NFTs stand for non-fungible tokens and are an industry-leading technology that are revolutionizing the collection, distribution, and trading of assets. And these assets are not just limited to physical collectibles like paintings but comprise of a plethora of digital collectibles like GIFs, music, artworks, and so on.
Let’s understand what NFTs are and how they are used in multiple areas.
NFTs — A Basic Guide
An NFT is a token that uniquely points to a digital/physical collectible and stores the related information on a blockchain (Ethereum or Binance Smart Chain). When you purchase an NFT, you are essentially getting hold of the private key that gives you access to the token, which further points to the collectible/asset.
So, when you buy an NFT (or when you sell it) you are simply trading a cryptocurrency with the only difference being that the token is non-fungible, that is, it cannot be replaced with anything else. When you sell that particular NFT, it departs from your wallet and is stored in someone else’s.
A crucial thing to understand here is that most NFTs are governed by smart contracts. A smart contract is a piece of code that controls how a particular asset moves across different blockchain networks, and how it is bought, sold, and re-sold. In simple terms, you as the creator of any NFT can program in its smart contract to make sure that whenever the buyer of your art sells it off for a higher price, you get to keep a percentage of the profit. This can imply a consistent source of income for artists!
As you can probably imagine, NFTs can have multiple applications from being attached to a digital art or even a physical asset like real estate. In fact, there have been cases where NFTs have been used for multiple purposes. We shall explore some of them here.
1) Music NFTs
They are generally NFTs that point to particular pieces of music like songs or even albums. NFTs are known to have revolutionized the entire music industry because of how they are helping musicians make more money than they could ever make from selling their music online via various DSPs.
Here are some crazy examples from the music industry and how much money several artists have made by simply making NFTs of their own music.
· 3LAU bagged USD 11.6 million for his NFT in less than 24 hours
· Canadian star Grimes profited USD 5.8 million in less than 20 minutes for her work
· Popular DJ Steve Aoki banked USD 4.2 million for his work in March first week
The reason why they are getting increasingly popular in this industry is because they are helping artists remove the middleman and connect straight with their fans/potential collectors. And sometimes, these collectors (as you have noticed with the figures above) are extremely rich professionals or enthusiasts who are ready to shell out a huge amount of money for a piece of collectible that they love. Thus, the money that the artists make are straight going to their own pockets than being redistributed amongst them and several other middlemen.
Even the incredible front-man of Linkin Park, Mike Shinoda received a bid for USD 10,000.00 for one of his “experimental” pieces that he had posted about on Twitter. He went on to mention in his tweet that even if he were to distribute the piece to various music platforms, he wouldn’t be able to make as much money.
2) Real Estate NFTs
On Wednesday, June 10, a Silicon Valley startup successfully completed an entire transaction of a real-estate property as an NFT. This was probably one of the first use cases of a real estate being sold as an NFT. As the startup has merrily concluded, this surely isn’t the last one. The apartment in question is in Ukraine and was first in the news for being the first blockchain-based real estate sale way back in 2017.
As usual, smart contracts were responsible for carefully transferring the rights of the property to a Michael Arrington, who is the founder of TechCrunch and Arrington XPR Capital. He paid over USD 60,000 in Ethereum to buy the apartment.
These are not the only application for NFTs when it comes to attaching them to physical assets, however. Even smaller items like jewel or a piece of your favourite architecture, or even a historic item can be easily converted into an NFT and sold on the marketplace. Some people are known to be in possession of culturally rich items like stones, jewels, or other precious items that are symbolic of their culture or the time period in which they grew.
For some people, these items are not of huge importance. They can then easily mint an NFT for those items and sell them off to a collector who would appreciate having them.
3) NFTs for Supply Chains
You have probably heard of the amazing use-cases of blockchain technology when it comes to supply chain management. A blockchain is considered to be quite effective in keeping holistic information and data safe. This is especially useful in the cases of a supply chain management of medicines or food. If the data around the entire process from procurement of raw materials for the medicine to its ultimate production and delivery is stored on a blockchain, any tampering at any stage by a malicious third actor is very easy to trace.
NFTs take that technology one step forward by being uniquely attached to particular items. For instance, let’s say that you were to buy a pair of shoes off of the internet. And let us also assume that those shoes are quite expensive. When you get them delivered, you are happy at the quality. But after a few days you notice that the sole has started to wear off and you are having trouble wearing them.
You report this problem to the store you bought them from. If the shoes were minted as an NFT, then chances are that each stage of the shoe production and distribution process and its detailed data would already be available on that NFT. Once the store recovers that data, they can easily understand where the fault was. They can then fix it and issue you a new pair.
4) Gaming NFTs
You have probably heard of the various in-game items and how they are often created as NFTs. Several items like skins, weapons, or other stuff can be minted as an NFT and be further traded on other platforms. In fact, there is an entire industry of trading just gaming NFTs!
But that is not the only application of gaming NFTs. Even streamers can issue their own NFTs. Streamers can choose to create some cards, GIFs, videos, or even static images that they can sell off to their viewers. The latter can then easily trade them amongst each other. Not only does the entire process help in the creation of a self-sustaining community, but it also helps the streamers a desirably more income.
The creator of those NFTs can easily program the smart contracts in a way that whenever it changes hands, a portion of the income goes straight to the creator.
Streamers and, perhaps, even other popular figures can create their own community tokens that act as purposeful currencies for them. These tokens are essentially used to support the creator/artist. If an artist performs an hour-long show for their users, then they can easily mint an NFT for themselves and sell it off to their users, who can further trade it.
5) NFTs in Finance
We must remember that cryptocurrencies are a part of the larger decentralized finance system. And the decentralized finance ecosystem is gradually become the defining future of the traditional financial system.
An NFT is more known for its utility as being unique and storing data in an immutable way, than being a sole representative of a digital/physical asset. And focusing on this utility are various financial structures/institutions that are creating their own NFTs. A particular protocol offers NFT staking. Here, users stake a pair of cryptocurrencies and are then given an NFT to access the subsequent pools.
Utility of NFTs
Now that we have explored several use cases of NFTs, we are probably convinced that NFTs have multiple use cases and can be used for several purposes. They are not just — in fact, should not be — considered as being limited to being representatives of digital assets only. They can help revolutionise the world because of the underlying technology of smart contracts.