Non-Fungible Tokens, or NFTs, have become a primary consumer use case for blockchains. We are all aware of the monkey JPEGs and the massive speculative market that erupted (and subsequently exploded), but what is an NFT really and what are they good for? Let's unpack what NFTs truly are, how they're currently being used, and their vast potential.
What are they?
An NFT is a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger (a topic for another post). It represents a unique item or piece of content. While cryptocurrencies like Bitcoin or Ethereum are fungible and can be exchanged on a one-for-one basis, NFTs are distinct. Each has a unique value and specific information that makes it distinct from any other token, much like an original painting or a collector's item. This general concept of a unique identifier enables several interesting use cases. Some of the earliest implementations of NFTs are Cryptopunks and Cryptokitties, which are good examples of how NFTs began with art, collectibles, and gaming in mind.
What can they be used for?
- Digital Art: One of the earliest use cases for NFTs is in the realm of digital art. Artists can tokenize their creations, producing uniquely identifiable and ownable artworks. This approach to digital art enables artists to sell directly to a global audience, maintain royalties, and ensure provenance and authenticity without the need for any intermediaries.
- Collectibles: Often with significant overlap to digital art, collectibles are one of the prominent current use cases for NFTs. From virtual trading cards to pets, NFTs have given rise to a new era of digital collectibles, providing verifiable ownership of unique items. Most of the vitriol and negativity around NFTs has grown from this use case (more on this later).
- Gaming: NFTs can represent in-game assets, such as weapons, armor, or characters. “Play-to-earn” and “Play-to-own” are phrases that describe some value propositions of blockchain gaming. NFTs allow game assets to be truly owned by the player and used across different games or sold in secondary markets. We personally believe that gaming ecosystems that can spawn from shared and inclusive assets will be a net positive for gamers and developers alike.
- Digital Identity: NFTs can represent a person's digital identity, offering a way to prove one's identity without the need for centralized systems. In this same vein, memberships can be maintained and tracked on the blockchain with NFTs. This could unlock opportunities for business and communities as members become more easily identifiable and their rights/perks more transferable and usable.
High Impact Use Cases
The primary value propositions of provenance and instant, accurate public data drive every use case for non-fungible tokens. We share some implementations of NFTs that we believe will be particularly impactful.
Authentic Products
- Most basic to NFTs is the ability to make digital goods better. Any digital product can be packaged as an NFT to ensure clear ownership, confer rights, and enable a deeper, more robust experience between the customer and brand.
- All brands and IPs should consider leveraging NFT and blockchain technology to augment their current digital offerings or to open up new, engaging revenue streams with customers.
- Pudgy Penguins is putting on a masterclass on blending their digital and physical products to improve customer experience and deepen engagement.
Tokenized Real-World Assets
- Representing a secured, real world asset (RWA) as a token gives it immense flexibility for transacting and proving official ownership.
- Tokenized RWAs are more effective than property deeds and more lasting than physical authentication.
- Companies like 4k Protocol have already begun building the phyiscal and digital infrastructure required to enable RWAs and other platforms like Arcade.xyz have given those tokens immediate financial value as lending collateral.
360 Degree Loyalty
- We see NFTs as the enabler of 360 degree loyalty. Where your on-chain actions with one business may enable or earn you opportunities with another one.
- The value proposition here is public data. For example, if a bakery knows your on-chain Starbucks loyalty, they may be eager to offer you a discount to try their baked goods.
- This opportunity is a byproduct of NFT adoption across businesses
Gaming Ecosystems
- Blockchain games are becoming more sophisticated and their appeal is slowly growing outside of the current crypto-centric user base. The concept of play to earn has become politicized, with many expressing the opinion that games should be fun, not a job. We agree. Rather than financializing gaming, we see blockchains and NFTs as a way of expanding the ways we think about and interact with games.
- Gaming ecosystems where various items and assets can be earned and used across games enable a better gamer AND developer experience. Imagine, as an indie game developer, a guaranteed player base on day one. On the flipside, gamers can enjoy their experiences knowing that as they move from game to game their time spent grinding is not totally wasted as they can carry useful items from one game to another. And yes, if they so choose, they could sell those items to other players looking for an edge as they play the game themselves.
- Treasure, powered by the Arbitrum blockchain is a great example of an early implementation of this.
Should I use or create NFTs?
If any of the use cases above relate to the work you do or your interests, then the answer is probably yes! Given the ease to transact and the novelty of the technology, early uses of NFTs became a highly speculative bubble and afforded grifters the opportunity to take advantage of early adopters. This has created a bit of a negative taste in the mouths of the general public. This is simply a perception issue. NFTs are merely a medium. A tool to be used for good or bad and to expand the value proposition of a given digital product or creation. Any business, artist, or person that creates or consumes digital products has the opportunity to benefit from leveraging NFTs and blockchain technology. Proper uses of NFTs result in win/win experiences for both businesses and consumers.
NFTs are much more than just a trend. They're a revolutionary milestone in how we perceive digital ownership, bringing tangible value and uniqueness to the intangible. As the technology matures and its applications expand, NFTs will likely become an integral part of our digital lives. We are here to help companies keep up.If you are working on one of these ideas or are a business looking for help getting started, send us a message today!