A new normal: NFTs' untapped potential

Non-Fungible Tokens have quickly revolutionized the digital asset economy, but that use case only scratches the surface of what the tech can do. The unique capabilities of NFTs have broad applications that could redefine how we interact with physical assets and even with the real world in general.

Part 2 of 2. For a definition of NFTs and their underlying technology as well as current use cases in digital art, see Part 1.

What lies beyond the Open Sea

If you read Part 1, you know that NFTs provide digital fidelity and proof of authenticity. This certifies that the data in an NFT is wholly unique and cannot be replicated.

In our daily lives, we rely on all kinds of documents to serve that same function. IDs, land titles, marriage certificates, and diplomas are just a few examples. Like NFTs, each of these represent unique and authenticated information that cannot be freely altered or replicated. Though, unfortunately, the system is sometimes fooled by frauds.

The capabilities of NFTs make it possible for these sorts of documents to be represented digitally, while preserving their authenticity. So in addition to using NFTs to represent images, GIFs, or art, we could also use them for digital licenses, certificates, titles, and more. With the history and information of these tokens secured on distributed ledgers, it would be much more difficult to fool the system.

The idea of digitizing our documents is not new (how many of us have copies of documents on our phones or in the cloud?). In fact, as with most use cases of NFTs, the concept is one we've had for a long time. The difference lies in the execution.

What’s new is that the security of digital information can now be confirmed thanks to the qualities of NFTs. It makes it possible not only to have a digital copy of your passport, but to have the original passport itself represented, and authenticated, digitally, without the need for in-person mediation.

In other words, it makes it possible to tokenize information.

Tokenization enables us to finally migrate the vestiges of our analog world into the digital realm, opening doors to a faster, more secure, data-driven society.

That could mean increased efficiency and ease of access across nearly every industry and activity that requires authenticated information.

Perhaps the most frequently mentioned example is in real estate.

Tokenizing real estate

It’s suggested that NFTs can tokenize property rights, which could make real estate much easier to manage and trade. It might seem like a big leap to go from representing the ownership of a GIF to that of a hectare of land, but the technology functions the same way in either case. Ownership information would be digitally represented through a unique token and its authenticity verified by the tamper-proof blockchain.

The implementation of NFTs in real estate could make the process of transfer much more secure and efficient. Smart contracts, the foundation upon which NFTs are written, can facilitate terms of exchange to a high degree of specificity, verifying that the conditions of all parties are met before assets are transferred.

Therefore, smart contracts can instantaneously perform the function of escrow, wherein a third party holds the assets while the transaction is pending to ensure fairness. This saves time, decreases costs, and supersedes human mediation.

There have already been several instances of NFT-powered virtual real estate sales, such as the $2.4 million purchase of a virtual land NFT in the metaverse known as “Decentraland.”?

The sale highlights the existence of a burgeoning virtual real estate market, which has led to a push for NFTs to be used in selling physical real estate.?

As a result, startups focused on applying NFTs to real estate, such as Propy, have become increasingly valued. In 2017, Propy sold an apartment in Ukraine, the first ever sale of real property through an NFT.

Tokenizing identity

The buck doesn’t stop there. By securing and verifying personal data, NFTs also allow us to tokenize identity.?

IDs like passports and licenses can be represented digitally as NFTs, meaning we can (finally!) live completely free of physical documents. Old systems that demand ink and paper originals can accept digital documentation while being assured of their origin and validity.

This can streamline travel, improve security, and make it possible to fully automate exit and entry protocols. Risk of losing documentation can be eliminated entirely. Regulatory concerns like contact tracing, border control, and identity theft can be more accurately and efficiently monitored.

Tokenizing identity can even change industries that rely on the stewardship of sensitive personal information, such as healthcare.?

In the US alone, over $1.2 billion worth of clinical documents are produced every year, but without a universal system for safely storing or collating the information, patients are expected to keep their own records. This often leads to holes in medical histories, resulting in a lack of care, unnecessary treatments due to misdiagnosis, or redundant treatments due to poor data management.

If medical data were tokenized, medical history could be secured and tracked by distributed ledgers, saving patients from having to explain complicated conditions to doctor after doctor and avoiding human error associated with record keeping. Physicians could exchange real-time updates with other healthcare specialists, facilitating collaboration and allowing for patient-centric care.

While there are valid concerns about the security of private information in this kind of system, proponents of this evolution argue that distributed ledger technology is more difficult to hack and alter than current forms of digital security. Time will tell if this remains true as adoption increases.

Tokenizing culture

A more abstract, but no less intriguing use case of NFTs is the tokenization of intellectual properties. The ownership of intangibles, like characters, fictional universes, or brands, can be represented through tokens and even traded.

There are 2 more qualities of NFTs that factor into this potential use case:

1. They can be programmed to collect royalties, meaning the creator can receive a percentage of any future sales.
2. NFT ownership can be fractionalized, making it possible for equity to be divided amongst several people.

So an artist, for instance, could mint an NFT representing ownership of an original character. Let’s call this character Token Tony for the sake of the example. That same artist could then fractionalize the Token Tony NFT, allowing several buyers to own a share in the property. The artist could also program a 5% royalty into the NFT so that any future sales of Token Tony tokens would net 5% of revenues back to the creator’s wallet.

This empowers the creator to turn their intellectual property into a tradable commodity, not unlike when corporations IPO. It means they can set their own terms for monetizing their ideas, creating more equitable opportunities and bypassing intermediaries like studios, labels, or publishing houses.

It also turns ideas into investment opportunities.

If, for example, Token Tony is one day featured in his own tv series or movie, the value of the property- and, consequently, the NFT- could increase, resulting in potential profits for holders of the Tony token. This provides utility and financial incentive for investors to support creative projects. As with digital art, it opens an entirely new form of digital asset enabled by NFTs.

Engaging communities

In addition to providing direct avenues between creators and communities, NFTs can be used to provide rewards or incentives to token holders, generating new ways to engage with people. This has large implications for community building.

It may be possible, for instance, for NFT creators to share revenues from properties with token holders, similarly to how companies pay dividends to shareholders. So Tony’s creator could use that mechanism to thank investors for their support while simultaneously improving the token’s financial utility. This would not only provide financial incentive to community members, it could also improve social sentiment around the Token Tony property.?

This capability of NFTs can be applied in many ways. They can be used as rewards for loyalty (as in the Tony example), a marketing instrument, or an incentive for community action. A company like Apple, for instance, can use NFTs to distribute rebates to holders for using Apple pay. Sports clubs can offer tickets or giveaways to generate excitement for an upcoming match. Community organizers can send invites to special events, creators can give away exclusive merchandise, or companies can grant first access to new products.?

The technology creates novel avenues for creators to interact with their communities, making it a versatile tool for nearly any kind of enterprise. In fact, NFTs have already been used in this capacity by artists like Victor Langlois, who reportedly earned $18 million last year on sales of his NFT artworks. Perhaps better known by their moniker, FEWOCiOUS, Langlois organized in-person painting events with members of their community who invested in their NFTs. NFTs have not only helped Langlois find incredible success as an online artist, but have also facilitated a connection to their audience that has generated meaningful engagement between creator and community.

That same ability of NFTs to engage and connect can be implemented into everything from commercial brands to political movements to non-profit organizations. One could create an NFT to support a candidate’s campaign, or to fund an environmental initiative, or to drive an independent research study that has been historically ignored, or even to support a scholarship fund for underprivileged students.

Meanwhile, the creators of those NFTs can disseminate incentives back to token holders to help galvanize the communities and give them positive feedback for their involvement. This can be a powerful instrument for social change, creating new ways for people to support projects they believe in, while simultaneously offering real financial and social incentives to power movements.

Unlocking the divisions between virtual and real economies

For the last few decades, life has steadily been migrating to virtual space. Year after year, more actions, activities, and information have become available on the web. NFT technology is capable of bridging some of the few remaining gaps between the physical and virtual worlds, allowing us to digitize things that have remained strictly "real world"- until now.

For instance, the newfound ability to commoditize and transfer digital assets has made it possible to exchange between "virtual" and "real" goods. Tokenized documents allow us to truly digitize information for the first time ever. All of this makes living in and engaging with virtual spaces a more unified and seamless experience.

We have seen the beginnings of this with play to earn games. In P2E, players invest in an NFT in order to participate in a video game where they can earn cryptocurrency. That currency has real world value and can be exchanged for cash. This use case unlocked the latent potential of games, transforming them from an isolated form of entertainment into a means to afford real life necessities. Along with the rise of esports, NFTs elevated the utility of video games into a means to earn a living wage.

The evolution of video games as a viable means of income has blurred the line between virtual and real world economies. The days of telling our kids to “turn off that game and go do something ‘real’” are fading. It becomes difficult to dismiss video games, or virtual space, as “unreal” when it can feasibly provide the means to procure items of “real” value, like a meal. Or a car. Or even a house.

The mainstream gaming industry is beginning to recognize this shift and is not far behind. Ubisoft, one of the world’s largest game development companies, launched Ubisoft Quartz in late 2021, a platform that facilitates the buying and selling of in-game NFTs. Using the Tezos blockchain, Ubisoft plans to incorporate these NFTs into their future games.?

Adoption by an industry leader indicates the growing role of NFTs and suggests that this is just the beginning.

These developments could mean huge possibilities not only in gaming, but for the ultimate realization of a working metaverse.

Through NFTs, virtual spaces are transforming from single-use platforms into emulations of the real world, where one can accomplish a variety of things. All across the board, NFTs are allowing people to engage in real world activities through fully digitized outlets, fueling the next leg of our decades-long global journey towards digital integration.?

With all this in mind, the barriers between both worlds are starting to fade, giving way to a new normal. Ideas of the future- like the one imagined in Meta’s vision of the metaverse, where people essentially live in the metaverse as much as they do in the physical- could be much closer than many realize.