NFTs came into public consciousness loud, boisterous, and colorful. The discussions of it were all price floors, celebrity autographs, and pixel avatars.

 

Even though these art markets introduced NFTs to the public consciousness, NFTs are becoming the invisible backbone of digital life as they move from a collectible to be owned to a living, breathing infrastructure for the internet of the future.

 

This transformation positions NFTs from the "product" to its most potent function, namely the key that unlocks experience, verifies identity, and proves ownership in a digital ecosystem.

What is an NFT?

An NFT (Non-Fungible Token) is a unique digital token that exists on a blockchain, verifying ownership and uniqueness of a particular item, such as digital art, a deed, a ticket, or a gaming character.

 

Unlike “fungible” items such as cryptocurrencies and money that are interchangeable, each NFT is unique and cannot be traded for another on a like-for-like basis. They ensure verifiable ownership, immutable history (provenance), and programmable functionality (via smart contracts).

 

Here’s a breakdown of the innovative and practical use cases for NFTs that are already being developed and are poised to transform several sectors:

Revolutionizing Gaming:

NFTs are changing the game from "play-to-enjoy" to "play-to-own." They are going to transform the entire gaming economy based on the concept of ownership of online goods.

 

NFTs are created to attribute value to in-game assets such as characters, skins, guns, and virtual worlds, and now, instead of only being able to rent them out from the game developers like users used to, they can own them.

 

This play-to-own economy allows players to buy, sell, and exchange goods on third-party open marketplaces outside of the game, creating a player-driven economy where valuable items can build value.

 

Also, NFTs allow interoperability, where users are able to use their digital identity and assets across compatible game worlds, so that their digital identity and assets are portable.

Real-World Asset (RWA) Tokenization:

This might be the most transformative application. NFTs are emerging as the deed system for the digital realm since they can become the digital twin of physical objects, and they signify ownership on the blockchain.

 

In this case, a high-value physical asset like real estate, a luxury watch, or a rare vintage car can be authenticated, and its ownership deed tokenized in the form of an NFT, which allows a valuable asset to be divided into several NFTs, while also greatly reducing paperwork, middlemen, and closing times for the sale of such physical properties.

 

This tokenization of real assets leaves room for fractional property ownership so that individuals can invest in a fraction of a commercial building without needing to buy the entire building.

Digital Identity and Credentials:

NFTs can replace centralized databases with tamper-proof, portable digital credentials that can facilitate instant verification and the control of the user over the extent of data they would like to share.

 

Universities like Basel and MIT have issued graduate diplomas as NFTs, allowing employers to verify authenticity without contacting institutions.

 

Healthcare providers could issue NFT-based medical records, enhancing privacy and portability.

 

NFTs can also be used for loyalty programs, memberships, and event tickets, preventing counterfeiting and allowing transparent resale.

Empowering Creators:

As long as anyone can recall, vague royalty rates and predatory record labels have been problems for artists. This problem can now be solved with a direct artist-to-fan avenue provided by NFTs.

 

Artists such as Snoop Dogg, Grimes, and Kings of Leon have released albums and exclusive material in the form of NFTs, providing fans with unique benefits such as co-ownership royalties, limited-edition merchandise, and backstage access.

 

Through sites such as Sound.xyz and Royal, fans can buy percentages of songs and receive a proportion of the streaming revenue. 

 

In addition to sales, NFTs can also contain metadata regarding rights, collaborations, and licensing agreements so that creators are appropriately compensated each time their work is streamed, sampled, or used.

Challenges NFT Faces

While NFTs possess tremendous potential, they also suffer from a plethora of issues that prevent mass adoption and endanger users and the ecosystem as well.

 

Here are the key challenges NFTs face:

Technical and Infrastructure Challenge:

Blockchain scalability and high gas fees make mining, buying, and selling of NFTs on high-demand networks such as Ethereum expensive, which makes low-value transactions impossible and disenfranchises less resourced users.

 

Furthermore, NFTs, which are often a token with a URL connection to make them actually work, can become "broken" if the hosting company goes out of business or the link fails.

Legal and Regulatory Uncertainty:

Intellectual property confusion and lack of clear regulation are major issues in the NFT market.

 

Buyers also most times wrongly believe that they have copyright over the underlying digital asset, while in fact, they hold a token representing their ownership.

 

Governments worldwide are having trouble classifying and regulating NFTs, putting risk on artists, platforms, and investors.

Market and Economic Challenges:

The market is inundated with NFTs of varying quality, creating a "boom and bust" economy and eroding confidence.

 

Each NFT is unique, making it extremely illiquid, therefore difficult to sell.

 

Price volatility is also a problem, with NFT prices spectacularly crashing on sentiment, celebrity endorsement, or even broader crypto trends.

User Experience and Accessibility:

The significant entry barrier and terrible user onboarding are significant barriers to the mass adoption of NFTs, as the complicated and dangerous process of navigating crypto wallets, seed phrases, and blockchain transactions overwhelms the average user.

 

This article is contributed by an external writer: Ferdinand.


 
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