When speaking of the value of Non-Fungible Tokens (NFTs), there are two aspects that must be considered. The first involves the money that is being made from trading NFTs and it is hard to deny the value in that arena. Trading during the third quarter of 2021 rose to $10.67 billion, a 704% increase over second quarter trading.
However, there is also the value that NFTs bring to the business arena. Trading value generally refers to the profit that people are making from NFTs. Business value, however, refers to the benefits that NFTs promise to bring to the business world.
For businesses that operate natively within digital spaces, the business value of NFTs is clear and is already being embraced. For more traditional businesses that continue to straddle the digital divide, NFTs provide a game-changing tool that will help to bring their products and services into the digital realm.
Also read: What is an NFT?
NFTs Allow for Digital Ownership
For the past four decades, digital creation has been a non-stop endeavor. In 2020, the average human created 1.7 MB of data every second. That results in a total of 2.5 quintillion data bytes daily.
While much of the data that is flowing in the digital world comes from email or text messages that are deleted as quickly as they are created, some of the data involves significant assets that, until the appearance of NFTs, have lacked an important component.
As a result of the blockchain technology upon which they are built, NFTs allow for digital assets, from digital art to digital concert tickets to digital diplomas, to be connected securely to a record of ownership. This is the central innovation that NFTs bring to the business world and a key to the value that they offer.
In order to make money from a product, one must be able to show that they own that product. Once ownership is established, ownership can be transferred, typically in exchange for money. In the physical realm, these exchanges happen all the time with little thought to the record of ownership. When a house is sold, the deed, which represents the record of ownership, is transferred. When a car is sold, the title is transferred. Even the smallest of transactions, such as purchasing food from a local grocery store, involves the issuance of a receipt that shows something of value has been transferred from one person to another.
In the digital realm, showing ownership, and therefore establishing a process for buying and selling, presents a challenge. The nature of digital assets allows for countless copies to be made. Those copies are considered “fungible,” meaning they are identical; the original cannot be distinguished from the copy. Hence the value of Non-Fungible Tokens; they allow for ownership of digital assets to be established and sales to happen.
NFTs Allow for the Inclusion of Utility
In addition to providing a mechanism for ownership of digital assets, the blockchain also allows for programming to be associated with an NFT. In essence, this brings “utility” to NFTs, giving digital assets the capability to include and activate benefits that are tied to ownership or creation.
One example of the utility of NFTs that is commonly cited is the ability they have to establish royalty contracts for digital creations. In the physical world, artists create and sell their work, making a profit and, typically, losing ownership of their work at that point. Future sales of the artwork benefit whomever owns the work at that point. Rarely do artists benefit financially from any sales beyond the initial sale that transferred their ownership.
In the realm of NFTs, digital creators can program royalty contracts into the blockchain associated with their digital creations. These contracts can stipulate and ensure that any time the artwork is resold, the artist gets a percentage of the new sale price.
There is wide speculation on the variety of ways in which the utility that NFTs provide can be applied. For example, if tickets for an event are issued digitally as NFTs, utility can be applied to the ticket that goes beyond providing access to the event. The NFT becomes a unique key, owned by the purchaser, that can grant access to digital or physical assets according to a timeline established by the NFTs programming.
Janine Yorio writing for CoinDesk gives the following example of the potential that NFT utility holds: “Imagine discovering a new musician online. You purchase an NFT of their album art, which can simultaneously serve as a piece of art that you can display online, an entry into an exclusive chat group where you get to connect with other superfans, and a backstage pass for an upcoming show. Ownership of the NFT could also unlock exclusive memorabilia, whether ‘air dropped’ into the owner’s wallet or rewarded after certain behavior, like making a purchase at a specific store.”
NFTs Allow for Securing of Digital Identities
The same technology that NFTs utilize to establish ownership of digital assets can be used to secure digital identities. As more and more of our lives are lived online, from online payments to telehealth to digital learning, having a means of authenticating our identity in the online arena becomes critical. The security and stability of the blockchain make it a valuable tool for establishing identity.
Billions of people, especially those who consider themselves digital natives, are spending billions of dollars each year to build a digital identity across social and gaming platforms. As anyone who has ever been hacked can attest, those digital identities are far less secure than we would like to admit. NFTs provide the technology to secure our online identity, authenticate it, and have it travel with us throughout the metaverse.
For those already operating within the digital realm, NFTs provide a tool that has long been lacking, bringing a secure platform that adds endless value to the creation and distribution of digital assets. Outside of the digital realm, NFTs open a door that can allow businesses to innovate, implement greater efficiencies, and expand their brand into an entirely new ecosystem. Regardless of where you stand, NFTs offer countless business possibilities.