Non-fungible tokens (NFTs) have been around for several years now. However, it’s taken some time for industries to realise the potential that lies in NFT use cases. In 2021, NFTs made global headlines when digital artist Beeple sold a collection for $69 million via Christie’s. It marked several milestones—the first time the world’s oldest auction house had sold an entirely digital artwork, the first time it had accepted cryptocurrency, and the record price for the sale of a piece of NFT art.
What is an NFT? An NFT, or Non-Fungible Token, is a type of digital asset similar to a cryptocurrency. However, non-fungible refers to the uniqueness of the asset. In the ‘real’ world, we have assets like company stocks or fiat currencies, where one instance of an asset is substitutable for another. Examples include dollar bills, Apple stocks, or bitcoin.
In contrast, there are also real-world assets that are unique and have their own value, such as real estate, fine art, or even baseball cards. These are non-fungible assets, and, on a blockchain, non-fungible assets are represented by NFTs.
What Are the Benefits of NFTs?
NFTs offer several benefits, the most critical being that they offer the opportunity to create rare or even one-of-a-kind digital assets. As these assets are based on a blockchain, they’re under the scrutiny of a decentralised network and, as such, can’t be destroyed or copied for any purpose. Unlike physical assets, they won’t deteriorate or get damaged over time. So when comparing digital and physical collectibles, a digital collectible is something a user can keep forever.
Each NFT transaction is stored on the blockchain providing a complete and immutable history. When the owner wishes to sell, they can engage in secure trading with a direct counterparty, liquidating the asset into crypto or fiat currency and avoiding the need for brokers and their associated fees.
NFTs can also be used to represent fractional ownership of assets, such as real estate, allowing someone to own a piece of an asset that they couldn’t otherwise afford. Now, many industries are exploring how these benefits can be exploited to create new revenue streams, engage consumers, and solve legacy problems. Here are five examples.
Digital Collectibles
Digital collectibles provided one of the earliest popular use cases for NFTs, but have recently gained traction, particularly as a means of enhancing fan engagement in sectors such as sports and eSports. Teams and clubs can mint unique or limited-edition NFT digital collectibles and make them available to fans via various channels.
The NBA’s Top Shots is perhaps the best-known example in traditional sports, allowing fans to buy digital packs of video clips from their favorite players and teams. Similarly, eSports media company WePlay has issued a line of digital memorabilia representing specific tournaments, including logo tokens, trophy tokens, and “story tokens” depicting the most memorable moments of play.
These collectibles provide new ways for fans to engage with their teams while generating a brand-new revenue source with an innovative and cutting-edge offering. Moreover, digital engagement has been a critical avenue to sustain clubs over the last year amid event cancellations and venue closures, so developing innovative ways to connect with fans is vital for struggling teams. Direct sales are one example, but the value of NFT digital collectibles can also be tied into a broader fan engagement strategy.
For instance, a club using fan tokens as a currency could make their line of NFT collectibles available for purchase only to fan token holders, thereby helping to increase demand for the tokens. Alternatively, NFT collectibles can be provided as loyalty rewards to fans reaching a certain threshold of points.
Supply Chain Provenance
Supply chain operators are tapping into NFT use cases, leveraging the uniqueness and traceability of the assets to help demonstrate provenance and prevent counterfeited products from entering the market.
One of the best-known examples is in the luxury goods market, where operators including Prada and LVMH have teamed up to launch a blockchain platform called Aura. When consumers buy a high-end watch, handbag, or piece of jewellery, they’ll be provided with a corresponding one-of-a-kind “digital twin” NFT, which shows them the origins of their product, including information about the materials and manufacturing process.
NFTs are also now being used to trace the provenance of fine wines, another industry where fraud has become commonplace thanks to the high sums at stake.
Real Estate
NFTs are already used extensively to trade “virtual real estate” in VR games such as Decentraland. However, they are now also being used to represent physical real estate. TechCrunch founder Michael Arrington recently sold his NFT-backed Kyiv apartment for 36 ETH (a little over $70,000 at current prices).
Blockchain is tailor-made for such peer-to-peer sales, quickly and securely transferring ownership between buyer and seller with the transaction recorded on the ledger. Smart contracts negate the need for lawyers or notaries.
Fractionalised ownership is also one of the more intriguing NFT token use cases when applied to real estate trading. For instance, younger people could invest in a share of a property to generate income that can ultimately be used to fund their own house purchase.
Gaming
The market for in-game assets accounts for a significant proportion of the total value of the gaming market, which is set to rise to $300 billion within the next four years. However, despite the vast sums spent by gamers, asset ownership is a tricky topic. If the game company goes under, the assets are lost.
In-game assets as non-fungible tokens is one of the best NFT use cases as it offers a multitude of benefits to gamers. They truly own their purchases and can store them in their own private wallets. The assets can be ported between different games, giving them greater value and allowing for the creation of secondary markets.
Last year, blockchain-based RPG game The Six Dragons was the first of its kind to become a licensed Playstation partner. The accreditation allows it to release a version for the PS5, which is anticipated in 2021.
Music
The music industry has multiple opportunities to explore NFT use cases, but given the nascency of adoption, their journey is just beginning. Currently, their utility has been similar to other entertainment segments, where artists such as Eminem or the Kings of Leon have launched works as NFTs.
However, as programmable smart contracts, NFTs can deliver much more to an industry beset by copyright issues. NFTs cannot be copied or pirated, solving a critical challenge that had plagued musicians even before music became digitised. Moreover, the rights to royalties can be programmed into the token itself, meaning that whenever it’s sold, a share of the proceeds can be automatically directed to the rights holders.
From digital collectibles to digital twins, Protokol takes the headache out of creating custom NFT solutions for your business. Whether you’re in sports, real estate, supply chain or any other industry, our experts can advise on a wide range of NFT use cases and support throughout every step of bringing your chosen NFT solution to life. Contact us today to learn more.