Before the 2021 Beeple’s Everydays: The First 5,000 Days digital art NFT sale, non-fungible tokens were a fringe movement. Many NFT users may not know that this technology has been around since the 2014 debut of the Namecoin NFTs.
Namecoin’s picture for proof (PFP) Eggs tracked user metadata via decentralized key-value pairs. Non-fungible token technology, however, began to show its true quality after the 2017 release of CryptoKitties on the Ethereum blockchain.
CryptoKitties players would rear cute kitties that they could re-sell as ERC-721 tokens. It was the first viral blockchain game. The 2017 launch of CryptoPunks further fanned the ERC-721 token’s standard use, making avatar NFTs a robust use case.
All these events led to Mike Winkelmann, aka Beeple’s February 2021 $69 million paycheck that brought NFTs to the limelight. The NFT sector has since ballooned to a $41 billion market in 2021, slowly catching up with the conventional art market’s $50 billion 2020 revenue.
The sector’s sales have experienced ebbs and flows after their 2021 bull run, slumping to the current $37 billion value. However, the current market activity stems from novel NFT applications beyond digital art NFTs.
What is an NFT?
Non-fungible tokens (NFTs) are crypto tokens that represent the right of possession and custody of unique items. Ethereum’s ERC-721 standard, for instance, tokenizes physical and digital items via blockchain technology.
NFTs can represent the ownership of real-world and digital assets such as real estate, art, or collectibles. They can also store asset ownership data on blockchain ledgers, giving these tokens benefits such as scarcity, proof of ownership, and rarity.
An NFT can only have a single official owner, and you cannot modify, copy and paste it since its ownership data is immutable. Moreover, you cannot swap or interchange an NFT with another NFT because of its non-fungible attribute.
Unlike fungible cryptocurrencies such as bitcoin, which can break down into equal value satoshis, NFTs represent unique items whose value differs from other assets.
How NFTs can expand from art to other applications
NFTs are no longer fringe and have robust applications beyond art. Some prominent NFT use cases include identity and metaverse NFTs. Identity NFTs can take the form of avatars and self-sovereign identity (SSID).
Data by the Nansen blockchain analytics group shows that the sales of identity NFT collections such as CloneX, Azuki, Bored Ape Kennel Club (BAYC), Cryptokitties, and Doodle have bypassed those of art NFTs.
To this end, avatar NFTs collections are core to the Nansen Blue Chip-10 index that had a 42.4% year-to-date return.
The generative avatars allow users to display an artistic profile picture on their social media handles. Most profile picture (PFP) NFTs have generative art qualities that give them various rarity features. The rarest avatar NFTs have higher resale values.
Some avatar NFT collections, such as the BAYC, give their holders access to premium club membership benefits, such as access to the exclusive BAYC discord server. Here avatar owners can hang out with stars that own BAYC ape avatars, such as Paris Hilton, Snoop Dogg, Tom Brady, and Justin Bieber.
BAYC members also have access to lucrative NFT spin-off collections such as Bored Ape Kennel Club dogs for resale and speculative purposes.
Self-sovereign identity (SSID) NFTs, on the other hand, are changing the internet experience, allowing you to own your identity through digital wallets, passports, or domain names. Self-sovereign identity is easy to use, interoperable, secure, and free from third-party control.
These NFTs can give you full custody of your internet data and are re-democratizing the virtual world by redistributing power to the vast internet community. Domain NFTs, for instance, create one digital ID that can function as a substitute for the tens of usernames and passwords that most internet users have to contend with on online platforms.
Moreso, these NFTs will give you power over your online data and content monetization and eliminate misinformation by linking content to cryptographically signed identities. These identities’ other benefits include fluid payments and the generation of hyper-personalized shopping experiences in metaverses.
Metaverse NFTs are also a game-changing use case for the NFT sector. Metaverse NFTs allow users to store, sell or appreciate unique items in virtual ecosystems. To illustrate this point, virtual land NFTs holders on the Sandbox, Decentraland, and Cryptovoxel can purchase and develop virtual land spaces for monetization and speculative purposes.
Virtual land owners use NFTs for proof of ownership and could re-use these tokens in the vast decentralized finance field. Other popular NFT applications include music, video, gaming, events, and ticketing NFTs.
How NFTs can develop our society economically?
NFTs can support digitalizing all physical and digital items as more people spend their waking hours on virtual platforms. In addition, NFTs will positively impact eCommerce, allowing shoppers to purchase NFT digital twins of physical products to enjoy secure storage, easy proof of ownership, trade, and monetization of their assets.
NFTs will support the development of new income streams by giving the internet community more creative freedom. They will also eliminate the profit-taking intermediary platforms that create walled garden systems locking out innovation and competition in content creation. NFTs are also vital to developing the community-focused Web 3.0 that will support decentralized networking and community governance for an inclusive and equitable internet.