NFTs — Three “real” applications once the hype is over
Non-Fungible Tokens (NFTs) are the latest hot trend in the crypto and blockchain sphere. This article looks beyond the hype at some promising applications in gaming, collectibles and entertainment events that may have a lasting impact on industry.
What are NFTs?
NFTs are blockchain based virtual assets, a digital certificate of authenticity and ownership. The key is it’s “non-fungible” nature, i.e. the fact that it is not interchangeable. So while a normal ten pound note is perfectly exchangeable for any other ten pound note by any party and everyone can agree it is worth £10, a unique asset like a house cannot just be traded for the house next door. Each house is unique and while multiple ones may have transacted for the same value, they are not interchangeable.
The concept tracks its inception back to 2018, but the interest has exploded in the past few months and been picked up by most mainstream media outlets. The current hype is a likely a flash in the pan, fuelled by an exceptional bull run of the overall crypto market and the pandemic leaving many with more spare time, less news and many tech-savvy segments of society with spare disposable income.
Anything can have an NFT issued against it, such as art, pictures of cats and websites. These can then be sold on online marketplaces or even in high-end auction houses. The digital art market has so far been the biggest adopter of NFTs, with a painting by Beeple selling for $69m at Christies last month. However, more esoteric NFTs are also appearing — Jack Dorsey, Twitter’s CEO, sold an NFT of his first ever tweet for $2.9m and consumers can now also buy NFT watch faces.
Just a hype?
While NFTs purpose to create scarcity and thereby value, the volume of NFTs flooding the marker increasingly dilute the pool. While some may well retain some value, the combination of waning novelty and oversupply means that the proverbial goldrush is quickly coming to an end. Even the big headline grabbing numbers above were spent by people with significant cryptocurrency holding and popular interest in the concept is already seems to already be declining.
At the same time, the technology has struggled to break out of novelty and art applications, although evangelists are touting its “real world” application. It will likely take a while for large scale commercialisation to mature, especially as investment appetite for novel, unproven technology is only slowly returning post-covid, given the uncertain economic outlook. However, there are some promising applications people should take note of.
Gaming — right people and setting
The gaming industry continues to grow at a rapid pace. Valued by some at $160bn, with forecasts of it sustaining 12% annual growth over the next few years, its economy is mostly digital and its customer above averagely tech savvy, making it an obvious arena for NFTs to find mainstream use cases.
Digital assets are a cornerstone of the gaming economy, with microtransactions to purchase them making up 20% of the total market size. Underpinning these assets with NFTs would create increased perceived scarcity and demand. It also offers the ability to link up across games through blockchain technologies, giving small developers access to robust and trusted infrastructure and facilitating holders of strong IP to monetise it — a critical revenue stream in the entertainment industry.
Collectibles — fighting back against counterfeits
The collectibles industry is already flirting with NFTs, with even big names like Funko exploring the technology. The applications for issuing digital, tradeable and unforgeable certificates with your collectibles has a clear appeal — assuming the technology and usability can be brought inline with the average customer.
But NFTs also offer a way to fight back against counterfeiting that is targeting a lot of older, higher value collectibles. Rare older trading cards and other collectibles can command 6 figure sums — publicity benefitting the producers and fuelling demand for current print runs. Whilst technology has improved to meet the advances of counterfeiters, these old gems do not possess them and NFTs offer a potential avenue to certify them in a lasting, counterfeit-proof way.
Events tickets — Threat to scalpers and the ticketing industry
Like collectibles, NFTs may introduce a new generation of anti-counterfeit technology into the events tickets industry. However, they also offer a potential avenue to counteract scalping in the market. Ticket scalpers, buying sought after tickets and then selling them at significant premiums, put popular artists and sports teams in a tricky spot — charge to much and they are seen to be gouging their fans, charge less and a large portion of the consumer surplus goes to scalpers. This secondary market can cost the most popular artists and fans together over a million on a single, large event.
Combining NFT technology and the possibilities of smart contracts, could offer the ability to control the resale market with custom blockchains. Not only could this significantly limit scalping, it may also move more market power into the hands of artists directly, who no longer have to rely on ticketing providers to administer the ticketing for their event as the technology becomes more widely available.
Will it happen?
“Everyone can create money; the problem is getting it accepted” — Hyman Minksy
These are just some of the opportunities that lie beyond the current hype. People are exploring NFTs alongside other blockchain related technologies in a range of sectors, from payment services to supply chain. NFTs, like other blockchain technologies, will have to overcome a range of hurdles if they hope to get beyond novelty adoption, including significant legal, technological, usability and environmental obstacles.
One thing is clear, most people will forget about NFTs again, but that doesn’t mean they won’t end up using them. They just won’t know or care about it as like much other successful technology, it will operate quietly behind the scene.