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Strong interest in non-fungible tokens has led to a boom in crypto-collectibles and NFT art—two of the most popular uses of NFTs in the DeFi ecosystem, but far from the only ones. Due to their uniqueness, NFTs are great for digitizing physical assets, logistics, music royalties, and more. As NFTs evolve, users will find more uses for them.
Introduction
Before the advent of non-fungible tokens, creating asset scarcity in the digital environment was incredibly difficult: despite copyright protection, illegal copying and piracy are still quite common.
The rise of NFTs has given us crypto art, digital collectibles, and more. NFTs can be used to authenticate unique products in a variety of fields, from real estate to logistics.
Although the NFT ecosystem has only recently emerged, it offers many interesting projects, some of which are already benefiting their creators and users.
NFT art
Non-fungible tokens have helped solve the problem of illegal distribution of digital art. How to preserve the uniqueness of virtual works if they are so easy to copy? Although counterfeits exist in the real world, physical items can be examined to determine their authenticity.
This is why the value of crypto art lies in the ability to digitally verify authenticity and ownership. Any user can view images of CryptoPunk characters on the Ethereum blockchain and save them on their device, but only the real owner can prove ownership of the original.
Thus, an anonymous digital artist under the nickname Pak created a series of NFTs that differed only in their names - “Cheap”, “Expensive”, “Unsaleable” and others. Their cost directly depends on the selected names. This collection has led many to question what gives a work of art value in the first place.
In the case of NFTs, the value is determined not by the work itself, but by the ability to prove ownership of a specific asset. This is what makes crypto art one of the most popular uses for NFTs.
Collecting NFTs
Demand for digital collectibles is huge, whether it's the PancakeSwap bunny or Binance's anniversary NFT. This use of NFTs has become popular thanks to NBA Top Shot trading cards.
Along with NFT art, such collectible tokens make up a significant portion of sales on NFT marketplaces such as Opensea, BakerySwap and Treasureland. Collectibles and art often have a lot in common, so sometimes an NFT token can combine both. Today these two methods of use are the most developed and widespread.
One of the best examples of NFT collecting is purchasing Jack Dorsey's first tweet. If collecting CryptoPunk characters has artistic value, Dorsey's NFT tweet is valuable solely for its uniqueness.
His tweet was sold through Valuables, a platform for tokenizing tweets. You can place an offer to buy any tweet there. Other users can compete with you for it, offering a higher bid. The tweeter can then choose to accept the offer or not - if sold, the tweet will be posted on the blockchain as a unique, autographed NFT.
Each NFT is signed by the creator's verified Twitter @account, so only account owners can turn their tweets into NFTs. The result is a rare digital collectible that can be sold or saved. Understanding why people would buy other people's tweets can be difficult, but this is a great example of using NFTs to create collectibles—sort of like a digital version of an autograph.
Financial NFTs
NFTs are used for more than just purchasing art and collectibles. For example, in decentralized finance (DeFi), they provide unique financial benefits. Despite the fact that such tokens are usually used to purchase digital items, their main value is their functionality.
Thus, JustLiquidity offers an NFT staking model. A user can add a pair of tokens to a staking pool for a certain period and receive an NFT for access to the next pool: NFTs serve as an entry ticket and are destroyed after joining a new pool. This model creates a secondary market for the sale of NFTs with a sharing function.
Another example is NFT combos from BakerySwap, which provide holders with increased staking rewards. By providing BAKE, you receive an NFT combo with a share of coins that is randomly determined and staking. Users use these combos in different ways: selling them on the secondary market or using them for staking. Thus, thanks to the gamification of NFTs and DeFi tools, another interesting way to use non-fungible tokens has emerged.
Gaming NFTs
In the gaming industry, there is a huge demand for collectibles that can be bought and sold. It has long been common among gamers to purchase digital items whose value is determined by their rarity. Microtransactions and in-game purchases have created a multi-billion dollar gaming industry that can leverage NFTs and blockchain technology.
There is another area where NFTs are great: video game tokens combine elements of art and collectibles, while also providing value to players. However, big-budget video games are still a long way from adopting NFTs.
At the same time, small projects are actively introducing blockchain technology into their games. Examples include Axie Infinity and Battle Pets, Pokemon-style games in which you can trade pets and items, and buy and sell these tokens on external P2P marketplaces.
Gaming NFTs not only serve an aesthetic function, but also provide benefits to the player. Each Axie pet has certain combat abilities, which determine the cost of that pet. Thus, cats in the game CryptoKitties can be in high demand due to their unique characteristics for breeding. The value of each pet is determined by its rare appearance, characteristics and features. Below is an example of such pets that combine not one, but several rare characteristics.
Music NFTs
Collectible NFTs can be not only images or videos, but also audio files - they can be considered the first digital edition of a song. While creating a music NFT is similar to creating an art NFT, the use cases for these tokens are different.
The main problem for musicians is receiving remuneration (royalties) for their creativity. This can be done in at least two ways: using blockchain-based streaming platforms and tracking royalties on blockchains. It is very difficult for small streaming blockchain projects to compete with Amazon Music or YouTube. Even when major platform Spotify acquired a royalty service called MediaChain in 2017, artists never received additional benefits.
Smaller projects mostly work with independent artists. The Rocki app on Binance Smart Chain allowed independent users to sell royalties and stream their music. The first NFT royalty sale on this platform received 40 ETH for 50% royalty using the ERC721 token standard.
The model's continued growth in popularity will depend on whether major streaming services adopt it. NFT music creation has proven to be a great use of non-fungible tokens, but without the support of music labels, it is difficult to achieve success in this space.
Physical NFT Assets
Combining physical assets with NFTs helps digitalize the proof of ownership process. For example, the real estate industry uses physical ownership documents, but creating tokenized digital assets of these documents can move highly liquid assets (a house or land) onto the blockchain. Regulators are not yet keen to provide support on this issue. This use of NFTs requires a lot of work, but it already seems promising.
In April 2021, Shane Dalgeroff created an NFT of real estate for sale in California and attached crypto art to it. The non-fungible token is up for auction, and the future winner will receive ownership of the house along with the NFT. However, such a sale is not regulated by legal acts, so the legal side of the issue remains unclear.
For smaller items, such as jewelry, an NFT can help prove legal ownership upon resale. For example, a real ethical diamond is usually sold with a certificate of authenticity, which will also allow the owner to verify ownership. If the seller cannot provide such a certificate and confirm the fact of ownership, this should arouse suspicion among buyers.
NFTs can work on the same principle. Owning an asset-linked NFT can be just as important as owning the asset itself. You can even embed an NFT into an item with a physical wallet for cold storage. As the Internet of Things develops, NFTs will increasingly be used in conjunction with physical assets.
Logistics NFTs
Blockchain technology can also be useful in the logistics industry. Transparency and immutability of the system guarantee the accuracy and reliability of information in the supply chain: buyers of food, medicine and other perishable goods need to know where they were and for how long.
The special thing about NFTs is that they represent unique items. They can be used to track goods - view data about their origin, route and warehouse location. Here's an example:
In Italy, they produced high-quality shoes from a luxury brand with an NFT assigned to them, which can be scanned on the packaging.
With its help, the buyer can find out where and when these shoes were created.
As the package moves to its delivery point, the NFT is scanned to add new information about its status, including warehouse location and arrival or departure time.
Once the package arrives at its destination, the store can scan it and mark the delivery of the item. As a result, the buyer will have access to detailed delivery information and confirmation of the authenticity of such shoes.
There are many hypothetical ways NFTs could be introduced into the shipping process, but each would require using the same system throughout the supply chain. Due to the large number of participants in the process, implementing this idea in real life can be quite difficult. This is why the use of NFTs in such areas is not so widespread now.
Two main examples of large logistics solutions using blockchain are the TradeLens systems from MAERSK and Foot Trust from IBM. They use Hyperledger Fabric, IBM's NFT-enabled blockchain. However, it is unclear whether they are using NFTs in these processes.
Summary
As NFTs continue to grow in popularity, we will see more and more different uses for non-fungible tokens. Today, many uses of NFTs are still in the idea or small project stage, so some may not be practical or popular. However, in the field of digital art and collectibles, NFTs are truly irreplaceable.
