5 Real-World Use Cases for NFTs in the Future
Right now, most people who are aware of Non-Fungible Tokens think that they are either a joke or the very future of art, content, and anything else. The reality is probably in between, with some people interacting with NFTs all the time and other people not really engaging with them at all.
The world is still exploring NFTs. But there are a couple of really solid "real-world" use cases for NFTs going forward. Let’s look at a few of them.
What Is an NFT?
If you need an introduction or a refresher, "NFT" stands for "Non-Fungible Token." NFTs are created using the same blockchain technology that allows for cryptocurrencies, but NFTs can’t be "spent" in the same way cryptocurrency tokens can. That’s what makes them "non-fungible."
Essentially, NFTs act as a receipt or a certificate of authenticity that shows ownership of a digital item. The most common use of NFTs now is to show that a person owns a digital artwork, although that doesn’t usually make a practical difference in terms of how that digital artwork is viewed or shared.
Real-World Use Cases for NFTs
There are a lot of ways that NFTs might be used in the future. Most of them boil down to the proof and transfer of the ownership of digital goods.
1. Buying and Selling Art
Our brief introduction to NFTs has already brought up their first use case. It’s the same prominent use case as the present: sale and ownership of digital art.
Ownership of physical art is generally pretty easy to prove. The art is usually in the owner’s physical possession. In the case of antique or otherwise high-value art, the piece might have a physical document (called a "provenance") that shows who owned the art at what time and how it changed hands.
However, ownership of digital art is a lot more complicated. Intellectual property rights can protect it, but this doesn’t accommodate ownership and ownership transfers in the same way that art traditionally requires.
By associating a digital good with a specific point in a blockchain, NFTs essentially create a digital provenance that is immutably linked to the art itself. This allows collectors to own digital art in ways that were previously not possible, but it also allows artists to sell digital art in ways that were previously not possible.
2. Proving Authenticity of Awards and Rare Goods
A related use has to do with goods that are even less transferable, like awards.
In 2020, the first WebXR Awards were "given" to recipients in the form of NFTs. While physically impossible to create, the Awards do have a design that can be reproduced as a three-dimensional digital artifact. While anyone could make a file and facsimile of an XR Award, only the genuine recipients can prove—via NFT—that they received the honor.
This is one use case, but it takes little imagination to come up with similar opportunities like diplomas or even physical goods and property. These ideas also have promise linked to the development of "smart contracts"—blockchain-enabled agreements that might facilitate transactions between individuals that used to require third parties.
3. Preserving Scarcity in the Age of Digital Reproduction
Some of the difficulty that people have understanding the value of NFTs comes from the fact that after an NFT is sold, the image or digital artifact represented by the NFTs remains publicly available. However, this is not always the case.
Byte Agency and Dept Apparel sold NFTs of a virtual coat. When buyers received the NFT, they also received developer files that allowed them to "wear" the coat on Snapchat. Even if someone decided to replicate and sell those files, they wouldn’t be able to replicate the NFT, maintaining the scarcity and value of the original purchase for everyone else.
4. Demonstrable Ownership of Virtual Items for Virtual Characters
Perhaps the most interesting thing about the virtual jacket use case is that it speaks to the value that people associate with how they represent themselves online.
If you’re a videogamer, think of your avatar or character in your favorite videogame and all of the time and effort that has gone into it, maybe even the material value behind its accessories. Some items appear to cost more if they are rare, but there is no way to ensure their scarcity.
As people start to spend more time in virtual environments, virtual appearance naturally becomes more important, making virtual items more valuable. In May 2021, a Gucci purse sold in the virtual world of Roblox for more than the market value of the physical purse.
Right now, big-ticket items like this are the only use case for NFTs. The process of creating an NFT costs so much money that the digital item needs to be of a high enough value to justify the cost. However, as the technology becomes more common and more available, more customization items for our virtual likenesses can be backed by NFTs.
5. Adding Value to Micro-Transactions
That’s not the only reason gaming and online social experiences are such a promising field for NFTs. These areas also hold promise for virtual currencies through cryptos like Bitcoin, but we can be talking about any virtual currency here.
Right now, in-game purchases usually have to be for at least a dollar because the transaction between the application and the bank or credit card company costs money. Because users can remove the middle-man in peer-to-peer transactions with virtual currencies, virtual currencies can be used for "micro-transactions."
Most games get around this by having an in-game currency that players purchase with real money. You might spend $5 to buy 500 units of an in-game currency to buy a customization item for 300 units. That’s a round-about way of buying an item that costs $3. Using real-world virtual currencies would streamline this process.
Now, pair this with the above conversation about NFTs giving more power to artists (and subsequent sellers). The ability of players or platform members to sell their own virtual goods regardless of the commercial value of those goods could enable rich player-to-player economies to develop within the games and social experiences we love.
How Will You Use NFTs in the Future?
Of course, we don’t know for sure that these potential uses for NFTs will really materialize. Some of them seem to make sense given the convergence of other technologies and trends. However, many of these potential uses rely on technological developments or the maintenance of social trends that may not last.
Image Credit: Mike Lawrence / Flickr
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June 10, 2021 at 02:03PM