Some Use Cases for NFTs
Creating Value out of Scarcity
Non-fungible tokens (NFT) have created massive interests in crypto-collectables and NFT art in the past year. These are two of the most prominent use cases for NFTs in the DeFi ecosystem. Scarcity and uniqueness make NFTs a good match for real-world assets, logistics, music royalties, and more. As NFTs mature, we can expect to see further adoption of more experimental use cases.
NFT provides a solution for the problem of digital art scarcity, where nothing can stop someone from taking a screenshot or digitally duplicating an image. With NFTs, we can now determine the ownership and authenticity of virtual art. While there are fake artworks in the real world, there have always been avenues of authenticating them.
Crypto art gets most of its value from its secure provenance, the ability to verify its authenticity and ownership digitally. Anyone can look at a CryptoPunk on the Ethereum blockchain and download or save the image, but true ownership can only be verified with data on the blockchain.
An example of a digital art NFT minted on the Ethereum blockchain is digital artist Mike Winkelmann’s (aka Beeple) record-setting $69 million “Everydays: The First 5000 Days” auctioned at Christie’s on March 11, 2021. This is the third highest price ever fetched by any currently living artist, after Jeff Koons and David Hockney.
When it comes to NFTs, the value isn’t necessarily about the attached artwork. Sometimes, what is more important is proving ownership of that particular asset. This aspect is what makes crypto art one of the most popular NFT use cases out there.
Whether it’s a PancakeSwap Bunny or a Binance Anniversary NFT, there is a massive demand for digital collectables. A mainstream use case is the popular NBA Top Shot, which allows the purchase of NBA NFT collectable trading cards and videos.
Along with digital NFT art, these NFTs make up a significant proportion of sales on NFT marketplaces like Opensea, BakerySwap, and Rarible. There is a lot of crossover with crypto art, and sometimes an NFT can be both a collectible and an art piece. These two use cases have developed the most traction so far.
Jack Dorsey’s first tweet is also an excellent example of NFT collectibles. While a CryptoPunk is collectible and visually artistic, Dorsey’s NFT has value purely for its collectibility.
Dorsey sold the NFT using Valuables, a platform that tokenises tweets. You can place an offer on any tweet. Anyone can swoop in with a counter-offer and outbid you. Then, it is up to the tweet author to accept or reject an offer. If they accept, the tweet will be minted on the blockchain, creating a corresponding NFT with their autograph.
Each NFT is signed by its verified creator’s Twitter @handle, meaning that only the original creator can mint their tweets as NFTs. This process creates a digital, rare collectible to trade or keep. The concept of selling a tweet can be a bit tricky to grasp, but it is a great example of how NFTs create collectibility. It’s essentially the digital version of a signed autograph.
It is easy to forget that not every NFT derives value from a song, picture, or collectible item. In decentralised finance (DeFi), NFTs also provide unique financial benefits. Most will have some artwork too, but their value comes from their utility.
For example, JustLiquidity offers an NFT staking model. A user can stake a pair of tokens in a pool for a certain period and receive an NFT to access the next pool. The NFT acts like an entrance ticket and is destroyed once you participate in the new pool. This model creates a secondary market for these NFTs based on the access they provide.
Another example is BakerySwap’s NFT food combos that provide increased staking rewards for holders. By contributing BAKE, you will receive an NFT combo that provides a variable amount of staking power. Users speculate on these combos, sell them on the secondary market, or use them for staking. This combination of NFTs with gamification and DeFi creates another interesting use case for NFT.
There is a great demand for unique items that can be bought, sold and exchanged in gaming. Their price is proportional to their rarity, and gamers are mostly familiar with the idea of valuable, digital in-game items. Micro-transactions and in-game purchases have created a multi-billion dollar gaming industry that could tap into NFTs and blockchain technology.
It’s also an exciting area in terms of what an NFT represents. Tokens for video games combine aspects of art, collectibility, and utility for players. However, when it comes to big-budget video games, NFT implementation is a long way off.
The CryptoKitties game craze that choked the Ethereum blockchain a few years ago, banks on cute collectable NFT kittens, where the value is determined not only by their rarity and looks, but also their desirable breeding attributes.
In the meantime, other projects have actively built blockchain technology into their games. Axie Infinity and Battle Pets are both Pokémon style games with tradable pets and items. You can also purchase and sell these tokens on external marketplaces (peer-to-peer sales).
Besides their aesthetic values, these Axie pets also possess utility functions, which are abilities that can be used for battling. These abilities also affect the pet’s value when traded. Determining the value of each pet depends on a combination of rare looks, features, and utility.
What is even more significant is that the Axie Infinity platform is helping lift disadvantaged communities out of poverty in the Philippines in a Play-to-Earn model.
Similar to image files or videos, audio can be incorporated into an NFT to create a collectible piece of music. Think of it as a digital “first edition” of a record. Attaching a song to an NFT is similar to our art example, but there are other use cases.
A major issue for musicians is getting a fair share of royalties. Using blockchain technology, there are at least two possible ways to achieve a balanced outcome: blockchain-based streaming platforms and blockchain royalty tracking. Competing with Amazon Music or Youtube for streaming services is difficult for small blockchain projects. Even when a giant like Spotify purchased a blockchain royalties solution called MediaChain in 2017, there were no real benefits for artists.
In the meantime, smaller projects have ended up working mainly with independent artists. Rocki on Binance Smart Chain gives independents a platform to sell royalties and stream their music. Their first royalty NFT sale on the platform raised 40 ETH for 50% royalties using the ERC721 token standard.
The popularity of these models depend on their adoption by larger streaming services. Combining music with NFTs is an excellent idea for a use case, but it might struggle to reach success without the support of music labels and artists.
Tokenising real-world assets using NFTs can digitise the way we prove ownership. For example, in real estate, we typically deal with physical property deeds. Creating tokenised digital assets of these deeds can move highly illiquid items (like a house or land) onto the blockchain. Widespread adoption is still some distance away as there has not been significant regulatory support. However, this is a valid use case and certainly one to watch in the future.
In April 2021, Shane Dulgeroff created an NFT representing a property for sale in California. It also has a piece of crypto art attached to the token. Anyone who wins the auction will receive the NFT and ownership of the house.
When it comes to smaller items, like luxury goods, an NFT can help prove legitimate ownership when reselling. For example, a genuine, ethical diamond usually comes with a certificate of authenticity. This certificate is also a way of proving you have ownership rights. Anyone trying to resell the item without the certificate cannot confirm its authenticity and may have problems convincing buyers they are the rightful owner.
The same concept is possible with NFTs. By having an NFT associated with an item, owning the NFT can become just as important as owning the asset. You can also embed the NFT into an item with a physical cold storage wallet. As we see the Internet of Things develop, we will likely see more NFTs being used to represent real-world assets.
Blockchain technology can be useful in the logistics industry as well because of its immutability and transparency. These attributes ensure that supply chain data remains authentic and reliable. With pharmaceuticals, food, commodities, and other perishable items, it is important to be able to track their journey on the supply chain both for compliance and safety requirements.
There are a lot of hypothetical ways to implement NFTs into the supply chain. All of them, however, require each stage of the chain to use the same infrastructure. So it seems that NFTs in logistics appear to be a solution looking for a problem. Blockchains are useful for supply chain tracking, but NFTs in this case would probably be more useful for high value use cases rather than day to day logistics.
The Mars Panda Advantage
With the popularity of NFTs growing, there’s a good chance we’ll see even more ideas and use cases in the future. Currently, most NFTs have not gone beyond an idea or a small project. It will take some time for the use cases to mature and create a clearer picture of NFTs’ roles in our lives. In the meantime, for straightforward issues such as the scarcity of art and collectibles, NFTs are certainly here to stay.
Mars Panda is in a unique position and will probably be one of the few platforms in the region to offer both virtual and real world assets NFTs. Join our exciting ecosystem with the upcoming Mars Panda NFT Marketplace. Embark on your NFT adventure with us and be a part of the future.
The future is now, and the future is Mars Panda.
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