NFTs exploded globally in 2021, with the record-breaking $69 million sale of Beeple’s “First 5000 Days” NFT art to Vignesh Sundaresan in March that year seeing a surge of interest in the said class of crypto asset. That year, several NFTs sold for close to or over a million dollars from prolific collections such as Bored Ape Yacht Club and Cryptopunks.
There is a prevailing notion that NFTs are simply overpriced digital art collections; the hype has often led to people equating NFTs with highly absurd prices.
Disregarding the drama surrounding these tokenized visual collectibles, NFTs serve numerous innovative yet pragmatic applications that leverage the use of blockchain technology.
Brands, institutional investors, and venture capitalists observe intriguingly at the sidelines as early innovators test different use cases in a sandbox environment, waiting for the opportune moment to collaborate with potential blockchain and smart contract developers to claim first mover advantage in utilizing this still undeveloped technology. Countries like China have mixed opinions about this enigmatic phenomenon.
While the development of applications for real-life use of NFTs is still in its infancy, and many brands still not regarding it as a form of mainstream utility, it is still worthwhile to examine the current and potential applications that NFTs have on the table.
What are different NFT applications?
1. Art and collectibles
The first thing that comes to mind on the topic of NFTs is digital art collectibles; this is the most obvious application that most people would think of. Even major key players like BSN, Ant Group, and Tencent are in the Chinese NFT space, however, Chinese NFT marketplaces are not completely decentralized compared to international markets.
The most fashionable sort of NFT art collectibles is those that can be used as profile pictures (PFP) on social media profiles. This provides young millennials a form of social flexing to flaunt their wealth virtually anywhere without being physically present to the audience.
Think of a time before the internet, the only way to show off one’s riches is to have the physical asset in front of the audience; inviting friends over ‘for lunch’ to a grand mansion, driving an expensive car to the workplace, wearing an exquisite timepiece, etc.
Furthermore, even if there is a piece of genuine physical artwork in your home, there is a need to verify the authenticity of said piece lest others call it a fake; even so, proving its legitimacy is a challenge.
Two key ingredients of NFT art that surmount these problems are that first, it can be uploaded onto social media platforms such as Facebook, Instagram, Twitter, and Whatsapp for the world to see, and physical space is no longer a barrier. And secondly, proof of authenticity and ownership of the NFT can be validated on a blockchain explorer with the owner’s wallet public address and the contract address of the NFT in that crypto wallet.
2. Gaming
Since the dawn of video gaming, the economics of games has always been a one-way street, flowing from player to developer; with models such as pay-per-pay for old-school video arcades, pay-to-play for video console games, subscription models that were common for MMORPGs (massively multiplayer online role-playing games) like World of Warcraft, and to the more recent F2P (free-to-play) or freemium model of games like Fornite, where the core of the game is free, but players are incentivized to spend money for items in the game to make game progress easier.
Exceptions to the norm are games like Counterstrike: Global Offensive, where players can buy weapon skins from the game developer and trade them in various marketplaces for fiat money. The weapon skins have actual utility where those cosmetics applied to weapons can be seen by other players in the game.
Despite being able to buy, trade, and sell these weapon skins for profit (or loss), there is a pseudo-sense of ownership to these items on a player’s Steam inventory. The items despite being in the player’s Steam inventory, remain in Valve’s custody in their centralized server, and the latter has the authority to do whatever they wish with the items. These items will also vanish the day Counterstrike: Global Offensive is shut down. Notwithstanding, it is still a proof-of-concept that will pave the way for NFT gaming.
Enter GameFi, a portmanteau of gaming and financialization, it is often associated with the P2E (play-to-earn) model that rewards players for their time playing with in-game assets that have real monetary value outside the game. NFTs provide unequivocal ownership by the player to in-game assets on a decentralized server that can be traded or sold.
The first NFT game to gain attention was CryptoKitties launched in 2017, other P2E NFT games would follow suit, especially during the Covid-19 pandemic, like Axie Infinity, which is highly popular in South-East Asian countries like Vietnam, the Philippines, and Malaysia. In the middle of 2021, based on the price of SLP, players were able to earn an average of $55 per day playing Axie Infinity.
Even investors can see the potential in NFT gaming. Blue Pool Capital, Jack Ma’s family fortune manager, was part of the group that invested $50 million in Animoca Brands, a game developer and blockchain company.
Positive returns are not guaranteed despite the lure of potential income from gaming. P2E games often come with risks and high initial costs that might not be recoverable depending on how you play.
3. Real estate
For the average joe, real estate transactions can be one of the most convoluted processes involving multifold bureaucratic steps and different intermediate parties, each taking a ‘humble slice’ off the real estate pie, usually 6 percent of the sales price.
Typically the parties involved are the buyer’s and seller’s realtors, the mortgage lender, the insurance company, the government, and the title company. The title company acts as the facilitator and escrow to conduct the title search from public records to validate the seller’s authenticity, get the title insurance, holds the earnest money, and acts as the closing agent to clear the title and disbursed the money received from the buyer and mortgage lender once all documentations are in order.
It is possible for an NFT to be tied to a property that has a smart contract to execute these processes automatically without human intervention, eliminating human error and sluggishness. Furthermore, commission fees owed to such middlemen can be reduced drastically too. There won’t even be a need for title insurance, nobody can fake a title deed since the actual title deed is on the blockchain.
The first home sold as an NFT happened in February 2022. The house is in Gulfport, Florida and the prop-tech company Propy facilitated the sale of the home for $650,000. The transaction happened by tying the home ownership to an LLC and wrapping that LLC in an NFT that was sold to a buyer.
Another possible application for NFTs in real estate, other than handling the handover processes through a title search smart contract, is the fractionalization of real estate into tokens. Traditionally, if you want to use your house as collateral to take a bank loan, a lot of paperwork has to be done. However, with NFTs, you can fractionalize your ownership into tokens and liquidate a portion of the tokens to raise enough capital for yourself to use.
Zi Wang, who was a former Google engineer and current co-found of Third Planet, suggested that financing the building of a new real estate can be done by tokenizing the real estate and selling to many investors, instead of the typical few like banks and private equity.
4. Healthcare
The healthcare industry is plagued with notoriety in the management of public health records – inefficiency and inaccuracy in acquiring data from different healthcare administrators for treatment, patients’ ambiguous answers to questions about their health, and the dishonest selling of patients’ health records to big pharmaceuticals for profit without the patient’s consent.
In other words, the healthcare providers who badly need the necessary information for treatment find it difficult to access that sensitive information. And that sensitive information is being transacted for profit by data companies.
If people’s health records can be minted into an NFT with all the present and future information about the patient’s health input inside, it makes accessing important data for healthcare providers convenient and fast.
Furthermore, patients can give consent (when they are conscious) to whichever party is accessing specific data and whether that information can be sold. There can be a smart contract that also gives a commission to the patient in the form of tokens whenever this information is transacted.
An actual health decentralized application using NFTs is the health dapp Go! created by Health Hero. Each time a new user signs up for the app, a W-NFT (Well-Being NFT) is created that represents that user. The Go! App can be synced with other health tracking apps like Apple Health, FitBit, Google Fit, Garmin, and Wyze Band and collects data which is added to the W-NFT. Obtaining data from those health-tracking apps gives unique traits to the user’s W-NFT that increase its rarity, which can then be traded in the open market.
5. Supply chain logistics
Supply chain management and trade finance are fraught with paperwork to ensure product traceability and provenance. NFTs and blockchain are a burgeoning solution for challenges in supply chain logistics. The Ant Group tech firm, AntChain, already has blockchain solutions for cross-border trade and food authentication.
Harnessing the power of its immutable ledger on a blockchain, NFTs can be used as a token ID embedded in a product package with temper-proof technology. Throughout the shipment process, this NFT becomes irrefutable evidence of the product’s origin of manufacture, facilitating authentic handover at every step of the shipment process since every participant in the supply chain has access to the same set of inconvertible records, ensuring traceability and transparency. This removes the need for complex and lengthy paper trail that only increases human oversight and downtime.
NFTs also serve as a proponent of product provenance at the upstream line of the global supply chain. These are often smallholder farmers who are invisible to the supply chain. For example, a batch of beer can have an NFT tied to it, which records the quality, source, and price of the barley used for the production. This information, together with payment to the farmers, is recorded on a blockchain. This immutable evidence of sales and quality allows these farmers to borrow money at low-interest rates, opening up more opportunities for them. It also provides sellers and consumers with transparent information about the quality of these raw materials.
Conclusion
NFTs have the capability to represent any item, right, or record. As is typically the case with historically momentous discoveries, NFTs are a nascent technology causing an unprecedented cultural and financial shift due to its rapidly increasing rate of innovation and acceptance.
As developers continue to discover ground-breaking applications, use cases, and value propositions, the prevalence of NFTs is set to grow. As NFTs support the growth and advancement of enterprises, the investment landscape is vast and constantly expanding. Even if NFTs might not be a good investment option right now for everyone, they are unquestionably a technological advancement that all investors and advisors should be aware of.
Daniel Thomas is a full-time blogger and founder of Basigue.com where he writes articles on Web3, cryptocurrency, NFTs, E-commerce, business, and reviews on products and services. Daniel has experience in dropshipping, creating Shopify online stores, affiliate marketing, SEO, and running digital advertisements like Facebook and Google Ads. In his free time, he loves playing games or watching anime with his wife.
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