher on non-fungible tokens (NFTs) before diving in, here’s a great summary.
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Building the Operating System of the Financial Supply Chain using NFTs
By Philip Stehlik, CTO and Co-Founder at Centrifuge
To kick-off the event, Philip gave a great presentation on Centrifuge and how they are using NFTs. Centrifuge is a decentralised operating system for the global financial supply chain and is one of the first projects experimenting with business use cases of NFTs.
Centrifuge is turning financial documents (invoices, purchase orders, company master data, etc) into NFTs. By attaching metadata to documents (e.g. proving that a set of goods are “fair trade”), Centrifuge not only establishes a single source of truth and provenance for each document, but it also makes each document assignable and tradeable.
One of the initial use-cases of turning invoices into NFTs will be the assignment of payment obligations as well as the ability to lend against those assets using existing lending platforms on Ethereum. This is just the beginning and I look forward to seeing what other use-cases the team at Centrifuge comes up with. For more details on this, you can check out Philip’s post on Business NFTs.
Non Fungible Tokens: Future Use Cases and Challenges
- Mik Naayem, CBO at CryptoKitties / Axiom Zen
- Philip Stehlik, CTO and Co-Founder at Centrifuge
- Jess Houlgrave, Co-Founder and COO at Codex Protocol
- Lili Feyerabend, Co-founder at CryptoDecks
- Julia Morrongiello, Associate at Point Nine Capital
We were lucky to be joined by a phenomenal panel of NFT pioneers who discussed the current state of NFTs, their future applications and some of the key challenges in the space.
NFTs and Gaming
When we think of NFTs, the first applications which spring to mind are usually collectibles (Cryptokitties) and gaming, so it was only natural that we should have Mik, the Chief Business Officer at Cryptokitties, start-off the conversation.
One of the most powerful things about NFTs, as highlighted by Mik, is their ability to fundamentally change digital ownership. Until now, we’ve never really owned our digital stuff. We purchase in-game items and treat them as our own, but the reality is that they don’t belong to us, they belong to the game publishers. If League of Legends gets shut down tomorrow, all of your in-game items will disappear forever. The beauty of Cryptokitties and NFT collectibles is that their ownership is not managed by their centralised creators, it is managed via smart contracts in a decentralised fashion. This means that even if CryptoKitties gets shut down or censored, your rights to transfer or sell your cryptokitty will, in theory, still remain intact.
On top of this, in game-items have never been truly unique before. With NFTs, we have the ability to create items that are differentiated, have their own characteristics and provenance. Whilst Cryptokitties and collectibles may seem like trivial applications, they have played a huge role in laying the foundations for the development and adoption of NFTs and I have no doubt they will continue to push the boundaries in this respect.
Moving beyond gaming
Codex, represented by co-founder Jess Houlgrave, is one of the projects that is driving NFTs beyond the realm of gaming by tokenizing physical assets. Codex is a decentralised registry for art and collectibles, which records, verifies and securely stores information about each item in the form of an NFT. This infrastructure will enable various applications from appraisals and insurance to securitisation and asset-backed lending. As mentioned previously, Centrifuge is taking a very different approach and tokenising already digital assets in the form of documents.
Ultimately ERC721, the standard governing the implementation of NFTs, is so broad that it can encompass an unlimited range of different applications. During our panel, we touched upon numerous different use cases, from using NFTs to represent real estate, IP rights, licensing and even to represent living things such as endangered species or perhaps humans themselves.
Challenges to the development and adoption of NFTs
To enable the development of the above applications, there are a number of important barriers which need to be overcome. We discussed some of these such as regulation, bridging the gap between the centralised and decentralised world, infrastructure problems and user experience.
Whilst many people view NFTs as a way of creating new financial assets and democratising access to capital, regulation will most likely act as a barrier to this. For instance, Codex might use NFTs as a means to fractionalise ownership of a piece of art or we could consider fractionalising ownership of a property. Whilst this is interesting in theory, there is a risk that doing so would turn these tokenised assets into securities and they would, therefore, need to be regulated accordingly.
Mik from Cryptokitties pointed out that the distinction between the online and offline world is increasingly blurred, as more and more people are choosing to spend most of their lives online and, in many cases, in virtual worlds. Whilst this is certainly the case, there is still a huge divide between the decentralised and centralised realms. Many non-crypto-native NFT projects will struggle when it comes to bridging the gap between the relatively self-governed decentralised realm and the centralised realm which is bound by various rules and regulations.
On top of this, the development of NFTs is heavily dependent on underlying infrastructure. Solving for scalability and transaction fees, for instance, is likely to have a huge impact on the speed of development of this space. Alongside this, the lack of accessibility when it comes to NFTs is a real problem. Lili, Co-Founder at Cryptodecks and designer by trade, discussed this in detail. Particularly for non-crypto natives, interacting with decentralised ecosystems entails a large amount of friction. From having to manage your private keys, to paying several gas fees per transaction and having to set up a new wallet each time, there are so many barriers to entry. Cryptodecks is tackling this problem by providing a simple interface for users to interact with their NFTs.
On a final note, we discussed mainstream adoption of NFTs and how long it will take to get there. Whilst some panellists were optimistic and seemed to think it would be a couple of months, others were more sceptical. From my perspective, I think of mainstream adoption as the point at which we have millions of users interacting with NFTs without even knowing that they are. Getting there will most likely take a number of years. In the meantime, I look forward to speaking to and hearing about many more projects driving progress in this space!
A huge thank you to all of our speakers for contributing to the event and for everyone who joined us for the evening and a special thanks to our co-hosts CryptoDecks!