NFTs, or “non-fungible tokens”, are a unique form of digital asset stored on blockchains such as Ethereum. They can be thought of as individual digital items, each with a unique digital identity. Throughout the 2021 crypto bull market, NFT collectibles have skyrocketed in value, with popular NFTs such as Cryptopunks commanding millions of dollars at auctions such as Sotherby’s. Beeple’s NFT artwork “Everydays: The First 5000 Days” was sold for $69.3 million in March 2021, making it the most expensive NFT artwork ever sold at the time of writing.
Unlike Bitcoin or Ethereum, which are “fungible” tokens (meaning each unit of the same token is always interchangeable and identical), every NFT is individually unique, indivisible, and non-interchangeable. This makes NFTs ideal for representing digital collectibles such as artwork, or virtual assets such as items or property in the metaverse.
The immutable nature of decentralized blockchains means the authenticity of each unique NFT can always be verified definitively through on-chain records. As long as the blockchain on which the NFT is stored continues to exist, the NFT artwork will technically “exist forever” on the digital network.
Although NFTs seem like nothing more than speculative bubbles to the traditional investor, their emergence signifies the beginning of a new era of private ownership and property rights. In this article, we will explore the important implications behind NFTs, and introduce 6 other use cases for NFTs with profound socioeconomic implications.
Not Just Hype
NFTs bring a radically new paradigm of property ownership for artworks and collectibles. Compared to conventional artworks or collectibles, NFTs offer exceptional liquidity and virtually zero transaction costs. NFTs can be sent to anyone, anywhere, anytime as long as internet connection and wallet access are available to the transacting parties.
Unlike traditional collectibles such as a physical painting or a statue, which are both fragile and highly sensitive to environmental factors, NFT collectors do not have to worry about high costs associated with physical storage or transport. The brain is the only thing hardcore NFT collectors truly need to rely on to store or transfer their valuables on the blockchain network.
Gold and other physical valuables are relatively expensive to transport, particularly in large amounts. Source: NZ Herald
NFTs present users with the ultimate property rights unparalleled by any traditional types of collectibles: absolute ownership and custody, absolute uniqueness and verifiability, absolute protection from confiscation, and instantaneous, borderless transaction with minimal costs and associated risks.
However, the utility of NFTs is not simply restricted to digital collectibles, as they could very well be one of the most important technological innovations of the 21st century as the building blocks of the decentralized Web 3.0 society.
NFTs: “The Value Revolution”
Value is a fundamental building block of human activity, it is a unique social construct arising out of human agency and rationality. Most abstractly, value can be thought of as an agreement or consensus between different parties regarding the perceived desirability of certain thing(s). In this sense, consensus is the ultimate foundation of all value assertions, and as more parties adopt a certain consensus, the strength of its value proposition also increases.
Gold is the best example in which universal consensus of its intrinsic value has generated a tremendous amount of speculative wealth across the world. However, despite gold’s value consensus across different cultures and eras, we may attribute more value to certain pieces of gold of the same weight compared to others. A golden statue created by a master craftsman from an ancient culture is valued at a much higher price than its weight alone would suggest. This is because apart from exchange value, things could also have subjective or symbolic value, such as the value collectors attribute to Picasso’s first painting, or the value I attribute to my first drawing in kindergarten, which is subjectively intrinsic.
NFTs offer the best possible way to store and verify these subjective and symbolic values. Unlike traditional cryptocurrencies such as Bitcoin, NFTs make it possible for digital tokens to become immutable vessels for “non-fungible” values. The value of Cryptopunks, for example, would be considered largely speculative and symbolic in nature, as the aesthetic value of the crude pixelated images is virtually zero regardless of the media hype around them. If Cryptopunks were not NFTs but were normal JPEGs that could be copied and pasted indefinitely, they would be completely worthless.
In this sense, if decentralized blockchain technology is “The Trust Revolution”, NFTs would be “The Value Revolution”. NFTs fundamentally redefine the ways we could enjoy ownership and control over private property and preserve their unique value, it offers a way for us to store things of subjective or symbolic importance in a timeless, digital format that protects them from the erosion of natural elements. NFTs also allow us to digitalize other rights, such as the right of usage, loans, binding contracts, or even inheritance. This is because NFT rights can be enforced through DAO governance by code and consensus alone, removing the need to rely on centralized public law enforcement to maintain fairness and equality. Finally, NFTs may provide us a way to record provably unique information, histories, and identities of both individual metaverse participants and collective communities, creating a new way to represent unique social identities and express individual beliefs.
The “Play-To-Earn” NFT Revolution Of Digital Property Rights
The parabolic growth of the NFT game Axie Infinity and its AXS token during the mid-year crypto bloodbath of 2021 led to another round of NFT craze, launching various other blockchain game tokens to the moon regardless of their content quality. Instead of art collectibles, this takeoff was propelled by the NFT-based “play-to-earn” (P2E) gaming model of the blockchain metaverse.
The P2E gaming model is another revolutionary step for digital property rights. Decentralized blockchain-based P2E games allow gamers to truly own in-game property by giving players full custody and control over all digital assets they acquire in-game by storing items such as in-game equipment as NFTs.
This is in stark contrast with conventional online games, where developers can freely terminate their services while holding full ownership over all in-game assets acquired by players, leading to countless customer complaints from arbitrary account restrictions to outright “milking” of players through in-game asset manipulation by unscrupulous developers (such as “P2W”, or “pay to win” games).
NFTs As “Proof Of Work” For Metaverse Participants
However, P2E is much more than just a hype concept of player ownership of “worthless” video game assets. The P2E model is a rough sketch of a decentralized digital ecosystem based on the liberation of time and freedom for gamers and other digital participants alike. This is because all in-game assets acquired by players are fundamentally an abstraction of their time invested into the game, they are not simply “pixels backed by nothing more than strings of code”. These in-game assets represent a part of the “life” that gamers choose to invest into digital realities instead of the “real” world.
Think of gamer investment into video games as their “proof of work” to the gaming platform itself. When gamers contribute their time and effort to online games run by centralized developers, they are willingly forfeiting their digital productivity and property rights to a centralized authority – they are not the owners of their own “proof of work” in the game. NFTs redefine this dynamic by leveraging decentralized consensus to “force” private property rights for gamers through open competition. NFTs provide a method for gamers to both own and take credit for their creations in video games. What could be better than truly owning the “Legendary Sword Of Infernal Flames +10” that I created myself in my favorite online game as well as having my name carved onto it like an actual masterpiece of a legendary blacksmith, with no risks from forgery?
In this sense, NFTs can be understood as the “proof of work” of the personal time and effort of each participant in the metaverse. This is because NFTs provide better proof of individual effort to production than anything the physical world has to offer. They can be used both as unique identities for metaverse participants and as unique products or records of effort/investment as “proof of life history” for individuals. NFTs can perfectly preserve the personal elements of any process of human creation, and while this characteristic is currently only used in NFT artworks and collectibles, the “PoW” nature of NFTs can be extended to prove the origin of anything that involves an element of personal significance, such as a personal diary, a birthday card, or even an inheritance will.
No longer does “playing video games” imply “a waste of life”, because, with NFTs, the value of digital in-game assets can now be preserved for as long as the game ecosystem itself continues to receive support from the community, elevating the qualities and utilities of digital assets closer to those of traditional physical assets.
As the NFT metaverse and Web 3.0 ecosystem further matures and more participants enter, the utility and value of NFTs will only increase further, as they represent the next evolutionary step of property ownership that is technically unachievable in the physical world.
NFTs As The Fairness Standard In The Digital Economy
The P2E model introduced by NFTs also addresses the problem of “pay to win” game models widely adopted by money-grabbing game developers by utilizing incentives through free-market and game-theoretic dynamics similar to DAO governance. Like all other decentralized blockchain ecosystems, P2E games are sustained by community consensus of their desirability. It returns the ownership rights of all time and effort invested by each player into the games and metaverses they love by rewarding their unique efforts with verifiable NFTs. However, player investment is only valuable insofar as the community continues to agree that these games and metaverses are worth participating in.
If extreme inequality of power arises within a P2E ecosystem due to “pay to win” situations, where wealthy players can simply “buy out” all the best equipment and upgrades to gain a superior advantage over other players at the cost of fairness, the consensus around the game platform itself will diminish, thus decreasing the earnings potential of P2E participants and the value of all unique NFT assets owned by “whale” players. If my “Legendary Sword Of Infernal Flames +10” plummets in value, I will have reduced incentives to continue creating new equipment as players begin to leave the game. This means whales will be incentivized to maintain a fair socioeconomic structure within the game if they want to retain the value of their digital assets.
This very same logic can be theoretically extended to any decentralized digital ecosystem, as incentives are only useful in the presence of adequate property rights. In an open ecosystem where participants can freely enter or leave, property rights will become the anchor for fairness and equality. If one ecosystem becomes so unfair that the average participant can barely survive (think hyper-inflated housing prices), participants can choose to fork into another ecosystem at little to no cost, unlike moving to another city in the physical world. When the whales who get to set the rules no longer have the power to control their subjects due to massively reduced relocation costs, they will be forced to either maintain the system’s justice and fairness or risk losing their wealth and power.
Analogously, a socially repressive authoritarian regime can only exist insofar as its subjects are forced to remain in its jurisdiction. If citizens are free to relocate at minimal costs, authoritarian governments would become extinct. This is because liquidity does not apply only to assets, it also applies to populations and livelihoods – think of the individual choice to residence as a “freely flowing energy” or “liquidity consensus” that naturally moves from undesirable habitats to desirable ones, just like “bad money flowing into good money”. Open ecosystems maximize this “consensus liquidity” because if whales are the “dictators”, they will be forced to choose between justice and equality or face ostracisation as everyone leaves their “jurisdiction” for fairer systems.
In this sense, NFTs not only protect individual rights to their own time and investment but can also be used to preserve social fairness in a digital ecosystem by maintaining social fairness through incentives and open competition between ecosystems. After all, why would anyone continue to participate in an unfair “pay to win” game/metaverse when another competitor offers a better alternative, even if it’s simply a fork of the same game/metaverse, albeit with fairer rules for its participants?
NFTs As “Hyperliquid” Real Estate
Real estate, both physical and digital, is perhaps one of the most intuitive use cases for NFTs. One of the major sources of value for real estate is the uniqueness and exclusiveness of land. Locational advantage is an inherent quality of real estate that commands its speculative value. Want a nice view? Only a small percentage of residential properties have it. In this sense, real estate can be thought of as “naturally occurring NFTs” secured by geolocational coordinates, which fits perfectly with digital NFTs.
However, traditional real estate also comes with some challenges: low market velocity and capital efficiency. This is due to the slow and complex process of transacting real estate, which may often take months, if not years for each deal. NFTs offer the perfect solution to this liquidity problem by automating the complex paperwork and middlemen processes with a blockchain, such as title searches and lawyer certifications. NFTs also make borrowing against properties much faster and more convenient, as complex lending processes can also be streamlined on a dedicated blockchain with automatically calculated rates.
NFTs can also vastly improve capital efficiency in the real estate market through fractional ownerships, making real estate investment much more convenient and accessible for the average investor. Similar to DeFi lending, development funds for real estate can be raised in DeFi liquidity pools through a DAO, which can be managed by both the development team and community investors. Investors may deposit funds into pools representing different real estate projects, each with a unique NFT token that is issued when development initiates. The NFT token can then be fractionalized as ERC-20 tokens via NFT DeFi vaults and distributed to investors. This could make real estate investments just a few clicks away for the average investor compared to traditional real estate funds.
Finally, fractionalizing real estate NFTs could also help existing homeowners to sell or borrow against a fraction of their home (or the rent generated from it) and could make collective homeownership more convenient for young adults. Together with DeFi, NFTs could completely revolutionize the real estate market with endless combinations for financial innovation.
NFTs As “Hypersecure” Real Estate
Unlike most physical goods, real estate is difficult, if not impossible to transport or withhold. This means it is difficult to sell the ownership rights of a physical real estate as an NFT then withhold the actual physical property without sophisticated methods. On the other hand, it is quite possible to sell the NFT of a physical artwork then refuse to destroy or transfer the physical copy to the new owner. This means in most cases, the “NFTisation” of physical collectibles must be accompanied by either the destruction of the original copy or the permanent imprinting of a digital certificate onto the physical copy in a way that makes it impossible to remove without significantly damaging the item.
However, the issues with digitizing physical collectibles don’t apply to physical real estate. This is not only due to the easily verifiable nonfungibility of physical land itself, as they are represented by geospatial coordinates, but also the ease of enforcement for real estate property rights. For example, the keys, locks, and alarm systems of houses can be controlled by an ownership NFT stored on a phone or backup hardware wallet(s). This gives the owner full control over the security systems and IoT (Internet of Things) networks in the house, making it much more difficult for the average burglar to enter the property without causing a scene. While this opens more potential attack vectors in cybersecurity, securing physical real estate with NFTs also raises the job requirements for burglars to ten years of experience and a computer science Ph.D.!
Digital real estate in the NFT metaverse is an even sweeter deal. The inherent advantages of digitization provide digital real estate with much higher capital efficiency, market velocity, and traffic capacity with scalable bandwidth. Imagine having your digital museum visited by five million tourists at the same time, if that were to happen in a physical museum, visitors will have to be compressed into the size of a mouse to fit in! It is also much easier to enforce property rights in the NFT metaverse, as the same old saying goes: not your keys, not your coins. With NFT metaverse real estate, there are no physical doors, locks, or alarms, you don’t have to manage your own security or entrust it to a third party. Because the metaverse blockchain itself is the security platform for your property, your security is essentially the consensus and incentives supporting the ecosystem. By aligning incentives of metaverse participants, a strong platform would incentivize all participants to continuously maintain and improve its security. This makes NFT metaverse real estate communities the ultimate “neighborhood watch”.
NFTs As Individual Tokenized Rights
Tokenised rights aren’t new to the cryptosphere, but the utility of fungible tokens in representing individual rights is limited compared to that of NFTs. This is because NFTs could offer uniquely tailored rights and contracts for different individuals based on their unique NFT identities and contract terms.
An example of unique identity-specific rights would be rental tokens. A vehicle rental service could issue NFTs for rental contracts, which are required for renters to drive their rental vehicles. Like a single-use digital key, the rental contract NFT could bind the NFT of the specific rental vehicle to the NFT identity of the renter for a set amount of time under agreed terms. Analogously, this could be compared to using the renter’s driver’s license itself as the key for the rental vehicle. This could greatly improve the security, transparency, and accountability of rental markets.
Likewise, the same NFT contracts could be applied for hotel bookings, rental apartments, and other specific, conditional rights and contracts that cannot be easily represented with fungible tokens, such as insurance, binding contracts, or estate inheritance, etc. These law frameworks can be enforced through DAO token incentives, or even automatically executed with a sophisticated on-chain system in the future.
NFTs As Verifiable Record
Blockchains are not simply immutable records of unique wallets and transactions, they are also immutable “bundles of history”. Each block is a definitive record of time as segments of on-chain events encapsulated into publicly verifiable blocks of information. Think of blockchains as clocks, but instead of tracking time through regular, cyclical movement of hands, blockchains track time linearly by recording on-chain events as an encrypted sequence of information. This way, blockchains can also be thought of as an alternative representation of time as linear sequences of events.
Unlike fungible cryptocurrencies, NFTs add a second layer of detail to “blockchain time” by recording unique, non-fungible information of what exactly is being exchanged on-chain. This could be anything from the ownership of unique digital artworks to something as simple as a digital serial number, which can be very useful for product certification, supply chain management, and tracking various records such as product maintenance and quality control. VeChain, for example, is one of the several blockchain projects that are dedicated to supply chain management.
NFTs can be applied in manufacturing, processing, and logistics through IoT (Internet of Things) supply chains that automatically track the production and transportation of physical goods with automated blockchain-integrated sensors. This could include product origin, source material, and certification for both individual parts (such as genuine vehicle parts) and complete products (such as food, appliances, luxury goods). A good example of IoT-based supply chain management blockchains is Ambrosus network, which deploys IoT sensor networks in production lines for enterprise needs. Although Ambrosus network doesn’t utilize NFTs in its system, NFTs could be included to further improve transparency and accountability across the entire production line, particularly for high-value goods.
As more blockchain applications integrate with each other in the Web 3.0 ecosystem, repetitive tasks that are traditionally managed by human labor will move onto automated blockchains. Automated blockchain administration for logistics, certification and verification of supply chains and real-world assets will become the mainstream for competitive platforms and service providers. Vehicle mileage and repair histories can no longer be tampered with, and “fair trade” labels on products will be subjected to fully transparent verification.
NFTs As Identity
Finally, we must ask the question: who, exactly, do NFTs represent? After all, work, property, history, and verifiable uniqueness could only have meaning in a society of free individuals, each with a unique self-identity. But what exactly constitutes our identity? Is it our appearance? Relationships? Personality? DNA? Or perhaps our memories? While these things all play an important role in our identity, apart from DNA, they could all change or distort significantly throughout our lives. But one thing that doesn’t change, is history itself.
NFTs can represent the unique human beings behind digital identities with “provably unique histories” without the need for third-party verifiers. NFT identities can be used to record the choices, efforts, investments, and interactions of every unique participant in the Web 3.0 digital ecosystem. You can forge a passport, but you can’t forge an NFT. Tired of SIM swaps? That can’t happen with NFT identity verification. Scammers and imposters will be easily exposed through the verifiable history behind each identity, while consensus-based decentralized governance will provide the incentive mechanisms to “fine-tune” the balance between privacy and transparency of the ecosystem in the long run. By storing the past and present of every individual on the internet of blockchains, individual identities may be provably immortalized in the collective memory of blockchain history itself.
NFT identities are not limited to individual identities, but can be used to represent any symbolic identity in a digital format such as group membership, brand identity, ecosystem specialty, or even “metaverse nationality”. Unique “blockchain native” brands or product lines could become the mainstream in high-end consumer markets. “NFT-verification networks” could provide international trade with much greater transparency, particularly in products such as organic food, “carbon-neutral” commodities, limited production goods, and genuine specialty products with traceable origins.
On the macro level, entire “metaverse cities” or even “crypto nations”, each with unique NFT signatures and different “specialties” could create new forms of stateless, permissionless community identities. For example, a “Cryptopunk Museum” hosted in a virtual reality “NFT capital” that exists purely on the blockchain could become a future “Web 3.0 tourist attraction”. Entire “digital cities” could exist based on provable ownership of NFTs as community identities similar to, but better than passports, creating a whole new world of digital societies.
Perhaps one day, tourists may no longer use passports to travel around the physical world, as the NFT metaverse will offer a comparable experience through the “digital tourism” industry, where tourists may travel freely across boundless cyberspace, created and owned by the collective imagination of every “metaverse citizen”.
Conclusion: NFTs, The Building Blocks Of The Digital Future
So here are 6 other use cases for NFTs, each of which carries significant ramifications for the digitalized future. To wrap up, NFTs as “Proof of Work” for metaverse participants make individual contributions much more meaningful and accountable. NFT PoW creates more stable “consensus liquidity” that enforces fairness and balance in metaverse societies through open competition of “game rules”. Both physical and digital real estate could benefit from “hyperliquidity” and “hypersecurity” offered by NFT technology. NFTs may improve the security and efficiency of unique tokenized rights by removing trusted middlemen and automating highly sensitive contracts. NFTs can also be used as the ultimate transparency and accountability tool for many industries such as manufacturing and logistics. Finally, and most importantly, NFTs offer a new way for us to establish and verify social identities in the digital metaverse from the individual level up to the collective level.
While digital collectibles, metaverse contributions, and real estate are only three of the more basic functions that NFTs may provide in the short term, the possibility for NFTs to represent provably unique records, histories, rights, and identities make NFTs an integral foundation for building a truly individualized metaverse that maximally expresses true diversity and social freedom.
In conclusion, NFTs provide an additional layer of truth to the blockchain and makes it possible for us to bestow individualized value onto the trust revolution of decentralized technology. NFT technology will reshape the structure in which human societies function by simplifying the provability of uniqueness in a trustless system, bringing The Trust Revolution of decentralized blockchain technology to the next step in the form of The Value Revolution.
The post Beyond Digital Collectibles: 6 Other Use Cases For NFTs appeared first on Coin Bureau.