The World Economic Forum recently discussed how non-fungible tokens (NFTs) are the tankers of a world where data is the new oil. Despite critics calling NFTs a part of the ongoing speculative trend, the blockchain-driven technology is all the rage in the tech market.
There are plenty of examples out there. In the world of fashion, Gucci has potential plans to release an NFT-based clothing collection, while in football Real Madrid launched its NFT-based Smart Ticket last month.
An NFT is a blockchain data unit certifying ownership of collectibles and digital assets. Most NFTs are in the form of multimedia, books or memes and require cryptographic code like cryptos to unlock. The tokens aren’t a recent phenomenon. However, they have gained recent traction after the auction of the iconic meme Nyan Cat. According to the site NonFungible, $16.7 billion (£12.1 billion) has been spent on NFTs to date.
Why Are Businesses Gravitating Towards NFTs?
The tech community has seen an upward trend in NFT investments, thanks to the rise of crypto assets. With exchange platforms like Wirex, crypto has got interest and might even be ready for mass adoption, especially in the UK. Since crypto and NFTs are closely related, the former’s success snowballed into the global acceptance of NFTs. As per Chainalysis, the retail sector saw $27 billion (£20 billion) worth of investment in NFT-affiliated Ethereum contracts. Even e-commerce services are doing everything to stay in the race, the latest being Shopify that now allows users to sell NFTs via its stores.
The biggest possible reason behind NFT’s domination in the virtual B2B market is its ability to generate steady income with low risks. More and more businesses are capitalising on the scarcity and excludability offered by NFTs, creating several metaverses and marketplaces.
One such startup is Renovi, a designer-centric marketplace that allows users to upload their designs in the form of NFTs and find suitable buyers. These designs could be anything from architectural layouts, developer algorithms and real estate sales. Renovi supports exclusive bidding and live auctions for midsize firms or freelancers to monetise their ideas.
An NFT’s USP lies in its ability to get tokenised, meaning a replication is nearly impossible. This statement itself is enough to turn NFTs into some kind of rare, highly exclusive, and valuable collectible. Most businesses today are exploiting the idea of creating digital versions of popular products, and in turn capturing a highly lucrative audience base. Gucci’s virtual sneakers are a recent name on the list.
Boson Protocol is another NFT marketplace gaining traction in the UK. The company builds on the idea of twinning between physical and digital goods. With Boson, sellers can market physical goods, and buyers can redeem these products in the form of NFTs and vice versa. The business model is functional, especially in tackling return frauds, improving the transaction cycle, and declaring product authenticity. Boson is also launching a utility token, BOSON, for accounting purposes. The tokens can be converted, bought or burned in an autonomous, decentralised Boson economy, eliminating the presence of intermediaries, Amazon or eBay. The company made headlines last September after acquiring a Dolce & Gabbana suit for $1 million (£740,000) and launching its NFT version on its digital marketplace.
Another potential business use case of utility tokens is staking platforms. By staking NFTs, users can acquire extra rewards through a series of lock-ups. Staking is still a nascent concept in DeFi farming, but has the potential for users to earn some passive income. Most of these staked tokens come with voting rights and can be utilised to govern the decentralised NFT ecosystem.
The crypto exchange platform Kraken supports the process via its flagship FLOW tokens. Once users start collecting FLOW, users can earn up to 20% annual rewards. The UK also houses Verlux, a Cardano blockchain-powered autonomous cross-chain platform. It allows businesses to swap collected NFTs on Cardano, thus lowering trade fees and enabling faster transactions. Verlux has also designed a staking platform for users to earn something extra while trading in NFTs.
Now that the NFT craze has rocked the digital world, London-based startup Mostexpensive.io is all set to build hybrid NFTs, combining both digital assets and physical goods. So, whenever a user buys NFT-H, they will get the object along with a digital certificate. Hybrid NFTs could find ground in a world where markets regularly go down, and NFTs are at the risk of losing value.
NFT Hype: Gimmick or Here to Stay?
While NFTs are shaping the global business ecosystem, critics have expressed concerns over the unregulated proliferation of crypto art. The think-tank Royal United Services Institute (RUSI) has raised alarms over the use of NFTs in financial crime and money laundering.
Since NFTs are part of an autonomous, decentralised system, it is highly impossible for security agencies to track dealings. Today, the risks of forging are as high as ever. March 2021 saw a case where hackers created a fake Banksy NFT and sold it for a whopping $300,000 (£223,000).
In addition, NFT mining is a highly unsustainable process. Most NFTs are carbon positive and leave behind a legacy of greenhouse emissions. As per the artist and creative technologist Memo Akten, an average NFT transaction releases 48kg of carbon dioxide, while mailing an art print produces only 2.3kg. There is another matter to consider about the ownership of crypto art. Unlike regulated legal contracts, NFTs cannot solve ownership or inheritance issues. No court in the world is yet specialised to deal with crypto assets.
It is too soon to predict the rise or fall of NFTs as a business medium. However, people can still build infrastructure as protection from fraud while trading in NFTs simultaneously. Businesses today are adding a non-fungible contract (NFC) as a clause protocol to protect token sales. Signing an NFC ensures investment avenues and liquidity to traders in a decentralised market. The concept of a carbon credit exchange could be another measure to make NFTs carbon neutral.
It is time to talk about democratising NFTs and how it can empower SMEs, artists or underrepresented parties to make a mark. A crackdown on crypto cannot serve as a long term-measure. It is now time to balance regulated monetary policies, and the benefits crypto assets can bring to economies.