NFT : The future of Digital Assets

NFT stands for Non-Fungible tokens. Fungible means something that can be replicated. This is where the differentiation between NFT’s and cryptocurrencies come into play. Cryptocurrency is a currency and is fungible. Therefore, non-fungible holds for uniqueness.

NFT is a unique digital identifier of a particular digital asset. Consider it as a passport number for any asset that is digital or has been digitized. As there is a unique passport number for each individual, similarly there would be a distinctive NFT for every digital / digitized asset. Currently, digital arts are used to trade with NFTs.

Let’s understand what is digital art?

A digital art can be a YouTube video, any music, an animation, any sort of painting, virtual games and many more. These arts can be attached to an NFT giving them an identity which makes them irreplaceable and non-imitable. Each NFT will symbolize a different art and these tokens can be used to identify the said art and individuals can trade these NFTs.

How does NFT work?

NFTs work on the same technology as cryptocurrency which is Blockchain. NFTs are usually powered by Ethereums blockchain technology. The NFTs are encoded using blockchain and can be used for buying and selling purposes on designated exchanges. However, these are not digital currencies and are different from cryptocurrencies. Unlike cryptocurrency NFTs are backed by an asset which in this case is “any digital art”.

How are NFTs traded?

For starters NFTs can be traded on Metamask and Opensea. Let’s understand each one of them in detail.

1. Metamask – It is a Ethereum based cryptocurrency wallet. Think of it as a super app for Blockchain, which will let you buy & sell Ethereum based crypto and tokens, will also allow you to access decentralized apps, store and manage account keys. It is available as browser extensions and as well as mobile applications.  
2. Opensea – Think of Opensea as a marketplace for all Blockchain related assets. It has products such as cryptos, collectibles, gaming items and many other virtual items backed by blockchain. It is a web3 platform where NFTs can be bought and sold by connecting with interested parties on the platform.

benefits of NFT

Benefits to the creator

The most important advantage for the creator of this said digital asset is that the individual can earn royalty on the asset each time it changes hands. This is different from the traditional form of collectible royalty. E.g. Once a creator of a video asset has tagged it to an NFT and sold it to someone, thereon whenever that NFT is sold, the creator of the asset will earn some royalty on the same.

Benefit for Buyers & Sellers?

For starters, they get the bragging rights of an original piece of content which cannot be duplicated which in turn creates a limited supply for something that was otherwise available in abundance. Accordingly, the assets become tradable in the market and participants benefit from the price fluctuations created due to demand and supply of the asset. The owner will have the specific copy of the asset, even though the original artist will have the creator’s rights. 

A Popular NFT

A video clip of LeBron James dunk was sold as an NFT on NBA top shot for a whooping $200,000. The NFT through its blockhain technology certifies that a specific person owns the video clip. This video can also be watched on YouTube or NBA top shot, however the ownership rights is with the one who owns the NFT for it.

Wider usage for NFT’s

Apart from digital art, NFTs can be used in multiple other areas. Basically, it be expanded into any industry which involves differentiated / unique products. Smart contracts which also run on blockchain technology can be used to establish agreements between two parties. 

1. Video games – Gamers are a perfect target market for NFTs since they’re already familiar with the concept of alternate currencies. NFTs allow in-game items to be tokenized and easily transferred or exchanged with peer-to-peer marketplaces. Examples of in-game items include characters abilities, character appearances, features and virtual land. One of the best examples of a game that uses a blockchain based marketplace is the central land which is permanently owned by its community and gives players full control over their creations and virtual assets. Additional examples are Axiafinity and Battle pads which are both pokemon style games with tradable characters and items.

2. Ticketing industry – According to a poll mentioned on CNBC, 12% of people buying concert tickets online get scammed. NFTs can solve issues with fraud because they make it easier to verify who owns a ticket, verify the authenticity of the ticket and transfer the ownership of the ticket securely and transparently. Additionally, NFTs will give companies the option to make each ticket non-transferable which would make it impossible to resell a ticket. Guts is a prime example of a blockchain based ticketing service provider that wants to prevent fraud and scalping number.

3. Documentation – It’s possible to use NFT to verify documentation such as diplomas certifications, driver’s licenses, medical histories, passports and birth and death certificates. E.g.  when it comes to academic credentials recruiters and hiring managers can quickly verify the certifications and degrees of job candidates. The main reason for doing all of this is to prevent fraud and make verification processes dramatically easier and faster. Block search is an example of a blockchain service that already makes it possible to verify academic credentials. However it doesn’t utilize NFT technology quite yet.

4. Real world assets – It’s possible to use NFT to verify the ownership of real-world assets like houses, land, cars, stock, bonds and so forth like with other applications NFTs can help prevent their occurrences of people reselling items that don’t belong to them. NFTs can also quickly verify that when and where an individual car and house parts were manufactured so that you can quickly predict when repairs and replacements are needed.

5. Supply chains and logistics – We can use NFTs to track the timestamp metadata of items passing through supply chains. As products pass through supply chains the NFTs are scanned and new timestamp metadata is added. There are a lot of hypothetical ways to implement NFTs into supply chains and logistics systems. All of them however, require each stage of the chain to use the same infrastructure to support enough NFTs. With so many different players and stakeholders involved globally, it might take a while to implement these systems in real life. Merck’s trade lens system and IBM’s foot trust are two examples of logistics solutions that use blockchain technology. Both use technology that supports the use of NFTs. However, it’s unclear if NFTs play a role in their operations yet.

6. Dividend programs – NFTs can be used to confirm their ownership in a company similar to stocks. In return NFT holders receive dividend payments. This dividend model could apply to almost any asset that generates revenues. A similar use case has been implemented by an investor who bought the digital Monaco racing track in the F1 Delta Time game. The NFT representing the racing track allows investors to receive 5% dividends from all revenue the track earns through races and ticket fees.

7. Blockchain based domain names – This involves using a domain name on the blockchain as a crypto address. The crypto address of a user is similar to a twitter or Instagram handle, with each name being unique. This type of domain name ownership allows you to receive any cryptocurrency token or NFT. Examples of services that offer this are Ethereum name service and Unstoppable Domains.