Non-Fungible-Tokens or NFTs are a specific type of cryptographic token based on blockchain technology. In contrast to Bitcoin or other cryptocurrencies that are fungible – can be freely exchange for other tokens – NFTs represent something unique and are thus not mutually interchangeable.
NFTs are used to create digital scarcity and power applications that facilitate the digital trade of art, collectables and other digital items. One famous case is the blockchain-based game ‘crypto kitties’. NFTs represent in-game assets controlled by the user (instead of the developer) and can be traded on third-party marketplaces.
NFT collectible platforms are exploding, with individual examples changing hands for eye-watering sums. Banksy recently physically burned a piece of art – called Morons – then created an NFT from the live stream. It sold for $380,000.
The music and sports industries are turning existing engagement models on their head via NFT, whether it is the NBA selling NFTs of classic video clips or bands tokenising albums and VIP experiences.
Use of NFTs is growing, with Nike holding a patent for blockchain-based NFT-sneakers called ‘CryptoKicks’ and Decentraland, a crypto version of Minecraft where NFTs are being used for purchasing virtual real estate. MANA, Decentraland’s token has a market cap of around $225 million, a more than fivefold increase since its launch in 2017.
One frontier that NFTs are being used to explore is supply chain management. In theory, NFTs can be used to represent physical goods as well as digital ones. The trade and management of goods in the global supply chain are still untouched by crypto and could be made much more efficient. It’s likely that NFTs will be part of the picture of supply chains managed by blockchain technology.
Identity and provenance are probably one of the clearest use cases for blockchains and are certainly a key area for the technology’s future. The Covid-19 pandemic has highlighted how the current fiat infrastructure used to manage our increasingly interconnected world is unfit for purpose.
From failing to track and trace carriers of covid to sourcing faulty PPE equipment, our management of these systems needs improvement. By providing a way of reliably and securely storing data, blockchains can potentially offer a way of achieving this improvement.
Digital identities powered by a blockchain could offer reliable ways to track immunisation records. They could also power things like digital passports that can help track and trace and border control efforts.
As we’ve already mentioned digital identities can be expanded beyond people to physical goods. This expansion may create radical shifts in our ability to trade goods and track their provenance.
To understand this potential, we now need to examine blockchains in their proper context, which brings us nicely onto Web 3.0 and blockchain interoperability.
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