If you talk about Non-Fungible Tokens or NFTs today, your conversation is going to end up centring on the world of Digital Art, Memes and Basketball GIFs. NFT mania has hit and everywhere you look it’s being discussed, from clubhouse talks to the evening news. Many artists are excited about the potential millions they might hope to make, yet no-one is really talking about the institutional and enterprise uses for the technology.
Why Do People Buy NFTs? Ripple’s CTO David Schwartz believes that it’s all about relationships. In an interview on ‘Thinking Crypto’, Schwartz claimed people are buying NFT collectibles because of the relationship they have with the collectible, the art or the artist. In the interview, he talked more about digital rights and the ability to turn those into non-fungible tokens. Chris Berg, co-director of the RMIT Blockchain Innovation Hub, described NFTs as the new patronage economy. He explains that NFTs are a way of dividing property rights. You can own a piece of art without having to exclude others from enjoying it.
The craze has its critics, many are calling it tulip mania and a scam. There is actually an NFT collection called Crypto Tulips, which I don’t think is helping the cause too much.
The problem is, for many people, it’s really not clear what you actually own. What are you buying with a non-fungible token? It’s one of the most asked questions and it is why many think that NFTs are in a bubble that will soon burst. I have heard it explained as owning the master recording, yes people can copy and paste your art but you own the NFT so you can prove it belongs to you. NFTs are all about proof of ownership. This of course doesn’t mean that what we are seeing isn’t overvalued.
It’s almost difficult to argue when a freely available GIF of the popular Nyan cat Meme was turned into an NFT and then sold for $535,000. Everyone is getting in on the hype and when things get too hyped, they rarely end well (beanie boo bears come to mind.) The biggest problem with hype however is that it creates too much noise and the actual value of a technology gets hidden. The real disruptive use cases for NFTs are being overlooked instead for things like tokenized Toilet Paper!
The enterprise use cases span from tradeable insurance policies, domain addresses, to proof of membership. Companies such as Bluebox are turning music rights into NFTs giving holders a percentage of royalties from the musicians streaming revenue. Hashcash Consultants as one example are tokenizing properties and using NFTs to prove ownership in place of deeds. NFTYlabs have created NFTs that allow you access to websites and in the future access into real-world physical clubs and organisations.
We expect the use of NFTs in the DeFi space to grow significantly this year as well, with it being possible to lend and hedge Ethereum based non-fungible-tokens. There are even developers exploring how NFTs can be used in DeFi to collateralize real-world assets against DeFi borrowing. Uniswap, a prominent DEX (decentralized exchange) is updating its platform in Q2 to use NFTs as proof of liquidity provided to the exchange. Until now Uniswap has used LP tokens to represent someone’s contribution to the liquidity pool.
When you look beyond the art, you can see that there’s such a huge scope of use cases that even if the NFTart mania was to end in flames, the non-fungible token itself will prevail.
With NFTs, one thing that will have to be considered is where to store them. An NFTart piece you bought for $500,000, the NFT deeds to a property or the tokenized shares of your company might not be safely stored on your office computer or on a small hardware wallet in your home.
If you are interested in buying, lending, hedging and storing Ethereum based non-fungible tokens you can read more here on our blog. ‘Buy, lend, hedge or store Ethereum based non-fungible tokens (NFTs)’