The Different Applications of NFTs — What Can You Tokenise?
It’s not just art!
Before reading this article, feel free to check our easy peasy guide on NFTs!
While NFTs are mostly associated with the emerging digital art industry, it also represents a contemporary approach to ‘ownership’. There’s a potential for physical assets to be tokenised, paving the way for paperless records of ownership that can be immediately and publicly verified.
At present, NFTs are making waves in the digital market, especially in the gaming, art, and virtual reality industries.
Here’s a breakdown of the different sectors currently utilising NFTs:
Art, Collectibles, and Games
CryptoKitties is an Ethereum-based game that enables players to buy, sell, ‘breed’, and collect digital cats. Each cat has unique characteristics (like a real-life cat) and is an NFT built in accordance with the ERC-721 standard. Ethereum’s smart contracts are able to track and verify ownership while ensuring that transactions such as the purchase and sale of CryptoKitties are executed.
The initial popularity of CryptoKitties was a display of Ethereum’s utility beyond financial use cases. However, it also resulted in prolonged periods of network congestion as more people began playing the game. This development highlighted Ethereum’s scalability issue (the ability to handle large amounts of transactions), prompting developers to create Layer 2 Scaling Solutions — a key feature of Ethereum’s 2.0 update.
Axie Infinity is similar to CryptoKitties. The game draws inspiration from Pokemon, except that players actually own the collectible pets known as ‘Axies’. Each Axie is an NFT with unique traits and players complete quests to earn Small Love Potions (SLP tokens). These tokens can then be staked for additional rewards and AXS holders can also participate in the governance of the game.
Axies can be bred for a maximum of 7 times to prevent price inflation and players are also required to use AXS and SLP to breed them. The game’s marketplace allows users to buy and sell Axies but they’re available on other NFT marketplaces like OpenSea.
Beeple a.k.a Mike Winklemann sold an artwork as a NFT for $69.3million to a Singapore-based buyer. The piece titled ‘Everydays — The First 5000 days’ is the most expensive NFT ever sold, and it’s also the first piece of digital art sold by Christie’s. The sale has positioned Beeple amongst the world’s most valuable living artists, and is a testament to the growing popularity of digital art.
Metaverse
NFTs are also complementing the virtual reality space. Land and properties can now be purchased as unique tokens in a ‘metaverse’ like Decentraland. The platform has two governing tokens — LAND (a NFT to establish ownership of digital land/real estate) and MANA (a cryptocurrency to purchase LAND and other goods and services on the platform).
Users who own a certain amount of MANA can vote on the platform’s policy updates. The exchange of LAND and MANA are settled via Ethereum wallets and all transactions are recorded on the Ethereum blockchain.
Parcels of digital land can be combined into ‘estates’, and virtual infrastructure like malls and art galleries can be built to foster interaction between users.
Ever tried your hand in games like Minecraft, The Sims, and Fortnite? Decentraland is similar, except that it allows you to actually purchase and own a piece of the landscape. It’s a decentralised social media platform within a monetised parallel universe.
Decentraland is already gaining the attention of real-world organisations. Coca-Cola has plans to launch a ‘Coca-Cola Friendship Box’ as a NFT on the platform. It includes a ‘wearable’ jacket for avatars, a sound visualiser (e.g. the sound of a Coca-Cola bottle opening), and a friendship card inspired by the brand’s collectible trading cards in the 1940s.
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Insurance
NFTs can be utilised in decentralised finance (DeFi). Yearn Finance (a DeFi protocol) has developed yInsure — an insurance NFT denoting the unique properties of insurance policies.
Check out our easy peasy guide to DeFi:
Social Tokens
These are tokens created by brands, social media personalities, and content creators.
Alex Masmej, a cryptocurrency entrepreneur, essentially tokenised and human IPOed himself by creating a token known as ALEX. Holders of ALEX can vote on Masmej’s daily decisions.
Another example would be the WHALE token created by Whale Shark — a prominent NFT collector. WHALE holders are granted a small stake in the decentralised autonomous organisation’s (DAO) NFT collection.
*While social tokens are inspired by NFTs, ALEX and WHALE are ERC-20 tokens, and hence do not fulfil the ERC-721 NFT standard.
NFTs can be easily dismissed as a crazy gaming and virtual reality bubble. However, take a deeper dive into the underlying technology to truly comprehend the potential of NFTs. The tokenisation of digital assets means that there’s a potential for real-world assets to be traded as NFTs in the future, therefore creating a more liquid market for previously illiquid assets like real estate.
Keep Tokenizing! Peace.
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