You think NFTs are stupid? Here are a few ways they could change the game
Non Fungible Tokens, or sweetly called “NFTs” are a rising gossip amongst young and informed investors. The term has received a lot of attention in recent weeks as a mean of trading digital arts. This article’s cover is a digital art made by Mike Winkelmann which sold for a whooping 69 Million U.S Dollars. However, I believe there are more to NFTs than just being used for digital arts and breedable kitties, and that’s what we will take a look into. The real extent NFTs could be adopted to.
What are NFTs?
To understand this clearly, let’s peek into the definition of money. Money is a medium of exchange which is designed to kill the demerits of a barter system, which, our ancestors are infamously known for. A currency is pegged to have a uniform value wherever it is supported and whenever someone wants to exchange it’s value for goods or services. Every penny minted today is worth a penny, and it is equally worth the penny minted yesterday. No two bills issued by the same authority (and is promised to have the same value, as it is written on those bills) will ever have a different value. Sure, it’s value when compared against another currency, or an asset, might rise or fall. But one would not complain if you pay for their service with a 2016’s dollar bill, or a dollar bill with a different serial. All dollar bills have the same value.
Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. And this erased one of the issues which barter system possessed, Non-Fungibility.
Non Fungible goods are goods which need not possess the same value as even of it own type. Your iPhone does not possess a similar value to my iPhone as I value my phone more due to personal factors. But as listed on the Apple site, even if both our phones are of same monetary value, the additional factors which add or subtract value from various things leads to non fungibility and are not fit to be a medium of exchange. But tradable tokens, which are based off of this approach are called Non Fungible Tokens.
Okay, so what can I do with it?
Remember collecting Pokemon Trading cards back in high school? A shiny Charizard which every peer badly wanted? And your cute little collection of these cards, which you used to trade with other kids for something cool? Yep, they are now digital.
It would have been digital back then, but no one considered them of any value as the rarity couldn’t be proven. Anyone could Google a rare shiny Charizard and show it to you as theirs. Now that we have blockchains, which help in maintaining solid records of ownership, a count of total supply and all related history, we need not carry the slam book of collectibles with us anymore. All you need is your digital wallet.
NFTs are infamously known as the upcoming trend for collectibles. Be it arts, paintings, musical tracks, and even virtual land!
No kidding, virtual land!
One may still laugh at this bizarre concept, and especially, it’s use cases. I undoubtedly belong to that club, and hence, I’m penning down my thoughts on a few fields where NFTs could really be adopted and used in dramatically life changing ways. To list a few:
1. NFT as a collateral
If you have heard of NFTs, there is a good chance you would have also heard of DeFi, or Decentralised Finance. This isn’t an article about DeFi, so, to be short, it is a virtual bank which is neither owned nor controlled by any single person, banker or organisation. They provide cryptocurrency loans and allow you to deposit cryptocurrencies for an attractive interest rate.
One silly thing about it is the collateral used. We have to stake cryptos, for a loan of cryptos. A question of common sense would be “why would someone borrow cryptos, if they already had enough to place it as a collateral?”, and that’s a question these DeFi apps were never able to solve in their early days.
Fear not, NFTs is viewed as a potential solution to this problem. Digital assets, with provided a value, could also be mortgaged for loans. Blockchains possess the transaction history of every NFT in its ledger, from the time its minted, to all the hands it has passed through to get to you. We could (it is not done by every platform) also get it’s value history, and also figure out a way to check for market demand of that NFT being staked, to give it a value and exchange it for fungible tokens as a collateral, which are cryptocurrencies in this case.
This could change the meaning of DeFi and make it a little closer to “Finance”. Many countries, which have a really messed up banking system can truly benefit from such a virtual system, and we can work towards making the ideal and global banking system.
2. NFTs as a verification system
So far, we have discussed NFTs only from a virtual perspective. But it is also possible to link NFTs to real world objects to prove ownership. Lost your bag? fear not, you can now prove it using the blockchain’s ever existing history of ownership. All you need to do is have sufficient proof that you are the owner of the bag (say a purchase invoice) and mint it as a NFT. Print a QR code and tag it with your bag. There you go, its your bag with sufficient proof which cannot be duplicated.
This hypothetical idea is far from today’s reality, but it is theoretically possible to do this. We just need better verification and infringement checking systems, which our lovely developers would be working on sooner or later. There are systems which already help in tackling counterfeit products delivered in the market using NFTs. It just has to get efficient enough to be able to tackle anything and everything.
It may not be possible today, but it will be someday.
3. NFTs as official records and identity
There are so many countries which lack basic record management and identity verification systems. NFTs are ideal for combating identity theft. Academic documents, personal identity cards and medical records are some of the things which could be easily digitised to represent one’s identity. The application of NFTs to assist in proving identity is already implemented for a couple of years now. Cardano, a cryptocurrency project, recently proved by building the verification system of educational records of the students of Ethiopia. Which is huge, and proves mass adoption of NFTs could be faster than the world expects.
4. NFT as representatives of real world assets
Remember we talked about virtual lands? The sad part is, in most countries, real estate and “real” land ownership is still conducted offline and both buying and selling parties have to meet at a registrar to complete a transaction. And this is not any third world country, most well versed and technologically advance countries still couldn’t figure out a way to allow trading and transaction of real world assets online as it possesses high risk of money laundering. This could now be erased with NFTs. With a little careful planning, countries can adopt NFTs to represent land ownership and allow transactions over the interwebs, without fearing any potential threats. It also allows citizens to trade real life assets like how we traded Pokemon cards back in the days.
If you are reading this article before the aforementioned potential use cases have been realised or implemented. You are an early bird! Welcome to the club where people understand the true potential of NFTs, and see it’s development far from just collecting NBA top shots and breeding CryptoKitties. If you find any valuable NFTs in marketplaces, and you think it could have a big demand in the future. It would not be a bad call to exchange it for some Binance coins (I personally prefer Binance smart chain over Ethereum due to the low transaction fees and flexibility it provides).
Also, this is my first medium post, I am not a writer, I code for fun, and thought I should pen my opinions to clarify misconceptions people have about NFTs. I also don’t really know how Medium works, so if you could like, share and comment (as YouTube does), please do!