What are NFTs and their implications?
NFTs have seen massive interest and traction lately, largely from attention-grabbing headlines such as these:
- ‘Nyan Cat’ flying Pop-Tart meme sells for nearly $600,000 as one-of-a-kind crypto art
- Former MLB star sells $1M worth of NFTs in one minute
- Logan Paul NFTs sell $3.5 million worth on the first day of release
These headlines can surely capture any aspiring artist or creator’s attention but for the average user unfamiliar with blockchain in general, NFTs may seem like an intimidating subject. When well-intentioned users try to explain to others what NFTs are, phrases like certifiably ownable, proof of provenance, and secured by this and that blockchain are thrown around, surely adding to the confusion of newcomers. That’s why before we dive into what Refinable is about, we have to first talk about NFTs and then their implications.
Before we get started, it’s worth noting that the term tokens has been universally used to describe any items within the blockchain world. Even though both are spun-off from the same core technology, NFTs and other cryptocurrency tokens have very significant differences.
ELI5: Non-Fungible Tokens(NFTs)? 🧑🏫
In short, NFTs are an application of blockchain technology that allows users to create and assign unique IDs to any item. Since every ID is unique, no two items will ever share the same identification. And because technology is inherently digital, any digital content can be easily linked or created as an NFT and assigned a unique ID. This includes any digital files, online game content, and even web domains. However, for physical items, some linkage has to be established between the physical item and the digital ID to benefit from the technology. Similar linkages between physical and digital have already been in place for years such as the ubiquitous UPC barcodes and QR codes.
But why even assign these unique IDs in the first place?
Imagine walking into a convenience store filled with hundreds of different items just to buy a pack of gum. On checkout, the cashier scans the barcode on the gum, determines the latest price and any relevant discounts, and charges you. You pay with cash, you get your gum, your day has peaked.
Beneath that simple transaction underlies a system of information communicating to one another. The barcode found on the gum contains a universal product code(UPC) that can identify that particular product and return its price, related promotions, stock levels, and other similar data, allowing systemized interaction with that product in an organized manner. Through the product’s generic ID, the cashier was able to accurately and efficiently charge you for the correct product amongst hundreds of other products within the store’s ecosystem.
Now imagine another similar scenario where you’re purchasing an art piece from a gallery. You arrive in person, you scan unique QR code on the art piece, you determine from the data this is an original and that the gallery does indeed own the artwork, you see all previous owners and the price they paid as well, you settle on a price with the agent, and you pay the seller via the same QR code since their information is stored there. Now the art piece is yours, and because you’ve transacted via the QR code, it now displays you as the official owner.
In this second scenario, the global QR code was able to identify the physical object and link it to the digital database, returning relevant information about its origin, authenticity, and history. Even though there isn’t a specific gallery the art piece is confined to, every person can still interact with that item in a systemized manner via a global identifier, thus greatly reducing the uncertainty of transacting in a public environment, unlike a simple convenience store. Furthermore, by storing actual transactions on the same identification layer, we can even prove ownership of the item by auditing its previous trades!
Lastly, imagine a final scenario where a photographer is selling his digital photos for both personal and commercial use. You purchase one of his limited photos for your home and display it on your Samsung Frame or personal website. After a few years, you decide to trade it out and can list the bought photo for easy resale because it has a globally unique ID authenticating itself. There are several buyers already because there are only 5 copies of the photo in the world, and the original photographer has attracted a following. Those buyers have subscribed to any new listings or resales of the photographer’s work and were immediately notified when you wanted to sell. Even though you didn't make a profit on the resale, you were able to recoup most of the photo’s original cost, and because the transaction and identification are tracked online, the original photographer was able to specify a 10% royalty off secondary sales, allowing all parties to benefit in just one transaction.
In this last scenario, we have a digital good created as a native NFT. The photo’s ID was not only used to authenticate the good itself, but the photo itself was able to have advanced functions because it was tokenized as a non-fungible token. NFTs are inherently digital objects created via code that can have custom logic built-in on their creation, such as verifiable rarity (only 5 copies of this photo were created) and flexible royalties (the creator will receive 10% of all subsequent sales). These custom logic can be as advanced as bestowing holders benefits on other platforms(5% discount for premium badges) or in games(+10 attack to undead), unlocking special content when holding a set of NFTs(collect all 5 puzzles to unlock), or even allowing content to be created from a primary token(issue mini Nyan Cats from the main Nyan Cat IP). Beyond transacting with your digital payment providers and general online tracking and social features, with digital goods, the possibilities of NFT customization are endless.
What are NFT’s broader implications?🤷
The advent of NFTs effectively allows the digital identification of all goods and enables the customization of their nature. In short, having a globally unique identification system for all physical and digital goods allows any user to interact with almost anything in a systemized and organized manner. Not only will this reduce the massive friction that comes with person-to-person trading, but it also enables limitless potential with native digital goods. Some more advanced implications of this technology include:
- Accurate fraud detection abilities via auditable creation and transaction events
- Potential for secondary markets for any NFT goods with secure transactions and price discovery options
- Significant increase in liquidity, transforming a regular item into a viable asset with the potential to be used as collateral
- Enforceable royalty programs can now unlock the sharing economy of all assets. Since secondary sales can be monetized by creators as well, creators are no longer in competition with their own buyers
- Commercial licenses can now be easily tracked and managed because of their output’s digital traces
The most obvious markets that can benefit directly from NFTs include the collectibles and art market. Because of NFTs’ verifiable rarity and secure ownership properties, projects such as NBA Top Shot and SoRare have already begun creating sports-based NFTs to take advantage of such properties. However, NFT’s potential is not limited to only high-value niche items. Marketplaces such as Craigslists, Carousel, and even Etsy have demonstrated that a strong community can be as expansive as the reach of your router. With the growing traction in NFTs coming from all across the world, it is important to provide a space for all users, communities, and businesses to experiment and explore this new digital medium.
At Refinable, we are unlocking the potential of NFTs for all users. As the first major NFT hub built on BSC, we’re building the definitive platform to create, discover, trade, and leverage any digital content on the blockchain. We do not doubt that NFTs will bring about a great Renaissance for the world of digital goods, and we can’t wait to get started!