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When most people think of cryptocurrency, they think of Bitcoin. But there is so much more to the digital asset world than just Bitcoin – there are also NFTs!
In this article, we will be exploring how non-fungible tokens (NFTs) create value in various ways to provide utility. You’ll learn 5 real-life applications of how NFTs hold value!
Without further ado, let’s dive into the content!
What Are NFTs?
NFTs are known as Non-Fungible Tokens that are unique and cannot be replicated. Blockchain technology ensures that every token is different and has its own unique value. Examples of NFTs include CryptoKitties, Cryptopunks, and Sandbox Land. NFTs can be used for a variety of purposes, such as digital collectibles, gaming assets, or identity verification.
How do NFTs Create Value?
1. Collecting and Trading
Many people enjoy collecting things, whether stamps, coins, or art. NFTs are no different! There is a growing market for digital collectibles and especially NFTs.
In fact, the NFT market is set to grow at a CAGR of 35.3% from 2021 – 2026, which represents 147.24 billion dollars in expansion.
Where does the value of an NFT come from? – it comes from its rarity and uniqueness.
Like how a physical painting by a famous artist would be worth more than a print of that same painting, an NFT that is one-of-a-kind is worth more than an NFT that can be replicated.
Of course, building up an NFT collection that people actually want to trade involves building up hype, and that takes a lot of care in developing the right marketing strategies for the very first mint.
Currently, there are already a few secondary marketplaces where people can buy and sell NFTs, such as OpenSea and Rarible, but they are typically first minted on a project’s website.
In fact, just analyzing the OpenSea NFT marketplace alone, there is an all-time volume of 32.08B worth of NFTs being traded.
As the market for NFTs grows, we can expect to see more platforms emerge.
Not only can you buy and sell NFTs, but you can also trade them! Just like how people trade physical cards or digital game items, you can now trade and track NFTs.
The value of an NFT will fluctuate depending on supply and demand.
2. Increased Transparency and Trust
When you buy an NFT, you can be sure that you are the only owner of that token.
The blockchain records every transaction made, so you can trace back who owned the NFT before you and how much they paid for it.
This level of transparency is not possible with physical assets. For example, if you buy a painting, you have no way of knowing for sure how many owners it has had or how much they paid for it.
The transparency of NFTs also creates trust. When you buy an NFT from someone, you can be sure that the NFT is not counterfeit and that the seller is not trying to scam you.
The same cannot be said for physical assets. For example, it is very easy to create pokemon cards or art pieces. It is also easy to scam someone by selling them a fake physical asset.
But with NFTs, the blockchain creates trust and transparency between buyers and sellers.
In summary, the increased transparency and trust of NFTs create value by making it easier to buy and sell NFTs without the worry of being scammed.
This also creates a community of people who are interested in buying, selling, and trading NFTs because they know that they can trust the system.
3. Digital Rights Management
NFTs can be used for digital rights management (DRM). This means that NFTs can be used to represent ownership of digital assets, such as photos, videos, or music.
The owner of an NFT can then give others permission to use the digital asset by sending them a copy of the NFT.
This is a much more secure way to manage digital rights than the traditional DRM systems, which are often hacked.
For example, the video game company Ubisoft uses DRM to protect its games from being pirated. However, its DRM system was hacked back in 2010, and many games were leaked online.
If Ubisoft had used NFTs to represent ownership of its games, this would not have happened because the NFTs would have been stored on a blockchain, which is much more secure.
To give you another example, blockchain or NFT domains can now be bought from NFT domain marketplaces. These domains now give people and businesses the chance to actually own a single username across apps and websites, use it as a website URL, or as a payment address for wallets.
The value of NFTs comes from their ability to securely manage digital rights. This is important for companies who want to protect their digital assets.
Given that the price of creating NFTs is low, it’s no wonder many are jumping on this bandwagon.
4. Creates New Opportunities for Loyalty Programs
NFTs can be used to create new opportunities for loyalty programs.
For example, a company could mint an NFT for each customer who signs up for its loyalty program.
The customer would then receive rewards points every time they use the NFT, which they can redeem for discounts or free products.
This would create a more engaging loyalty program because customers would have a physical token that they can use to collect rewards points.
It would also be easier for the company to track how many rewards points each customer has because the NFTs would be stored on a blockchain. Moreover, NFT art can be very easily created without any code, making the process even easier for companies to adopt this technology.
The value of NFTs comes from their ability to create new opportunities for loyalty programs. This is important for companies who want to create more engaging loyalty programs.
5. Facilitates Decentralized E-commerce
Lastly, NFTs can be used to facilitate decentralized e-commerce. Decentralized e-commerce is a new type of e-commerce that is powered by blockchain technology, has more open communication, and lower fees.
It allows buyers and sellers to trade directly with each other without the need for running ads on a large company like Amazon or eBay.
Where do NFTs come in? NFTs can be used to represent ownership of products in decentralized e-commerce. Businesses and individuals alike can make NFTs through generators easily, and pair them with their physical products.
NFTs help to authenticate the authenticity of physical goods bought from physical stores and help to eliminate any form of double selling risk.
Comparing this to the traditional world of e-commerce, NFTs help to provide much more power to businesses to manage copycats and imitators of their brands.
For example, an NFT could represent ownership of a digital product, such as a video or a song. The owner of the NFT would then be able to sell it directly to another person without the need for a third-party platform.
In this article, we have looked at five ways in which NFTs can create value: by tokenizing physical assets, managing digital rights, creating new opportunities for loyalty programs, facilitating decentralized e-commerce, and eliminating double selling risk.
NFTs are a new type of asset that has many potential applications and we have seen how these real-life applications are already happening around us.
Therefore it’s crucial to be prepared to take advantage of this up-and-coming trend, which can help to boost businesses and enhance item ownership in our lives, be it by keeping up with the news, newsletters, or social media.
Justin is the founder and author of Justjooz. He is a Nanyang Technological University (NTU) alumni and a former data analyst.
Now, Justin runs the Justjooz blog full-time, hoping to share his deep knowledge of business, tech, web3, and analytics with others.
To unwind, Justin enjoys gaming and reading.