Practical use cases of NFTs
In the realm of digital art, NFTs have helped address the long-standing issue of scarcity and duplication. Traditionally, digital art was highly susceptible to unauthorized copying and piracy, undermining its value and the artists' rights. However, with the advent of NFTs, artists can now create and sell unique pieces of art in the digital world, establishing a sense of scarcity previously thought impossible in the digital realm.
NFTs work by verifying the authenticity and ownership of a digital artwork on the blockchain. This means that while anyone can view, download, or save an image of a CryptoPunk, for instance, only the owner of the NFT can prove they own the original piece. This concept has sparked a revolution in digital art, making it one of the most prominent use cases for NFTs. It's not just about the visual appeal of the artwork; the real value lies in the proof of ownership of the unique asset.
The practical use cases for the technology, meanwhile, goes far beyond art, with a number of other industries starting to see significant applications.
NFTs in collectibles
NFTs have carved a significant niche in the world of digital collectibles, catering to the burgeoning demand for unique, digitally ownable items like trading cards or virtual pets.
The most notable application of NFTs in this sector is seen in the form of digital trading cards or virtual items that hold distinctive value due to their uniqueness and scarcity. Take, for instance, the NBA NFT collectible trading cards, which have gained substantial mainstream traction.
Another example of a collectible is Jack Dorsey's first tweet, which was sold as an NFT collectible. Its value lies purely in its collectability, akin to a digital version of a signed autograph. The ownership of such NFTs is authenticated by the original creator's Twitter handle, thereby creating a digital, rare collectible to trade or keep.
NFTs in gaming
Gaming is another industry benefiting from NFTs, as they can represent unique, tradable in-game items, combining aspects of art, collectability, and utility for players.
The gaming sector has always had a high demand for unique, tradable, and purchasable items, with their rarity directly impacting their price. Earlier, gamers were acquainted with the concept of valuable digital items via micro-transactions and in-game purchases. However, the introduction of NFTs to this scenario has enhanced this experience, offering gamers unique tokens that combine aspects of art, collectability, and utility.
For instance, tradable pets and items in blockchain-integrated games like Axie Infinity and Battle Pets are NFTs, which can also be bought or sold on external marketplaces. These gaming NFTs may have cosmetic value, but many also offer utility. A pet in Axie Infinity, for instance, has specific abilities for battling, which affect its value when traded.
NFTs in DeFi
Decentralized Finance is another area of the crypto economy that can be integrated with NFTs, which can be utilized as a gateway to access specific DeFi pools in token staking models.
For instance, JustLiquidity, a DeFi platform, presents an NFT staking model where users stake a pair of tokens in a pool for a certain period to receive an NFT. This NFT then acts as an entrance ticket to access the next pool. Once used, the NFT is destroyed, creating a secondary market based on the access they provide to these pools.
NFTs in music and entertainment
NFTs are starting to demonstrate their potential to impact the music and entertainment industry, providing innovative solutions to longstanding issues.
One of the primary challenges in the music industry is ensuring fair distribution of royalties to musicians. NFTs are emerging as a potential solution to this problem by creating a new way for artists to sell their music and royalties, thereby ensuring a more equitable model for music distribution. For example, independent artists can utilize platforms like Rocki on BNB Chain to sell their music and royalties using NFTs.
Moreover, NFTs are also finding applications in the broader entertainment industry. Artists and celebrities can tokenize their work or even their personal brand into NFTs, offering fans a unique way to connect with them.
NFTs in real estate
Within the real estate sector, NFTs could usher in a new era of digitized property ownership and transaction, although it's worth noting that some legal reform may need to take place first, depending on the jurisdiction.
Traditionally, property ownership is proven through physical deeds, a system that can be cumbersome and inefficient.
NFTs have the ability to offer a solution by tokenizing these property deeds, allowing them to be moved onto the blockchain. This digital representation of property ownership opens up the potential for real estate assets, typically considered illiquid, to be traded more freely and transparently.
For instance, in 2021, a property in California was represented as an NFT for sale, with a piece of crypto art attached to the token. The winner of the auction would not only receive the NFT but also the ownership of the house. Similarly, for smaller items like jewelry, an NFT can serve as a certificate of authenticity, crucial for proving legitimate ownership during resale.
NFTs in charity fundraising
NFTs are also starting to find a potential role in charity fundraising.
For instance, a charity organization can create an NFT representing a specific cause or project and auction it to the highest bidder. The proceeds from the auction go directly to the charity, and the winning bidder gets to own a unique digital asset that symbolizes their contribution. This not only provides a new fundraising avenue for charities but also offers donors a unique way to support causes they care about.
Furthermore, the blockchain technology underlying NFTs ensures transparency and traceability of funds, addressing common concerns about accountability in charity fundraising. It's important to note that the use of NFTs in charity fundraising is still in its early stages, with potential challenges and regulatory considerations yet to be fully explored.
NFTs in identity verification
NFTs also have utility in the realm of identity verification, as identity theft and fraud are significant concerns. Traditional methods of identity verification often involve centralized databases, which are susceptible to hacking and data breaches, and NFTs could offer a solution to this problem.
An individual's identity can be tokenized into an NFT, which then serves as a verifiable proof of identity on the blockchain. This NFT can be used to authenticate an individual's identity in various scenarios, such as online transactions or access to digital services. Importantly, the individual maintains control over their NFT, ensuring their personal information is not shared without their consent.
This use of NFTs in identity verification is still in its early stages, but it holds immense potential. As the technology continues to evolve and mature, we can expect to see more widespread adoption of NFTs in this space, revolutionizing the way we verify and protect our identities in the digital world.
Disclaimer: This article was produced with the assistance of OpenAI’s ChatGPT 3.5/4 and reviewed and edited by our editorial team.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
