THE GREAT UPDATE

TheGreat Update

What are NFTs?

by Joe Lioce

Joe Lioce is works in client relations at UTU. ONE. He began his journey in blockchain thanks to advice from his mentor, Marilyn Tian. He is fluent in English, Mandarin and French and knows a bit of Vietnamese and Japanese. He enjoys practicing Brazilian Jiu-Jitsu in his free time.

NFTs (nonfungible tokens) have really taken off during the year 2021. In November 2021, “NFT” was named as the Collin’s Dictionary word of the year. According to JP Morgan, the NFT market is now worth over $7 billion, up from around $400 million in January 2021. Having seen this rapid growth, we can safely say that NFTs are the first practical application of blockchain technology to go mainstream.

The fundamental characteristic of NFTs is their scarcity. Previously, the internet had a problem of abundance. Simply put, there is no limit to the number of times people look at a work of art or listen to a song online. NFTs solve this problem by limiting access to or ownership of the original files. However, NFTs today are becoming more and more sophisticated and many NFTs have more features than simply recording ownership.

While most people think of digital art when they think of NFTs, art is by no means the only use case for NFTs in business. This article will demonstrate the variety of potential use cases by analyzing many different NFT projects. This analysis will show that the potential for NFTs is limitless and that we still have not yet seen every possible use case.

Figure 1 NFTs limit the supply of a digital file, increasing the price from P1 (free) to P2 (not free).

Figure 2 “Everydays”, a collection of 5000 images, sold for $69 million at Christie’s Auction Source: Christies.com Fine Art

The art world was the first domain to feel the disruptive power of NFTs. This type of NFT is also the most common. The most famous example of fine art NFTs is “Everydays” by Beeple, which sold for $69 million.

Figure 3 The first offline NFT art exhibit happened in 2021 in Beijing. Photo Credit: CGTN

Figure 4 This is Bored Ape #1. It is currently priced around $120,000. Source: Opensea

Figure 5 Tory Lanes sold over 1 million copies of his music NFT in under a minute. Source: Twitter Artists and art collectors are particularly attracted to NFTs because it solves many problems for them, particularly royalties and authenticity. Since NFTs are bought and sold on blockchain, the creator of the NFT will always receive their fair share of royalties. Likewise, since blockchain is a perfect record of ownership, collectors do not need to go through the tedious process of verifying the authenticity of the work. Collectors also do not need to worry about the physical storage of their investment.

Profile Pictures (PFPs)

The so-called profile picture NFTs evolved out of the fine art NFT scene. On the surface, the most important defining characteristic of these NFTs are that they are designed to be profile pictures on social media. However, the true value of these NFTs is in their community.

Profile picture NFT projects such as Cryptopunks, Cryptopills, and the Bored Ape Yachet Club are vibrant communities of investors who actively support the growth of their community. These projects’ market cap can grow exponentially, for example, the average Cryptopunk NFT is priced in the millions of dollars. These projects often include long term plans, revenue sharing schemes and more. Check these projects’ websites to get an idea of the variety of projects currently on the market:

• Bored Ape Yachet Club: https://boredapeyachtclub.com/#/home#roadmap • Forgland: https://www.frogland.io/ • Cryptopunks: https://www.larvalabs. com/cryptopunks • Sherlock 2050: https://sherlock2050. com/

Figure 6 The NFL attached NFTs such as this to 21 games during the 2021 season. Source: NFL Figure 7 People can trade plots of land for real world currency in Decentraland. Source: Decentraland Video Game Items Figure 8 Axie Infinity is a blockchain video game that centers around breeding pets called axies, which are NFTs. Source: Axie Infinity

Music

The music industry seems to under leverage NFTs. Possibly, because NFTs have the power to take power away from publishers and music hosting platforms such as Spotify.

Previously, the only way to listen to music was to own a physical copy of the song, whether that be in the form of records, cassettes, or CDs. This seriously limited the average person’s access to music. Now, anyone can listen to any song however many times they want online. This is great for consumers, but a raw deal for musicians.

However, by releasing music exclusively as an NFT musicians can reintroduce scarcity to their music. To date, Tory Lanes appears to be the most successful musician in the NFT space. He reports that he sold over 1 million NFTs for $1 each within the first hour of releasing a single as an NFT. Furthermore, Tory Lane stands to reap the benefits of substantial royalties as his fans trade their copies of his NFT. Tickets

Tickets for all sorts of events are a natural synergy with NFTs, which are impossible to falsify and are nearly impervious to most problems relating to storage. However, what makes NFTs an innovation upon current online ticketing software is the collectible nature of the NFTs. Tickets issued for major events can now be traded afterwards in a way that benefits the creator since the NFT creator earns royalties from resales.

Perhaps the most noteworthy example of NFT ticketing to date has been the Spiderman NFT issued by AMC Entertainment in prior to the release of “Spider Man: No Way Home”. The NFL has also announced that it will be attaching NFTs to tickets of 21 games during the 2021season.

Virtual Property

This type of NFT ties in closely with the metaverse, a theme covered in our previous issue of The Great Reset. This

WHAT ARE NFTs

type of NFT represents the deed to property in a virtual world such as Decentraland. Users can use this land in any way they want, such as advertising, virtual galleries or even pizza stands and casinos.

Sale of virtual property is beginning to spread to other projects beyond Decetraland. Ember Sword, an upcoming MMORPG has also sold land to help raise fund. Earth 2, a project similar to Google Earth, also allows users to buy virtual land, however, land in Earth 2 corresponds to an actual place on Earth. Virtual real estate is a fast growing type of NFT and seems poised to become a feature of many video games and other metaverse projects into the future. For more details about how the metaverse works, please check last month’s article.

Video Game Items

Ownership of items in videos games is another major use case for NFTs. In the future, NFTs will even be used to allow players to use the same item in multiple games in the form of an NFT. A major pioneer in blockchain games has been Axie Infinity. The premise of the game is that players breed pets called axies, which are NFTs that they can sell for a profit.

In general, the trend towards “play to earn” video games will be fueled in large part by NFTs. There are a multitude of blockchain games in development, all most all of which use NFTs in some form or other.

Example NFT game projects: Illuvium: https://www.illuvium.io/ Chumbi Valley : https://chumbivalley.com/ Star Atlas : https://staratlas.com/

CONCLUSION

There are myriad use cases for NFTs and our understanding of NFTs is constantly changing thanks to the innovation of blockchain developers around the globe. The above list of use cases only reflects the current landscape which is limited in scope. Business as only just begun to discover NFTs and blockchain as a whole. Government meanwhile is even slower to begin adoption of new technologies. Future use cases may include the following:

• Physical (real world) real estate / deeds: The sale of virtual property sets a useful precedent for this.

• Certifications / Licenses: Governments could leverage NFTs to issue certifications or licenses to citizens immediately after passing an online test without any bureaucracy.

• Identification: Unique NFTs could be made for every citizen and function as a general identification card with many features.

However, there are likely even more possibilities which we have not yet thought of. This article demonstrates that there is already much more to NFTs than simply digital art already. What other use cases developers will find for NFTs will be limited by only one thing, their imagination.BL.