At this point, most people have experienced the nearly endless coverage of NFTs over the past six months — from the artist Beeple selling a single work for $69 million to the explosive popularity of the NBA Top Shot collectibles market.
Almost as soon as NFTs became a thing, there was speculation that it was just an epic bubble that was ready to burst. All the signs were there: ubiquitous news coverage, celebrity endorsements, stratospheric evaluations on a strange new asset class with dubious real-world value. At times it has seemed like a modern-day digital gold rush.
But the fact of the matter is that NFTs represent a much greater opportunity than just a simple way to collect overpriced images of flying pop-tart cats.
In fact, NFTs arguably have the power to shape the nature of ownership across countless aspects of our lives. While the growth currently still resides in these uncertain assets, there are several use cases that look at a much larger marketplace that truly makes use of the benefits of this blockchain technology. So let’s look at just a few of the most promising fields of deployment.
NFTs are making noise in the music industry right now, with popular DJ Steve Aoki securing over $4 million from his NFTs in March alone, including a bid of $888,000 on a single piece. But the more interesting case arguably resides in other use cases beyond simply “minting” songs paired with stimulating visuals.
Musicians can use smart contract technology to commit the copyrights of their work to NFTs, which means they will be compensated any time their music is used. Copyright infringement has long been an antiquated and complex field of the law, with all but the most well-heeled musicians unable to afford the time or cost of defending their work against unapproved use.
NFTs could represent the ability for the average person to use all or part of a given song, with the seamless ability to pay the song creator/owner an agreed-upon fractional rate for use. For many creators, using a song without permission isn’t an act of moral turpitude; it’s simply the result of not being able to easily compensate another artist. NFTs could represent the foundation of a streamlined marketplace for songs, with ownership and payment records easily trackable in the blockchain.
Smaller artists could fund the production of songs, albums and tours by selling off fractional shares of their works via NFTs. Smart contracts could pay out agreed-upon royalties to fans/investors over time as compensation for paying upfront fees for part ownership of a work. Artists could fund more ambitious projects with raised money, and fans would literally own a piece of the work, increasing engagement with the artist and promotion among their social circles.
Another potentially interesting use case for NFTs is in the e-commerce space, specifically when it comes to branded products.
This is especially important because the U.S. published a report last year outlining a policy strategy that holds e-commerce platforms liable for damages when counterfeit goods are sold on their sites. Tracking counterfeit goods can be tedious, expensive and sometimes impossible (they’re meant to be hard to spot by design), but NFTs could represent a secure, trackable log of ownership when it comes to designs. Not only could counterfeits be easily flagged by IP owners, but they could be automatically paid for legitimate sales.
For those reading closely, they might question how the use cases above seem to rely to a certain extent on fractionalized ownership. For some, this may be a problem, because arguably a non-fungible token becomes fungible. It’s a difficult concept that is only just beginning to be addressed, but it’s an important one on the road to ensuring that so-called F-NFTs see large-scale adoption. Fractionalized ownership reduces the cost of individual stakes and can increase access across new consumer markets. After all, the buyer pool for multimillion-dollar cat GIFs is vanishingly small, even if the dollar sums represented are large.
As an example, earlier this month, the Unicly platform fractionalized CryptoPunk NFTs by offering consumers shares. While the long-term success of this effort has yet to be proven, the initial sale represented $20 million in generated value, so the appetite for fractionalized NFT ownership is clearly there.
With all the potential NFTs represent, there are still large-scale problems that need to be addressed, particularly when it comes to the underlying infrastructure. Though the media coverage surrounding the stunning rise of NFTs has been nothing short of breathless, the overall market is still limited largely to individuals with a relatively high tech literacy. Solving issues like scalability and high transaction fees are just a few aspects that will dictate the growth of the space.
On top of this, the difficulty of accessibility when it comes to engaging with NFTs may be a legitimate issue for the layperson. Non-crypto individuals interacting with decentralized ecosystems represents a significant point of user friction: From having to manage your private keys to understanding and navigating “gas” fees on transactions while setting up multiple digital wallets, these are barriers to entry and represent an issue if NFTs are to scale to a level that the average consumer can engage with easily.
Ultimately, while the hype surrounding NFTs has been good for a larger awareness of the technology, there are legitimate and functioning uses that go beyond the gold-rush level asset speculation we’ve seen thus far. By allowing for highly trackable and provable ownership, antiquated, contract-based fields like copyrights and trademarks can be streamlined and made much more efficient.
Once the pain points outlined above are addressed and engagement with NFTs becomes navigable by the larger consumer market, elements like fraud and theft of IP will be greatly reduced by allowing frictionless payment to the owner(s) at a reasonable price. As long as these practical use cases don’t get buried in the hype of increasingly unrealistic pricing, the true value of NFTs will be proven out long term.Categorised in: posts