It’s no doubt that the world of Non-Fungible Tokens (NFTs) took the world by storm in 2021. With a transaction volume of $8.8 billion in 2021, the NFT sector in the cryptocurrency world has cemented itself as a household name that cannot be ignored.
The year saw a record amount of NFT digital art traded as arts and collectables accounted for 59% of the NFT trading volume witnessed in 2021. 2021 also witnessed the biggest NFT sale the world has ever seen. A Beeple’s Everydays: The First 5000 Days digital art, which is considered the world’s 1st purely digital NFT based artwork, was sold for 38,525 ETH. At the time, the value of the trade was worth approximately $69 million.
Asides from the biggest NFT sale, lets dive in into the biggest NFT collection. Bored Ape Yacht Club (BAYC) is an NFT collection of 10,000 ape NFTs, all with different traits that make some rarer than others. Rare ones are sold over for over a million dollars while the common variants go for around $200,000. The astronomical growth in this collection is by over 1000x, as at the time of the launch of the collection, the BAYC developers sold the NFTs for $190 each.
With this being said, a lot of confusion is out there as to what NFTs are, the role they play and what possible use cases they have. Many experts have criticized the NFT space as a bubble waiting to burst when people realize they can take screenshots of their digital arts. However, many want to know if these digital arts are just pictures on the blockchain or are they hold significant value beyond what the world sees today.
What are NFTs?
Investopedia defines NFTs as cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. However, in simple terms, NFTs are digital tokens on the blockchain network.
Blockchain is the underlying technology in which cryptocurrencies work. NFTs allows for the tokenization of anything ranging from pictures, music and even tweets. NFTs are any digital collectible that can be conceived to hold value based on one’s own volition. The term ‘non-fungible’ comes from the fact that each token is unique and cannot be exchanged for something exactly alike.
Here’s an example, former Twitter CEO and now CEO of Block (formerly Square), Jack Dorsey, turned his first-ever tweet into an NFT, which was then sold for $2.9 million.
Difference Between NFTs and Cryptocurrencies
Cryptocurrencies are a non-physical currency that is issued by a Distributed Ledger Technology (DLT). It is decentralized, not regulated by any governing authority and runs on blockchain technology. NFTs on the other hand are digital assets that denote real-world items like music, art, memes, fashion, etc. From collectible sports cards to memes, NFTs can represent any entity or be used to monetize any skill.
Although the two are decentralized and are regulated by the communities that run them, NFTs cannot be traded for each other as they are unique representations of real-world assets. This means they cannot be traded or exchanged at equivalency. Cryptocurrencies can be traded for each other as there will be no loss to their value.
NFTs: Beyond Digital Art
Although we all know the application of NFTs to the art world and how powerful the growth of the sector was in 2021, here is a look at other use cases that are not really gone mainstream:
One use case for NFTs is their ability to provide access. Since NFTs provide a form of unique signature that cannot be replicated, innovators are exploring the use of NFTs to provide access by using them in a ticket-stub fashion. Considering NFTs are non-fungible and can easily be tracked via the blockchain, they are the perfect solution for eliminating physical stubs and providing people with a digital, trackable, and traceable option.
Additionally, thanks to smart contract capabilities in combination with NFTs, you can put in place a ticket’s terms & conditions, expiration dates and any other limitation. This makes it easy for both parties to keep track of their tickets and the information that is stored on the ticket.
One perfect example of NFTs that provide access is Gary Vaynerchuck’s NFT project, VeeFriends. All VeeFriends token holders gain access to VeeCon, a multi-day event exclusively for VeeFriends NFT holders.
NFTs can also be used in place of a traditional finance loans. With NFT-backed loans, you can get access and keep track of the leased NFT being provided by following the transaction from the initial lending date. If a loan repayment is not met on time, the NFT can automatically be returned to the owner, and the entire process takes place without intermediaries. This allows loans to be strictly peer-to-peer, keeping fees low, trust high, and transparency in the forefront of the entire contract.
Some of the NFT loans you will find today include marketplaces that allow you to offer your NFTs as collateral in exchange for a loan, and even offer other users a loan using their NFT as collateral. These loans are immediate, automated, and decentralized, all things that you won’t find with traditional loans.
Play to earn is huge for both gamers and NFT collectors alike. A very good example of this use case is the success of Pokémon like game, Axie Infinity. The game offers players a way to make money by investing and spending time in the game. Players earn cryptocurrency, which they can exchange for real money, by breeding, trading, and battling Axies.
The Axie Infinity platform led the chart on all-time sales collection with secondary market sales of approximately $3.2 billion with 9.3 million transactions in 2021, according to The Block research. This use case for NFTs is literally a game-changer and many projects are coming up with their own P2E models. With the ability to earn real money playing a game, more people will want to play these types of P2E NFT-based games, as well as invest more money into them and of course more time.
The AXS token, one of the native tokens of Axie Infinity platform gained over 15,000% in 2021.
Axie Infinity is just one example of P2E NFT games in the space right now, however, there are many more available to play, and I expect to see a majority of the gaming industry continue to move towards this P2E style of gaming.
Before NFTs, blockchain technology is being used in the logistics industry, particularly because of its immutability and transparency. These aspects ensure that supply chain data remains authentic and reliable. With food, commodities, and other perishable goods, it’s important to know where they have been and for how long.
With the application of NFTs, it brings an added benefit of representing unique items. This means NFTs can be used to track a product that contains meta-data on its origins, journey, and warehouse location. An example would be using NFTs to track if a high-end pair of luxury shoes were created at a factory in Italy. It’s assigned an NFT you can quickly scan on its packaging. A timestamped metadata is included of when and where the shoes were created. As the product goes through the supply chain, the NFT is scanned, and new timestamped metadata is added. The data could include its warehouse location and time of arrival or departure. Once the shoes arrive at their final destination, a store can scan them and mark them as received. An exact detailed history is available to view and confirm the shoes’ authenticity and logistic journey.
Currently, MAERSK’s TradeLens system and IBM’s Foot Trust are two examples of large blockchain logistics solutions. They both use Hyperledger Fabric, an IBM blockchain that supports the use of NFTs. However, it’s unclear if NFTs play a role in their operations.
Self-sovereign identity (SSID) has long been one of the most intriguing applications of blockchain technology, and NFTs could be the key that unlocks the door. With NFTs, it makes it possible for everyone to have a unique digital identity that cannot be replicated due to its non-fungible nature. Since NFTs can be unique representations of real-world assets, what stops them from being a track record for digital identity? The possibility of this is endless as it will truly make travelling for example, fully digital as international passports and travel history can be stored as an NFT on the blockchain.