Can NFTs be used for more than just to conduct artwork-related transactions?

Digital artwork, real estate transactions, the metaverse - what do all of these have in common? All of these transactions can be facilitated using a unique technology - the NFT. Ever since the cryptocurrency asteroid struck our digital landscape over a decade ago, Non-fungible tokens, or NFTs for short, have stood out as the magnum opus of what the blockchain has to offer. In recent years, NFTs have moved beyond being an abstract thought to becoming a new way for creators to be universally compensated for their work and be permanently recognized. This has simultaneously upended the art world as a result because it has created and fostered the first authentic digital art market. However, the underlying technology behind the NFT is often overlooked. This underlying technology has many more use cases than just distributing and copyright protecting the artwork; ultimately pointing to the fact that NFT potential remains mostly untapped and that more should be done to leverage the technology. Other applications and related technology must be fully analyzed in order to better understand how NFTs are utilized in current and potential applications. As a result, it is crucial to realize that we are at the beginning of a new digital era – the ground-breaking and innovative nature of blockchain technology is analogous to the dot com era two decades ago, so it is important to adopt a forward-thinking mindset.

From a macro point of view, the most unfortunate possibility is not that of NFTs becoming obsolete, but that the NFT and its underlying technology will never be fully utilized. Therefore, it is also important that NFTs are not just recognized as artwork, but as an opportunity for value creation and a way to more efficiently accomplish tasks that impact human life in many ways. We have only touched the tip of the NFT iceberg represented by a few developments for its current use cases. However, we must capitalize on the value of NFT and make use of its technology if we want to fully utilize all the NFT has to offer.

I. NFTs have had a rich history and emerged as a viable technology.

The early history of NFTs.

To fully understand the context of how NFTs are currently used, the history of NFTs and their emergence as viable technology will be outlined. Initially, the concept for NFTs came from "colored coins," which were issued on the Bitcoin blockchain. These "colored coins" were tokens that represented real-world assets on the blockchain and were used to prove ownership of any asset. This was still during the early stages of cryptocurrencies, so it was the first attempt at altering the blockchain to input metadata and process it as well. "Colored coins" worked by creating an additional layer that overlayed the cryptocurrency source code meaning non-monetary transactions could occur without affecting it. At such an early stage of cryptocurrencies' existence, the developers of "colored coins" were thinking about the potential applications of its underlying technology – the blockchain. However, people did not believe in its widespread applicability, so "colored coins" eventually evolved into the more appealing form of "Non-fungible tokens," specifically to represent digital artwork.

The evolution from "colored coins" to NFTs began in 2014 with the creation of the decentralized exchange platform, counterparty. On counterparty, users were given the freedom to create, send, and receive their own colored tokens. For three years, digital assets, such as video game trading cards, were the most popular and heavily traded. Near the end of 2016, these trading cards evolved into memes, heightening the popularity of colored tokens before a momentous event that defined the explosion of NFTs in the mid-2010s.

The modern NFT explosion.

In 2017, two developers, John Watkinson and Matt Hall collaborated on a project titled “Cryptopunks,” which involved 10,000 uniquely generated characters existing on the Ethereum blockchain. Many would describe “Cryptopunks” as the first definitive NFT.

From 2018 to early 2021, more and more forms of digital artworks similar to “Cryptopunks” would surface on the NFT scene. Eventually, various unique artworks would take the world by storm and slowly transition NFTs into mainstream art. For example, on Valentine’s day 2018, artist Kevin Abosch would partner with GIFTO for a charitable auction. The partnership led to a $1M transaction of a beautiful piece of CryptoArt called The Forever Rose. While some of these digital artworks integrated extra features that corresponded to video game applications, the NFT technology did not really develop further beyond those applications. In the current state of NFTs, their existence as a form of digital art is still the main focus and selling point. Still, companies are gradually starting to experiment with other potential applications of NFTs.

II. The current state of the NFT market space and why its rise has been important

In order to better understand the underlying reasons why more people are not advocating for other applications of NFTs, it is necessary to analyze statistics that shed light on the general population’s current view on NFTs and their predictions for their future. A study done in early 2021 by Finder polled more than 28,000 internet users across 20 countries and found the NFT adoption rate to be 2.8% in the U.S., while in other countries, the NFT adoption rate seems to be higher (the global adoption rate being 11.6%). Finder’s survey found a robust correlation between awareness rates for NFTs and NFT ownership, which is why the NFT adoption rate (or rate of ownership/investment) in the U.S. seems to be relatively low, and hence why not many people are aware of NFTs yet to be able to start exploring their other applications.

Another reason why the NFT adoption rate might be lagging in the U.S. relates to how Americans view investing in the world of crypto in general. In a separate Finder survey, respondents in 27 countries were asked whether they thought cryptocurrency was a good investment. Responses were reasonably split, yet the majority (55%) said they don’t view crypto as a good investment. These global results ultimately point to the fact that Americans either do not invest in NFTs or are skeptical about putting their hard-earned money into NFTs, which explains why most people still only know NFTs for their digital art capabilities and nothing else such as a sound investment.

The United States might be below average in its adoption rate of NFTs, but as awareness and societal participation increase, this rate can be expected to increase for the US. In 2022, prominent brands such as Gucci, Samsung, and Lamborghini have dipped their toes into the NFT market. Other potential applications are also on the horizon and they will be discussed in the following two parts. Ultimately, It is only a matter of time until smaller brands also jump on board. The rise of NFTs will only bring more eyes to its other applications.

III. How do NFTs create value?

The inherent features of NFTs.

There are many applications for NFTs, but to better understand them, the inherent features of NFTs that enable NFTs to create value for specific use cases must be analyzed.

The most prominent feature of an NFT is its uniqueness, which is due to each one having a distinct presence on the blockchain. In this sense, NFTs can be seen as digital assets with proof of their existence residing within the blockchain. By creating a system of unique verifiable digital ownership NFTs fundamentally changed the market for digital assets, creating the possibility for new types of transactions. Additionally, blockchain technology eliminates any intermediaries from NFT transactions, speeding up the value transfer process. These features shed light on the inherent, decentralized nature of the blockchain.

Another inherent feature of NFTs is the community. Communities can be built around various NFT services and then leveraged to create value. Many companies achieve this by creating a sense of belonging where the owners of the NFTs are treated as investors, a member of a club, brand shareholders, or a participant in a loyalty program. Sometimes, there are extra incentives such as owners getting partial or full commercial rights to their NFT. An example of this is the Bored Ape Yacht Club, where owners of unique ape NFTs gain exclusive access to an expanding array of products, activities, and experiences. These extra features generate revenue to support increasingly ambitious projects - which in turn drives up the value of the NFTs themselves. However, often overlooked is the general community of believers in the underlying technology of NFTs – the blockchain. NFTs and cryptocurrencies, which are offsprings of the blockchain, have undoubtedly inspired a cult following unlike any other technological breakthrough in the past few decades. As long as the technology has its believers, it is only a matter of time before new applications of NFTs are developed.

Utilizing the features of NFTs to capture value in other applications.

Since NFTs act as digital assets that exist on the blockchain, smart contracts or intellectual property can be created as an extension of this feature. Smart contracts prove ownership of virtual and physical assets. Unlike conventional methods, the blockchain uses advanced cryptographic functions to distinguish and prove ownership. Similarly, the blockchain can also maintain information related to the assets, protecting the information from ever being replicated. As a result, these smart contracts can be used in a plethora of ways in various assets across any type of application where conventional proofs of property would be worse.

Additionally, as a result of the relative ease in the transaction process of NFTs, there is an abundance of ways NFTs can replace conventional ways of transferring wealth. For example, if a user wants to transfer assets or other monetary value via an NFT, the owner will only need to accept or reject it. This removes the need for intermediaries such as brokers that might charge extra fees or make the process slower. Being able to cut out any middlemen and allowing global transactions to be as easy as a click of a button, NFTs have the additional effect of essentially promoting inclusivity in our economy.

Overall, companies looking for new applications for NFTs examine the NFTs’ inherent features and then consider how those features can be utilized in tandem with existing services. These tandem-use applications will broaden the scope of how NFTs can be utilized. Also, many companies are seeking to more explicitly blend online NFT ownership with existing offline use cases, and specific examples will be explored in the next part.

While the idea of NFTs having other applications is still abstract in the eyes of most people today, there are already examples of real companies experimenting with other applications. These applications reflect on the process of utilizing the specific features offered by NFTs and their underlying technology.

IV. NFTs are already being used in many applications and have tremendous potential to be used in future scenarios.

Real-world developing uses and how successful those efforts have been.

The most direct applications of NFTs are built around digital rights management and the features of NFTs that exist mainly on the surface. Currently, many big brands are just “buying into the hype” by creating special NFT versions of their products accompanied only by a few added benefits and sometimes a physical copy of the NFT. An example of this is when GAP collaborated with a famous artist, Frank Ape, to launch a collection of NFTs that each came with a limited edition GAP hoodie. The issue is, like countless other brands that did something similar, these ventures have mostly only been one-off.

Already, NFTs have found usage in the world of economics, finance, and business. Not only do the inherent features of NFTs promote a more inclusive and transparent economy, but they are also becoming new vehicles for investing and advertising. For example, NFTs were used to raise over $100 million for the development of the popular online game, Decentraland, and businesses now have the opportunity to advertise and market their products through the hype that surrounds NFTs.

The inherent features of NFTs are commonly overlooked, but there are still several current examples of them being utilized in a few creative ways. One example is the website Liquid Marketplace, which builds on the idea of NFTs being an investment by allowing users to buy percentages of expensive NFTs. It makes these users almost become a “shareholder” of some sort that gets some say in what is done with the NFT. Another example is a game called The Sandbox, which allows users to buy NFTs which represent land in the game. These owners can then use their land to host events, monetize experiences, and play a wide range of entertaining games. The Sandbox is the first example of people utilizing the digital asset feature of NFTs.

However, the goldmine of other opportunities lies in the implementation of NFTs within other existing use cases due to the fact that the audience of original NFT applications is still too small to have a widespread impact. Some brands have already shown signs of buying into this idea, but we are still far off from the benefits of widespread implementation. Examples of these other opportunities will be explained in the next section.

Potential applications of NFTs.

There are three main categories of potential applications of NFTs: purchasing, identification, and others. Purchasing is the one with the most potential as it combines the features of NFTs with real markets within the full mechanisms of our economy. To better understand how NFTs can be utilized in this way, the example with real estate will be discussed. NFTs can be used to transfer land deeds, provide proof of ownership and even keep track of changes in property value over time using timestamped NFTs. This has the benefits of simplifying and speeding up the transaction process, protecting sensitive data like credit card details, and even has the potential for an innovative decentralized home rental service. A similar process can be used with any tangible asset such as cars and even with services such as healthcare. As long as the same features are utilized each time, then NFTs can be used in pretty much any marketable transaction. A list of other such applications is exclusive concert tickets, fashion, music albums, and features in gaming.

The next category, identification, also has the potential of revolutionizing many industries. NFT ledgers on the blockchain can store the information of anything possible that is distinctive without compromising confidentiality or risking tampering from external sources. Potential applications that could utilize this include health certificates, medical data, patents, academic credentials, personal documents such as passports, products in a supply chain, and licenses for photography and music. The applications are virtually endless.

Finally, a potential application that is more abstract but shares similar features with the previous two categories is voting. Voting systems that are integrated with NFTs would be able to solve the problem of many voters being disenfranchised due to not having any documentation that proves where they live, or if they are even registered to vote. The presence of NFTs on the blockchain will also do better at eliminating cheating and voter fraud.

What's next for NFTS?

As shown, NFTs already have the capability to become a very integral part of people’s daily lives, with their growth counting on our lives becoming more virtual in the future. Ultimately, if we want to facilitate the development of NFTs to better shape our future, it is also important to shed light on the fact that we are at the beginning of a new digital era, where NFTs are still a very novel and ambitious representation of what the blockchain has to offer. As a result, it is necessary to analyze the downsides that come along with the applications of NFTs, in order to determine the viability of implementing the NFT in other ways in the future.

V. Constraints of widespread NFT adoption and whether that adoption will actually be viable.

Environmental costs.

The process by which NFTs are created is widely known to have consequences on the environment. When NFTs are purchased, the process to get them minted is called proof of work. Proof of work requires cryptocurrency miners to use a lot of energy. This process uses a lot of energy because miners must operate a large quantity of computing hardware and use a lot of electricity as a result.

However, there are multiple solutions to this problem. Firstly, there is an alternative to the proof of work method – named proof of stake. This method can generate NFTs without excessive usage of electricity. Possible solutions to facilitate the widespread usage of NFTs for the future with minimum environmental damage include the usage of renewable energy to mine NFTs, as well as other experimental technologies such as specialized carbon capturing methods.

Scams and frauds.

Due to the nature of blockchain transactions, if an NFT is compromised or stolen, it may not be recoverable by the rightful owner. However, most current NFT scams and frauds happen only due to the lack of knowledge surrounding how to operate crypto wallets and proper online safety measures online. Common scams include phishing links, fake social media accounts and advertisements, and fraudulent activities from unreputable NFT owners.

Since NFTs are still very abstract and new, most people are not educated enough on what proper and safe conduct look like. If everyone can be made aware of possible scams and frauds, then most of these issues can be avoided in the future. Other than education, it would be a good habit for everyone to create strong passwords and enable two-factor authentication for any accounts related to NFT transactions.

VI. NFTs’ potential remains largely untapped and more should be done to leverage the NFT technology.

The digital economy is growing at an unprecedented rate, and NFTs are playing a big part in this. NFTs are helping to form the bridge between the world of crypto and the real economy, paving the way with two exciting and innovative concepts – the Metaverse and Web 3. The Metaverse is a virtual world that brings the internet to life. In it, people will be able to live a digital version of their real lives, while enjoying the many perks of being in an interconnected digital space, almost like in a videogame. NFTs are essential parts of the Metaverse as they will serve as the building blocks for assets that can be utilized across it. These assets would be represented by NFT tokens which, as a result, will require transactions to be carried out with cryptocurrency. On the other hand, Web 3 is the vision of a new and better version of the internet that would utilize the unique features of NFTs to provide a more inclusive and safe web-browsing experience. Web 3 will also provide extra functionality with the Metaverse such as by tieing purchases made in the Metaverse to the buyer’s digital identity on Web 3. Although the future may seem unclear, the revolution is already underway. In October of 2021, the mass media company Facebook announced that they would be working on a Metaverse that users would be able to access, aptly changing the company name to Meta in the process.

If the Metaverse economy and NFTs become the norm, everyone may have an NFT wallet by default in the future. Additionally, like in a videogame, people will have digital inventories that contain and verify ownership of virtual goods. Finally, everything will become more interconnected as NFTs will make it easy to integrate virtual goods across different platforms.

VII. Conclusion

NFTs have yet to reach their full potential, but there is already proof that they can be utilized in various different ways to improve our economy and society. In our current day and age, most people still view NFTs as solely a way of representing digital art. Therefore, it is important that we develop a forward-thinking mindset to enable the potential applications of such an amazing piece of technology. Additionally, it is crucial to begin focusing on the ways that NFTs can create value, rather than focusing on small existing use cases. NFTs will only continue to grow, and it is in the users’ hands to determine how the future digital economy will be shaped.

Author Bio

I am an international high school student from Beijing China and I have had an interest in cryptocurrencies ever since the rise of Bitcoin in the 2010s. This blossomed into a general interest in blockchain technology, eventually leading me to develop a deeper interest in the world of NFTs and their potential.