The Ultimate Non-Fungible Tokens (NFTs) Guide: Use Cases, Ecosystem, Benefits & Challenges
In this article, the NFTs phenomenon is explored in several aspects, starting with an overview of the NFT main features and their standards, then providing NFTs use cases, state-of-the-art NFT solutions, ecosystem landscape, and market overview. Afterward, the benefits and challenges of the NFT technology are discussed.
Non-fungible tokens (NFTs) are cryptocurrency tokens that replicate tangible attributes of physical items like uniqueness, scarcity, and proof of ownership. At the same time, they represent unique, intangible, and irreplaceable digital items based on the blockchain. NFTs are being applied to physical and virtual assets to monetize their value.
NFTs are not interchangeable. They are distinguished from one another by metadata and unique identifiers like a barcode that allows them to associate themselves with particular on-chain addresses. Metadata makes them an ideal instrument for confirming ownership of assets. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin or Ethereum. For example, one Bitcoin (BTC) is always equal in value to another. Similarly, a single unit of Ether (ETH) is always equal to another. This fungibility characteristic makes cryptocurrencies suitable as a secure medium of transaction in the digital economy. NFTs shift the crypto paradigm by making each token unique.
Today, the majority of NFTs are created on the Ethereum blockchain, which is basically a store of data that cannot be altered. Such data can be associated with files containing an image, a video, or an audio file.
While digital collectibles continue to attract the most attention in the crypto community, NFTs’ use cases continue to increase and expand from the general ones like digital art and games to fashion, music, academia, tokenization of real-world objects, patents, membership sales, and loyalty programs, domain name ownership, decentralized finance (DeFi) and metaverse items.
Part I: Technology and standards
Technology
Blockchain
Blockchain provides a solution to the long-standing Byzantine problem, which has been agreed upon with a large network of untrusted participants. Once the shared data on the blockchain is confirmed in most distributed nodes, it becomes immutable because any changes in the stored data will invalidate all subsequent data.
Logically, blockchain can be seen as consisting of several layers: infrastructure (equipment); networks (discovery of nodes, dissemination, and verification of information); consensus (Proof-of-Work, Proof-of-Stake); data (blocks, transactions); applications (smart contracts) and decentralized applications (dApps).
The overall development of blockchain technology can be divided into three streams and briefly described as shown in Figure 1. The first stream is “Blockchain 1.0”, a primitive level that includes cryptocurrencies such as Bitcoin, Ethereum, and others. The second stream is “Blockchain 2.0”, which has embedded distributed ledger agreements and related underlying technologies such as smart contracts and modified consensus protocols. The next-generation blockchain is called “Extensive”, it includes solutions for scalability and network interoperability, as well as specialized blockchains, such as, for example, the Flow blockchain, created for hosting and collecting NFTs.
Smart contracts
Ethereum developers further implemented smart contracts in their blockchain system. Blockchain-based smart contracts adopt Turing-complete scripting languages to achieve complicated functionalities and execute thorough state transition replication over consensus algorithms to realize final consistency. The objectives are to reduce the need for trusted intermediates, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions. Smart contracts technology enables decentralized participants to conduct fair exchanges without a third party and further propose a unified method to build applications across a wide range of fields.
These applications operating on top of smart contracts are based on state-transition mechanisms. The states that contain the instructions and parameters are shared by all the participants, thus guaranteeing transparency of the execution of these instructions. Also, the positions between states have to stay the same across distributed nodes, which is important for consistency. Most NFT solutions rely on smart contract-based blockchain platforms to ensure their order-sensitive executions.
NFTs standards
Basically, a token standard defines the smart contract and features that the token issued by it has. Today, there is a diversity of standards created on different blockchains.
Ethereum
The Main Ethereum standard is ERC-20. It refers to fungible tokens that function as regular cryptocurrency. ERC-20 tokens are smart contracts that provide great flexibility and functionality and can act as a financial asset, utility asset, or currency. Also, ERC denotes a set of rules that help developers improve the process of creating a standard Ethereum-based token, while ‘20’ is the unique identification number for the proposal. The main difference between ERC-20 and other cryptocurrency standards is that it is tied to Ethereum and can only be used within this network.
The NFTs phenomenon evolved from the Ethereum ERC-721 standard, developed by some of the people responsible for the smart contract with the same name. ERC-721 tokens are non-fungible. Each ERC-721 token is unique and cannot be duplicated. ERC-721 can be priced independently, this is why out-and-outer rare assets such as a digital art piece or a song can be represented by such token and stored offchain. ERC-721 defines the minimum interface — ownership details, security, and metadata — required for the exchange and distribution of tokens. Today ERC-721 is the most commonly used token standard.
Other notable non-fungible standards on Ethereum which aren’t as widely used as the ERC-721 standard are the ERC-998 and the ERC-1155 token standards.
ERC-998 tokens are ‘composable’ which means that assets within this type of token can be composed or organized into complex positions and traded using a single transfer of ownership. ERC-998 tokens are similar to ERC-721 as they are both non-fungible. Moreover, they can uniform fungible tokens such as the ERC-20.
The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract. It allows users to register fungible and non-fungible tokens using the same smart contract and address. This standard was developed with games in mind where fungible tokens could represent a transactional currency in a game and the non-fungible items could represent in-game collectibles and in-game exchangeable assets.
ERC-721 — non-fungible tokens.
ERC-223 — much like ERC-20 but with a feature that ensures the tokens are only sent to compatible addresses. This prevents loss of access to the tokens since they cannot be retrieved from incompatible addresses.
ERC-827 — allows the approval of fungible token transfers so the tokens can be spent by an on-chain third party.
ERC-777 — an improvement on ERC-20. Users can send tokens on behalf of different addresses.
ERC-1155 — a smart contract that allows users to manage Ethereum tokens of many types. It can contain ERC-20 or ERC-721 tokens and it works for all types of assets: fungible and non-fungible.
ERC-1137 — a token standard designed for recurring payments. It works well for subscriptions requiring payments at certain intervals.
ERC-998 — a smart contract that allows users to merge several NFTs into one NFT.
ERC-875 — a smart contract that allows users to transfer several NFTs in a single transaction.
Flow
Smart contracts on the Flow blockchain are written in Flow’s native language, Cadence. A unique feature of the Flow is that developers can release their Dapps in beta while updating the code as problems arise since Flow allows for ‘Upgradeable Smart Contracts’ development. Such smart contracts can be deployed in a ‘beta state’ and then be incrementally updated by the original authors until they are satisfied. Users will be notified that this smart contract isn’t finalized yet and can choose to wait until it is completed before trusting it. Once the original authors of the smart contract are satisfied with their code they can irrevocably release control and it becomes immutable from that point forward.
BNB Chain
BNB Chain has its own token standards that are quite similar to Ethereum ones.
- BEP-721 is like ERC-721 but on BNB Chain. BEP-721 offers all the benefits that come with this chain such as faster transactions and lower transaction fees compared to Ethereum. Thus, if users want to trade NFTs and pay less gas, BEP-721 is a good solution.
- BEP-1155 is like ERC-1155 since it offers the ability to issue several unique tokens at once in one smart contract. BEP-1155 tokens can be both fungible and non-fungible. This standard also provides support for atomic swaps and ’batch’ transactions.
Tezos
FA2 (TZIP-12) is standard for a unified token contract interface, supporting a wide range of token types and implementations such as fungible, non-fungible, non-transferable as well as multi-asset contracts. Therefore, FA2 contracts can be designed to support a single token type (like ERC-20 or ERC-721) or multiple token types (ERC-1155) to optimize batch transfers and atomic swaps of the tokens. It gives developers a lot of flexibility to define and invent new token types which can support complex token interactions while maintaining a standard API for external applications and wallets. These token structures can include NFTs and contain numerous different gaming items with interactive and transmutable features.
FA1.2 (TZIP-7) is an ERC-20-like fungible token standard for Tezos. At its core, FA1.2 contains a ledger which maps identities to token balances, providing a standard API for token transfer operations, as well as providing approval to external contracts (e.g. an auction) or accounts to transfer a user’s tokens.
TZIP-16 is a standard for accessing contract metadata in JSON format in on-chain storage or off-chain using IPFS or HTTP(S).
Kusama / Polkadot
‘The rules for how to interpret this are called specifications or standards, and RMRK is one such set of rules. RMRK deals with applying rules to remarks, which is what we call blockchain graffiti on Substrate-based blockchains like Kusama or Polkadot.’ — RMRK Docs
The beauty of NFTs built on RMRK is that they are not the usual still images you find as NFTs. These NFTs come with extra functionalities, and users can interact with them, and they allow the creation of highly customizable protocols.
Other NFTs standards
Part II: Use cases
NFTs’ potential use cases include prominent ones like digital art, collectibles within gaming, music, fashion, sports, decentralized finance (DeFi), tokenization of real-world objects, domain name ownership, licenses and certifications, and others. Furthermore, NFTs could be used to track metadata, improve event ticketing and even transform real estate.
This section discusses 20 main NFTs areas of use. A summarized version of the NFTs use cases is given in Figure 3.
Intellectual property and patents
NFTs allow users to prove their rights to any piece of content, which is not possible with traditional intellectual property rights protection tools such as trademarks and copyrights. Ownership of an NFT can be distinguished, especially by timestamps, throughout the history of the NFT. Blockchain is immutable, meaning that the owners of the NFT can prove that they are the original creators of a particular piece of work at any given time.
Similar benefits apply to patents. NFTs can be used to protect and prove ownership of innovations or inventions. NFTs can also provide the necessary data for verification, thus creating a public ledger in which all transactions related to patents are documented and stored.
Art
Like its counterpart, physical art, digital art can be sold by artists and bought by art collectors and enthusiasts. However, it is also subject to counterfeiting or theft. The NFTs technology can help track the originality of a specific piece and reduce or completely eradicate counterfeit artwork in circulation no matter if it is a physical or digital artwork.
NFTs address the long-standing digital art scarcity issues on how to keep virtual artworks rare if they can be copied digitally. The use of NFTs in this regard gives each piece of art a unique hash that allows it to be differentiated. Artists of original artworks can include their signature in NFTs, thereby reinforcing the authenticity of the content created. While it is possible to make copies of digital art, NFTs ensure that each copy is solely owned by the purchaser so that it is not interchangeable with another copy, increasing the art’s appeal to amateur collectors and speculators. Subsequently, users could view the entire history of the artwork, including the previous prices at which it was purchased and ownership.
Tokenization of digital art by means of NFTs has enabled the artists to not only gain more profits from the sales of their work but also receive a royalty each time their artwork is transferred to a new owner. The concept of royalty was previously impractical, especially in the case of physical art, as it was difficult to trace its ownership. The incorporation of NFTs has enabled novel monetization opportunities for artists to be compensated for their craft.
Music
Collectibles
Crypto collectibles are a significant entrant among non-fungible token use cases. They are designed in most cases to be bought, sold, and traded as one would with a baseball card. Such collectibles are tied to unique identifiers, which makes them scarce and feeds into the entertainment value associated with purchasing and swapping them — they are truly one of a kind, or at least limited to a defined number.
Games
There is a huge demand in gaming for unique items that can be sold and bought. Their rarity directly affects their price, and gamers are already familiar with the idea of valuable digital items. Microtransactions and in-game purchases have created a multi-billion dollar gaming industry that can leverage NFT and blockchain technology. There is also an exciting area in terms of what NFTs are. Video game tokens combine the elements of art, collectibles, and player utility. However, when it comes to high-budget video games, NFTs are still a long way off.
In 2021, NFTs gained significant attention from the gaming community and developers as they provide an opportunity to own data for in-game items, fuel in-game economic systems, and provide many other perks to facilitate the players. Many standardized games allow players to purchase various inventory items and objects. However, if the purchased item is an NFT, the player can claim a refund by selling the item when they no longer need it. The player can even make a profit if the value of the said item increases over time. This process is beneficial not only for gamers but also for developers in many ways. Every time an NFT is sold on the market, the developers also receive royalties. This leads to a more interdependent profitable business environment in which both players and developers profit from the NFT intermediate market. This also indicates that if the developers stop supporting the game, the items accumulated by the players remain their property.
“Gaming is really exciting, as you already have billions of people who are buying digital goods inside of games,” said Devin Finzer, CEO of OpenSea. The reason we haven’t yet seen an even wider adoption, said Finzer, is that “the development cycle is a little longer with games than with simpler arts and collectible projects. There’s a little more of a delay.”
To summarise, NFTs give game developers another way to expand their brand and create another revenue stream, while gamers are given more incentive to keep playing a game if they already own characters or items within it. Needless to say, NFTs can be integrated into gaming worlds by allowing NFT cross-platform playability.
Sports
NFTs are completely transparent which is a great benefit for users. For example, NBA cards use a rating system, and the original owner has no idea about their location or the value of the card. With NFTs, the value of these NBA cards can be tracked digitally. Since the NFT has introduced a new way to generate income, it is more beneficial for athletes and fans than traditional ways such as advertising. It is also a new approach to connecting with fans and providing them with a unique experience. As more athletes and celebrities get involved in the NFT space, there is a growing number of things that can be tokenized and traded as NFTs like digital autographs, avatars, stickers, and animations.
Blockchain is serving as the perfect alternative for resolving such crucial issues plaguing the sports industry as counterfeit tickets and merchandise without any complications. The immutable nature of blockchain technology helps in preventing it.
Fashion
The use of NFTs in fashion is still a relatively new concept, in the pandemic, due to the closure of physical stores, the fashion industry is trying to expand its perspective by venturing into fashion technology. Companies have already begun incorporating new technologies such as AR, VR, and NFTs into physical items to distinguish ownership and maintain exclusivity. NFTs as a blockchain technology have been able to fit seamlessly into the fashion world, guaranteeing benefits for all participants in the supply chain. Consumers could easily verify the ownership information of their products and accessories digitally, thereby reducing the risk of counterfeit fraud. Users could simply scan a QR code on the price tags with apparel and accessories that are in the form of NFTs.
In this way, consumers could get a clear view of details such as the location where the asset was created. In addition, consumers could know details about the people who owned the asset before the buyer bought it. The introduction of blockchain into the fashion world has played a pivotal role in reducing carbon emissions. As a result, they can improve the well-being of employees along with customer protection. Thus, NFTs could create a new type of blockchain for the supply chain in the fashion world.
Luxury fashion brands are taking advantage of the unique ownership, permanence, and royalty benefits of the NFTs solutions. Many fashion brands are using their online presence to expand but still remain economically out of reach of the masses, who support the demand for counterfeit and replicated goods. Businesses are losing large sums of money due to counterfeits of their brands, the consequences of which can be prevented by NFTs, if not completely eradicated.
Event ticketing
Currently, the ticketing system is devoid of memories, which serve as a reminder of the memorable occasions of previous events. NFTs introduced the new functionality and memorability of tickets. The paper ticket can be lost or get wet and damaged. In addition, traveling with a paper ticket is difficult due to the possibility of losing it. Also, organizers do not get enough protection with paper tickets, which are easy to forge. QR codes proved to be a viable option for organizers but proved to be inefficient in terms of attendees purchasing them.
The NFTs ticketing scheme is quite simple. Event organizers can mint the appropriate amount of NFT tickets using their preferred blockchain platform in the ticketing system. They can code the NFTs to establish a sale price or conduct the sale as an auction in which participants can begin bidding for tickets. Customers then purchase NFT tickets and save them in their mobile wallets. They generate NFTs upon their visit to the event.
There are a lot of advantages of utilizing NFT-ticketing, since they have the ability to improve both the attendee and organizer experience when purchasing tickets.
First of all, such a system prevents forgeries and frauds. Blockchain technology establishes a single point of truth for both ticket holders and organizers. The movement of NFTs from the original sale to resale is immutably recorded on the blockchain, allowing all parties to independently verify the ticket’s legitimacy. In situations where the resale of tickets is prohibited, NFTs can be created as non-transferrable, and unable to be physically transferred to another customer.
Also, compared to the old ticketing system, the expenses involved with selling and minting NFTs are minimal. You may obtain an unforgeable ticket at a lower manufacturing cost, allowing customers and organizers to verify the validity of each ticket in the chain and monitor its ownership history.
Because programmable NFTs can include built-in rules for merchandise, content, resales, and royalty splits, the organizer can analyze profit sharing percentages for future resales or creative content on secondary markets and collect funds with the assurance that they will not be altered within the NFT’s coding.
NFT-based tickets serve as programmable money, creating an infinite number of new revenue streams. For instance, reselling NFT tickets as collectibles, utilizing NFT tickets to offer food and beverage discounts, and rewarding fans who have amassed a large number of event tickets.
Moreover, it is very time savvy. In less than a minute an NFT may be minted and ready to be sold. NFTs could be emblazoned with artwork and serve as concert memorabilia. Or maybe visitors will even make money by attending the show.
Domain names
Domain NFT (also known as decentralized domain, crypto domain, or blockchain domain) is a unique domain represented by a single NFT.
A domain NFT offers several exceptional advantages to traditional domains. First of all, they are usually one-time purchases, in comparison to the annual renewal fee-based traditional Web2 domain business models. NFT domains are also 100% user-owned, meaning a centralized entity such as GoDaddy or Google Domains can’t censor or repossess your domain at their will. What makes domain NFTs so interesting is that they can also function as cryptocurrency public addresses, meaning that the domain can send and receive other compatible cryptocurrencies and tokens as payment.
To sum up, they are domains that live on public blockchains and give users complete ownership of their stored data with the benefits of owning one and simplifying crypto transactions by replacing wallet addresses with the domain name and easily creating and hosting websites on Web3.
Metaverses
The metaverse refers to a simulated digital environment that combines multiple elements of technology, such as AR, VR, MR, and blockchain, along with social media concepts to create spaces that enrich users’ interaction by mimicking the real world.
It is a theoretical concept of a digital 3D world that users can enter via VR headsets. In this virtual world, they have a “body” (avatar) that they can customize, a home to fill with the stuff they like, and hundreds of spaces to visit. In metaverses, users can interact with others, do work, play games, and basically perform most of the activities that they do in everyday life.
In the proposed NFT-based metaverse, users can own things like avatars, land, digital clothing, and other items and move them between platforms through their crypto wallets. Interoperability is key for crypto startups pushing the technology: it’s not just about being tied to one platform from Facebook, Google, or any other tech giant.
Blockchains behind the top metaverses:
Ethereum — is the most popular blockchain with the ability to create third-party projects.
Cardano is a public blockchain platform with consensus achieved using proof of stake. It was founded in 2015 by Ethereum co-founder Charles Hoskinson.
Solana is an open-source scalable and energy-efficient blockchain that has become wildly popular in 2021. In terms of development, Solana is very different from others, it uses the Rust programming language.
Polygon is a decentralized Ethereum scaling platform that enables developers to build scalable user-friendly dApps with low transaction fees without ever sacrificing security.
BNB Chain is a blockchain that was developed by the team of the largest crypto exchange Binance.
Decentralized finance (DeFi)
DeFi Decentralized finance (abbreviated as DeFi) is an umbrella word that refers to peer-to-peer financial services provided on public blockchains. Most of the things that banks allow you to do — earn interest, borrow, and lend; buy insurance; trade derivatives; trade assets; and more — are available to you through DeFi. Plus is far faster and does not necessitate the involvement of third parties.
Since NFTs depict the financialization of digital products and services, NFT setups and marketplaces have come to be an undeniable thriving sector of DeFi. Like Ethereum has employed ERC-20s to embody digital assets, NFTs can be comprehended as provable ownership rights for digital art. NFTs enable asset tokenization, and DeFi provides decentralized access to financial services.
The holders of RARI tokens, which include producers and collectors, are able to vote on platform enhancements while also actively participating in the moderating of the marketplace itself. RARI has also included a non-profit trust index, which serves as a portfolio for non-profit trusts to assist all collectors in seeing the artworks and selecting the most appropriate one for investment.
Supply chain
Blockchain technology can be useful in logistics, particularly because of its immutability and transparency. These aspects ensure that supply chain data remains authentic and reliable. With food, commodities, and other perishable goods, it’s important to know where they have been and for how long.
NFTs work for supply chain purposes because companies are particularly concerned with maintaining trustworthy digital data related to their physical world assets. Therefore, companies can benefit by using NFTs to represent their physical assets digitally. Some ways in which NFTs address supply chain needs are in the areas of tracing products through supply chains, identifying product origin and authenticating ownership, and verifying product certifications.
Product origin and authentication
NFTs can be used to verify the authenticity of the product users are purchasing. Since the blockchain can permanently store product information, rarity and authenticity checks became relevant for physical products as well. NFTs can also be used to store information about the manufacturing process, ensuring everything is fair trade.
One of the crucial problems is fake food products such as supplements and drugs. NFTs can help solve this problem by tracking and tracing food products. Imagine that you simply scan the QR code of a nutritional supplement you bought online and see its entire journey from production to shipment. In this case, products that erroneously claim to have been made and sourced in a particular country will end up being debunked because the track record is transparent.
Traceability
Product traceability and provenance is a popular use case of blockchain technology. In many industries, blockchain and tokenization are applied to track products such as food, medicines, or fashion items. Tokens are used to track the exchange and movement of goods throughout a supply chain. By creating NFTs for products or product batches, a unique digital twin can be created that is linked to unique identifiers of the physical products.
Because NFTs can represent real-world objects, supply chains can use NFTs to track a variety of products and materials. To track physical world objects via NFTs, the owner must create a digital representation of the physical object on the blockchain so that transactions related to the physical object can be safely stored and tracked.
Product certifications
Business documents such as certifications, invoices, and sales orders always contain a unique identifier. These types of documents can also be represented by NFTs.
The modern-day consumer is selective about product certifications. As a result, providing consumers with trusted certifications such as ‘organic’ or ‘fair trade’ can increase sales. To accomplish this, third-party certifiers for product standards or labor safety requirements could mint an NFT with the appropriate certification onto the blockchain, which supply chain members would pass downstream until it reaches the end-user in the supply chain who can ultimately access the certification via a web link.
DAOs
Decentralized autonomous organizations or DAOs are built on the focal concept of decentralization, introducing organizations run by groups of people with no typical business hierarchy. In DAOs, the rules and transactions of the group are recorded and managed on the blockchain, removing the requirement for central entities.
There are many different kinds of DAOs already in place today.
Social DAOs: A collaborative platform for social networking in the crypto landscape, often involving a number of members with a common interest.
Investment DAOs: Venture or investment DAOs allow people to come together to raise money for a variety of DeFi activities. These organizations are ideal for attracting younger investors in search of transparent money-making opportunities.
Collector DAOs: Collector DAOs are specifically focused on the NFT landscape. These allow members to fractionally own various high-priced digital assets as a group.
Grant DAOs: One of the primary functions of DAOs, grant DAOs allow users to collect funds in a central pool and allocate those finances based on community votes.
Protocol DAOs: Protocol DAOs involve using various smart contracts to provide decentralized financial services.
All these types of DAOs can benefit from the connection with NFTs.
One of the ways NFTs and DAOs are closely connected is in the form of collector DAOs, a kind of decentralized organization specifically focused on the collective ownership and the development of NFT communities.
The second case here is community governance with NFTs.
DAOs operate on specific sets of rules established using smart contracts in a blockchain. Through smart contracts, these groups can create transparency in their operations. No central authority can override or make changes to the smart contract, as changes are only made with a community vote.
Users usually need tokens to participate in DAOs, and token ownership usually comes with various voting and governance rights to ensure users can influence decisions in the wider group. As a result, NFTs naturally play an important part in how DAOs generally operate. NFTs could be something a member of a DAO will need to have access to in order to make meaningful changes in the organization.
Identity
Blockchain technology has introduced a new chapter to the world of identity management and cybersecurity through a decentralized system of data protection. The intention is to keep the sensitive information of individuals and organizations safe from malicious attacks by a third party or hacker. It can also be used to track the identities of individuals and items. Its security innovations revolve around: decentralized technology, security through blocks, private and public blockchain, and smart contracts.
Self-sovereign identity (SSID) has long been one of the most intriguing applications of blockchain technology, and NFTs could be the key that unlocks the door. NFT-secured virtual selves may in many ways become more secure than identities in everyday life. Passwords can be stolen, biometrics hacked, and passports forged. Identity secured in the blockchain is more difficult to fake and steal. From a privacy standpoint, NFTs could spell the end to online anonymity, but there are a fair amount of benefits to having a completely verified network, including a reduction of fraud, crime, and maybe even nasty comments.
Furthermore, an identity validation-dependent process such as voting could be integrated with NFTs. It is known that in many countries, voters are required to bring a photo ID and proof of residence with them when going to polling booths to vote. However, many are being disenfranchised as they do not have copies of their IDs or any form of documentation that will prove where they live, or if they are even registered to vote. NFTs can help solve this problem since they would provide a digital identity for people without physical documentation that proves who they are and where they reside in the country. This will also help eliminate cheating and voter fraud as NFTs will serve as an official record of those who voted and their votes.
Medical records
NFT-ledgers can store an individual’s medical records without compromising confidentiality or risking tampering from external sources since NFT transactions are validated on multiple nodes before being added to the blockchain permanently — ensuring that every record is accurate and secure from malicious attempts at manipulation.
NFT applications have been designed specifically to aid healthcare professionals as well — one such example is NFT Birth Certificates that can be issued to newborns by healthcare providers. Issuing one of these NFTs for each child can be an effective way to quickly create a lifelong identity on the blockchain that’s linked to their birth certificate — which is then verified with NFT verification apps.
NFT ledgers also provide safer methods of storing sensitive medical data while still allowing authorized healthcare providers access when required. Narrowly-defined NFT use cases have emerged in recent years where hospitals, health insurance companies, and other organizations are beginning to explore how blockchains could help improve hospital operations by verifying patient identities and recording medical procedures performed without compromising patient confidentiality.
More importantly, that information is valuable. “In the era of big data, health information is its own currency; it has become commodified and profitable,” says Dr. Amy McGuire, a senior author of the paper. Ownership of it, via the NFT blockchain ledger, could let individuals track the sale of their data — or stop it, or even cash in. “Using NFTs for health data is the perfect storm between a huge market place that’s evolving and the popularity of cryptocurrency”.
Memberships and community development
NFTs are the best way of producing and maintaining membership proof for clubs, events, or communities. Since they are blockchain-backed, they can be used as digital tickets to various events as well as exclusive clubs. They may even be used to access limited edition articles and items that are out of reach for many.
Also, with increasing exposure to social media, users and fans are spending more and more time online. These influencer-loyal / celebrity-loyal folks can be offered limited edition NFTs of their favorite entity along with special benefits. The privileges could range from entry to meet-and-greet events to restricted-access merchandise or even access to live events. Brands that are able to identify their die-hard followers can drop some limited edition NFTs in the market and reward them with some enhanced offerings to expand the community of fans.
NFTs have a lot of potential over and above their highly secure protocol. The possible applications of the technology are plentiful and could be harnessed to unlock all sorts of possibilities even if the buzz around them dies down.
Licenses and certifications
NFTs use cases can also lend profound benefits for license and certificate validation. Assigned to individual licenses and certificates, NFTs can minimize the time and effort that companies have to expend on reviewing critical documentation, in this way improving administrative operations.
Certification and licensing agencies can eliminate the workload of record checking, record keeping, and verification as each document has a unique NFT that can be checked for authenticity. The issuance of the licenses and certificates on the blockchain makes them resistant to forgery, which reduces the likelihood of detecting fraudulent documents.
Academic credentials
NFTs are also a good way to represent academic credentials. NFTs can provide proof of attendance, degree earned, and other important information which will be stored on the NFT chain that cannot be altered or hacked into. NFTs can create immutable records for courses taken by issuing tokens for each course completed along with verifying any degrees earned through smart contract verification systems.
In the future, issuing a paper certificate will no longer be a thing. NFTs will be used as a record of academic achievement and NFT education tokens can be transferred to other individuals, giving them proof that the person holding it earned such an NFT.
Real estate
Real estate is also one of the profound entries among use cases of non-fungible tokens, and today its industry is one of the most NFT-ready sectors.
One of the downsides of investing in it is the hassle of transferring property ownership. It currently takes a tremendous amount of paperwork to buy a property or open an equity line. With an NFT, the transaction process is streamlined, allowing a buyer to assume ownership of a piece of real estate within minutes. In this way, NFTs could be used to transfer land deeds, provide proof of ownership and even keep track of changes in property value over time using timestamped NFTs.
NFTs can simplify and speed up transactions, enable smart contracts for properties — allowing automatic payments — and create decentralized home rental services — all while protecting sensitive data like credit card details.
Real-world asset NFTs
Linking real assets with NFTs could digitize the way people prove ownership. For instance, in real estate, they usually deal with physical property deeds. The creation of tokenized digital assets of these deeds can result in the movement of highly illiquid items such as a house or land onto the blockchain. When it comes to this promising case, there is still not much support from regulators so far. It’s in development, but it is worth looking into in the future.
When it comes to small items such as for example jewelry, NFTs can help prove legal ownership in resale. Thus, a real ethical diamond usually comes with a certificate of authenticity. This certificate is also a way to prove the ownership rights. Anyone attempting to resell an item without a certificate cannot verify its authenticity and may run into trouble convincing buyers that they are the rightful owner.
The same concept is possible with NFTs. By having an NFT associated with an item, owning an NFT can become as important as owning an asset. Users can even embed an NFT into an item with a physical cold storage wallet. And as the Internet of Things develops, more NFTs being used to represent real assets will be likely to see.
And many more…
Part III: Ecosystem and market overview
NFT landscape
Over the past two years, the NFT landscape evolved from a miniature ecosystem with a few hundred million in sales volume to a multi-chain ecosystem with several layers that can be distinguished. Each layer has specific characteristics and goals, performs certain functions, and has a number of projects specializing in this area.
Layer 1
Layer 2
Storage
Application layer
Secondary applications
NFT financialization
NFT issuance platforms and marketplaces currently make up one of the largest categories of non-fungible tokens protocols and are one of the more obvious market opportunities given the business model.
Aggregators
Main industry players
Here is the list of the significant NFT industry players divided by categories.
📒 Mass-marketplaces 🛍️
- OpenSea — The is an NFT aggregator and the ruler of the ecosystem. It’s an overall one-stop-shop that allows users to trade NFTs, create NFTs, view data, and inspect other wallets ranging from gaming items, virtual real estate, and digital collectibles to crypto art, basically everything that can be wrapped in an NFT. It is one of the largest NFT marketplaces in terms of transaction volume. Announcing the funding round in a blog post in January, co-founder and CEO Devin Finzer noted that the “NFT ecosystem exploded last year, with OpenSea’s transaction volume increasing over 600x in 2021.” OpenSea stores the media files or content to the NFT on an InterPlanetary File System.
- LooksRare is the hot new NFT marketplace challenging OpenSea and the community-first marketplace with rewards for participating. The platform was launched in January 2022 by two anonymous co-founders — who go by Zodd and Guts. The site had planned to add new features to lure NFT enthusiasts, according to a blog post at the time. Almost all of those initiatives have focused on the incentive program built around the Looks token awarded to active users of the platform. The ability to earn tokens, while a prominent aspect of DeFi, is a relatively new feature to NFT platforms. Rarible was among those that pioneered the idea last year.
- Magic Eden — Magic Eden is the leading NFT Marketplace on Solana that allows users to buy, sell and trade unique digital assets. It is built on the Solana blockchain but at the same time, it allows users to interact with each other in a trustless environment.
- Solanart is the largest fully-fledged NFT marketplace on Solana that allows easy access to digital collectibles and ways to explore, buy and sell NFTs.
- Async Art — Programmable art platform Async Art allows artists to create multiple and layered NFTs from one piece of art that can alter their form dynamically. Interestingly, these NFTs can change their “state” and therefore are not static like a painting, but rather dynamic like an ever-changing movie. For example, an art piece can change from a sunny island scene to a stormy island if someone changes the state from sunny > stormy.
- Mintbase — A marketplace to buy, sell, and mint NFTs. Mintbase’s major differentiator is that it offers NFTs that are not commonly found on other platforms. For example, Mintbase covers niche NFT categories like music, memberships, services, tickets, news, and photography.
- TokenTrove — A marketplace to buy and sell gaming and the virtual world-related NFTs for the likes of Gods Unchained, Cryptovoxels, and Crypto Space Commander.
🧓 Curated art platforms 🎨
- SuperRare — One of the earliest and most dominant curated crypto art marketplaces. Artists must apply to start selling on SuperRare and there is a long waitlist.
- Nifty Gateway — Nifty, slang for NFT like NiftyCryptoNomad, Nifty Gateway is an NFT art platform that has become an extremely important player in the NFT scene. It is wholly owned by Gemini, the crypto exchange started by the Winklevoss brothers.
- MakersPlace — As the name implies a place to make and create NFTs. The art platform allows artists to tokenize and trade their work.
- KnownOrigin is a platform where artists can mint and trade crypto art. Having launched in 2018, they are another OG in the NFT art scene.
- Palm is a collective of technology, entertainment, crypto art, and art industry leaders. The studio provides creative services for artists and rights holders looking to establish NFT marketplaces and next-generation work on Palm. It was brought together by ConsenSys founder and Ethereum co-founder Joseph Lubin, film producer and owner of Heyday Films, David Heyman, and founder of world-class art house HENI Group, Joe Hage.
🆓 Permissionless art platforms 🎨
- Rarible — The first NFT art marketplace to implement a token (RARI) that incentives trading. This is a big brain move, which many will follow. By buying, selling & participating on the platform you earn RARI. Additionally, they made headlines with a mixture of DeFi, insurance and NFT minting when they began offering wrapped NFTs-DeFI-Insurance on Rarible.
- Zora is a universal media registry protocol. A media register is a centralized, simple, and effective way of tracking and managing copyrights. It is a platform for creators to share their work, earn money from it, and have others build and share it with them.
- Foundation is an Ethereum-based NFT marketplace that launched in 2021. It’s a platform that aims to build a new creative economy where creators can use the Ethereum blockchain to value their work in entirely new ways and build stronger connections with their supporters.
- Cargo, is the all-in-one multi-chain non-fungible token management platform. On the platform, users can create, store, sell and buy digital collectibles from Ethereum, xDao, Polygon, and more. Cargo supports audio, video, 3D, and image NFTs.
- Blockparty is an NFT marketplace and storefront platform, for creators and brands cross-chain compatible with Ethereum and Flow.
- InfiNFT is a token minting platform that allows users to create their own NFTs with fully on-chain metadata. The focus on token integrity ensures that creations will be around as long as the blockchain underpinning them.
- Mintable is an NFT marketplace where users can create, buy, and sell digital items for the easiest way to earn and get started with crypto and NFTs. Its intuitive and powerful UI allows users to mint any information as an ERC-721 token on the Ethereum blockchain.
- Portion is the marketplace connecting artists and collectors through blockchain technology to easily sell, invest and own art and collectibles with complete transparency.
🖌️ Non-Ethereum art platforms 🎨
- The Binance NFT marketplace is a marketplace that features all forms of digital artworks and collectibles. Powered by the Binance blockchain infrastructure and community, the Binance NFT marketplace provides a high liquidity platform for users to launch and trade NFTs.
- The Crypto.com NFT Marketplace is an NFT marketplace with the sole purpose of being orientated toward artists who want to sell audio files as NFTs. The marketplace itself contains an array of the best NFTs to buy, from categories such as art, gaming, sports, music, and more. The Crypto.com NFT app and marketplace offer Crypto.org chain and Ethereum NFTs. Each NFT will be listed for a fixed price or through a traditional auction, offering flexibility for buyers and sellers. Interestingly, Crypto.com NFTs can be purchased instantly using a credit or debit card. This is in contrast to many other NFT marketplaces that require crypto to facilitate payments.
- Efinity is a metaverse blockchain built by the Enjin team. Efinity’s primary purpose is to act as an NFT highway for crypto projects and dApps. The blockchain is a parachain built on Polkadot that enables EFI to feature an independent economic structure.
- Kalamint is a blockchain-based digital art marketplace that allows users to create, sell and collect NFTs on Tezos. The platform lets users mint NFTs native to Tezos using the FA2 token standard.
- Mintbase is a global platform that allows anyone to create NFTs without worrying about technical complexities. Artists can create NFTs to sell digital art, musicians can use them for music, and event organizers can use them to sell tickets for their next event. Mintbase is related to the nonprofit NEAR Foundation.
- NFT Showroom is a digital art marketplace built on Hive, a fast and free blockchain that makes creating and collecting rare digital art simple and accessible.
- VIV3 is a gas-free marketplace for NFTs on Flow. On VIV3 all the works made by each creator are minted from their own blockchain smart contract. In doing so, any application in the Flow ecosystem can easily integrate directly with contracts from individual artists, instead of the entire marketplace pool.
🤖 Generative/programmable art 🎨
- ArtBlocks is an Ethereum-based platform providing unique, programmable, and on-demand generative NFT art to collectors worldwide. It does so using NFT drops, a process by which a user mints an NFT but doesn’t know what they’re receiving beforehand. Artists selected by the AB team at the Curated level get leeway to create an NFT drop considered part of the official Art Blocks collection.
- Async Art is a programmable art platform that allows artists to create multiple and layered NFTs from one piece of art that can alter their form dynamically.
- POB (Proof-of-Beauty) is the experimental NFT studio that generates unique art through various hash attributes of a certain event/transaction in the past. This eventually creates a great incentive to document and collect history, in a very crypto-native way to say the least.
🎶 Music platforms 🎧
- Audius is a fully decentralized music streaming platform that enables listeners to support artists directly via its native cryptocurrency, AUDIO. Artists are able to distribute their music free of charge, and the team states that it will always be free for artists. What’s more, unlike most other music streaming services, Audius doesn’t take a cut of artists’ revenue. In their whitepaper, the team outlined the mechanics of Audius. As of May 2022, Audius has almost 10 million monthly unique users and hosts over 100,000 artists.
- Opus is a decentralized music hosting, discovery, and listening platform. The platform uses the Ethereum blockchain, and tracks are stored on the IPFS. Using the IPFS, the platform is able to deliver thousands of tracks per second in a way that’s fully decentralized. Ultimately, users listen to music through smart contracts, which the company notes contain the decryption keys and file hashes. And the smart contracts also provide a way for users to compensate creators for their music. According to the company, OPUS enables artists to receive 90% of the money they take in.
“By basing the OPUS Player [on] the Ethereum blockchain and storing all the tracks on IPFS, there is no central server and so the storage costs are drastically reduced. This allows for more of the revenue to go directly to the artist, in a more secure, transparent way than ever before,” they said.
- BPM is a music NFT Discord bot that was built by SongCamp. It is essentially a music streaming bot that can be installed into a Discord server to play music NFTs minted via Catalog, Zora, Sound, and other services. Although BPM isn’t a traditional streaming platform and requires that a track already be minted as an NFT to stream it, it can be a useful tool when it comes to getting your music heard by the right crowd.
- Catalog is a specialized marketplace for 1-of-1 NFT music releases. On this platform, users can add a record to Catalog’s open music library (which is available to stream for free), set a “buy it now” price, list it in a reserve auction, or accept an offer made by a collector. Artists receive 100% of their initial sales and also earn a creator share every time their records are resold. What’s more, artists set the resale price they receive themselves. However, the platform is currently invite-only. It will likely remain so for some time, as the platform is run by a very small team and onboarding takes time. Artists can still complete the Catalog submission form to get their names on the waitlist.
- Sound.xyz is a service that combines streaming with minting and community listening. On Sound, artists can launch a listening party for new song releases with a series of limited edition NFTs. Listening parties happen daily, and nearly every collection has sold out since the platform initiated its first drop. Artists get to keep 100% of the proceeds generated by the sale. The platform is currently still in beta. Similar to Catalog, it is currently invite-only.
- Async music is the music-focused arm of prominent NFT platform Async Art. On Async Music, each track that makes up a song (guitar, piano, vocals, percussion) is uploaded separately and with numerous different versions. This allows artists to mint music in a dynamic way — with layers that come together to form one master track. Because these tracks are randomly compiled in a master NFT, songs on the platform have the ability to change their composition, meaning they may sound different each time a user comes back to listen.
- Royal is 3LAU’s new music NFT marketplace that gives NFT owners the rights to songs sold on the platform. The platform is currently highly curated, with 3LAU and his team hand-picking each artist and song that is minted on the site. While Royal isn’t open for minting, the mechanics of the platforms LDAs (Limited Digital Assets, a.k.a royalty-bearing NFTs), is definitely something to become familiar with.
- Other general marketplaces for minting music NFTS are OpenSea and Rarible, SuperRare, Foundation, and Zora.
🎼 Non-Ethereum music platforms 🎧
- Emanate is a blockchain-powered music streaming platform. It’s built on EOSIO and uses its EMT token for payments. Both the EMT token and the internal stable token run on the EOS mainnet, and anyone can track payments via EOS mainnet block explorers. One major difference between Emanate and Audius is that Emanate pays artists in its native token per stream, while Audius only currently employs the rewards system for artists to earn crypto. Emanate also has the Emanate Music Lovers group, which is $6 per month. From every $6 the company gets, $5 is passed on to the artists.
- Mint Songs is a music NFT marketplace running on the Polygon blockchain, helping music artists build web3 communities by building tools that enable music artists to turn their core creative assets into NFTs that they can sell and give away to their community. Users can mint their songs (audio + album artwork) into NFTs for $0 gas/network fees.
- BitSong is a blockchain music ecosystem born in December 2017, to create a decentralized and trustless hub that interconnects the various market players. Bitsong uses blockchain technology to track and store the analytics of streams and to distribute streaming payments, donations, and tips to artists in real-time. The project belongs to the Cosmos Network ecosystem.
- OneOf is a platform hosted on the Tezos blockchain. The platform is currently highly curated and doesn’t allow for independent minting, only collecting, but it is a good place to list your work.
- Objkt has become both the de facto marketplace to trade NFTs on the Tezos blockchain and a great place to mint music NFTs.
- Kalamint is another good marketplace built on Tezos that’s worth a look.
🎮 Games 🎲
- Axie Infinity is the most popular crypto game. Axie Infinity borrows heavily from the Pokemon game series and adds its own blockchain twist to give the finished product an even more exciting feel. In this Ethereum-based game, players breed and collect NFT-based digital pets called Axies for the core purpose of battling other players. Each individual Axies has its own genetic imprint. Axie Infinity has been extremely popular in developing countries like the Philippines, where players can earn a substantial income playing the game. Players from the Philippines can check the price of 1 SLP to PHP directly on CoinMarketCap.” and link “1 SLP to PHP. For every attempt to breed a new Axie, you must pay a specific amount of SLPs, which you can also purchase at exchanges. Another ERC20 token native to Axie Infinity is Axis Infinity Shard (AXS), which functions as the platform’s governance token.
- Etheria is a digital world launched just three months after Ethereum’s mainnet, presenting users with a virtual open world composed of hexagonal tiles that can each be bought, sold, and built on, as non-fungible tokens (NFTs). Each piece originally sold for 1 ETH, then worth under a dollar.
- CryptoKitties is a blockchain game on Ethereum developed by the studio Dapper Labs that allows players to purchase, collect, breed, and sell virtual cats. The game’s popularity in December 2017 congested the Ethereum network, causing it to reach an all-time high in the number of transactions and slowing it down significantly.
- Gods Unchained — Digital trading card game where users can battle other players and buy and sell cards. It is a free-to-play game designed to infuse elements of NFT into a familiar card trading gaming genre. Players accumulate cards by purchasing them from other players or winning PVP matchups where the quality of cards and the gaming skill of players often determine the winner. Notably, more emphasis is being placed on skills and strategy. This is because the game utilizes a ranked game mode where players with the same ratings are matched.
- Splinterlands is a free-to-play tradable card game that lets users earn as they play, similar to Gods Unchained.
- Sorare is a fantasy football trading card game on the Ethereum blockchain. Players collect or buy trading cards to compete in weekly competitions, and stand a chance to unlock rare cards or win Eth. Sorare has over 200 clubs officially licensed on their platform — including renowned names like Real Madrid, Liverpool, Paris Saint-Germain, and Bayern Munich — with more added each week.
- DeFi Kingdoms is a Harmony-based game to truly leverage the value of NFTs and intertwine it with nostalgic fantasy pixel art. This is a title that looks like a SNES role-playing game from the 90s or a modern indie, think Harvest Moon. DeFi Kingdoms shows us how NFTs can be used in games as it marries the underlying utility of NFTs with classic game design. You can play DeFi Kingdoms as you would a retro RPG — questing for XP and items, managing your in-game resources, and developing your hero. But in DeFi Kingdoms it accumulates JEWEL tokens that can be converted to Harmony One cryptocurrency.
- Battle of Guardians (BOG) is a real-time multiplayer NFT PvP arena developed on the Unreal Engine. This is an advanced fighting game based on the Solana network in which players constantly fight to defeat other opponents for more rewards. It allows users to benefit not only from the blockchain’s power but also from its unrivaled graphics. Here, players can engage in fierce multi-realm battles in various areas of the vast SciFi game world. BOG is designed for PC gamers, but it will eventually support cross-platform multiplayer on iOS and Android.
- Star Atlas is a play-to-earn game that mixes space exploration with mining, trading, and combat to promise an experience close to Elite; but here you earn from your galactic endeavors. Star Atlus aims to offer Triple-A gaming visuals and performance and could set the standard for future NFT games. It’s currently building to launch later this year so the player versus player (PvP) and player versus environment (PvE) missions aren’t yet up and running, but you can invest in a fleet by purchasing ships and items from the in-game marketplace.
- Parallel is a science fiction card game akin to Magic: The Gathering (another one). The story revolves around concepts such as different races coming together to find common truths, in order to solve differences and save the universe, which means Parallel has a community-based cooperative aspect in its card-collecting.
- Thetan Arena is a multiplayer online battle arena game, which everybody can play and enjoy. The game uses NFTs to give players ownership over game characters and certain items. It also features a free-to-play option without NFT. There are two tokens THC and THG. Players earn Thetan Coins through gameplay and can spend this on for example NFTs. In addition, Thetan Gem, which serves more as a governance token also has a function to upgrade characters in-game.
- Illuvium is an open-world RPG adventure game built on the Ethereum Blockchain with a play-to-earn structure wherein users can earn in-game rewards. Thanks to the integration with Immutable X, players can enjoy a new era of NFTs. You gain access to zero gas fees, peer-to-peer minting, and get instant transactions, all while you securely maintain custody of your assets. It combines elements of traditional RPG collection games with fight mechanics seen in the popular Autobattler genre.
- Pegaxy is a Player v Player (PVP) horse racing game that offers several ways to be involved in the game and its ecosystem. Players can buy NFT horses to race, breed, or rent out to other players.
- Battle Racers — An action-packed blockchain racing game where you design, build and race NFT cars on arcade-sized tracks.
- My Crypto Heroes — Quick and casual RPG where players collect, train, and battle heroes.
- Crypto Space Commander — Space MMO where users can battle, trade, and build spaceships and items.
🌍 Virtual worlds 🕹️
- Cryptovoxels — Known as the “blockchain Minecraft’’ since users build with blocks, Cryptovoxels was the first blockchain-based virtual world to launch and first became popular with crypto artists and crypto art collectors. Now the world is inhabited by all types of people and teams building awesome content.
- Decentraland — Decentraland was the first blockchain-based virtual world to raise capital and put together a great team. They were busy building since their ICO in 2017 and launched this year to much fanfare.
- Somnium Space — The high-end virtual world for all but especially those who really love VR. Users can enter Somnium Space through PCs or use VR headsets to experience everything in great detail.
- The Sandbox is a voxel-based gaming metaverse and one of the most active NFT gaming platforms where players can build and trade virtual assets. In this game, players can manipulate and monetize voxel assets. Think of it as the blockchain iteration of popular gaming titles like Minecraft and Roblox. The platforms offer the tools to create and animate objects and subsequently sell them on marketplaces. Additionally, users can create and play custom games on the platform. Sandbox 3D has introduced SAND, an ERC-20 token, as the native token of the metaverse. With this, players can purchase in-game items on the platform’s marketplace. There is also LAND, which are NFT tokens and by far some of the most valuable and sought-after assets in the Sandbox game. A record of $8.5 million in LAND sales was concluded in April alone.
- Alien Worlds is an NFT Defi metaverse that simulates economic competition and collaboration between players in a bid to explore other planets. This is achieved by incentivizing players to compete for Trilium (TLM), which is required to control competing decentralized autonomous organizations (Planet DAOs) and to gain access to additional gameplay. In the Alien Worlds metaverse, players can acquire NFTs to mine TLM, engage in battles, and complete in-game quests.
🔡 Domains 💻
- Ethereum Name Service or ENS, is a distributed technology based on the Ethereum blockchain that provides an elegant solution to long and confusing crypto addresses: one URL, just like a website name or email, that represents a crypto address.
- Unstoppable Domains are NFT domains that let you create and own your digital identity and will help shape the future of Web3.
- Handshake & Namebase are placing ownership of the Internet into the hands of people, not corporations or governments. Namebase is a top-level domain (TLD) name registrar that operates on the Handshake blockchain. You can now own your own TLD extension — one of the most powerful and valuable digital assets in existence — that is fully decentralized on the blockchain.
👥 DAOs 🙋♂️
- Ark.Gallery — A DAO focused on community ownership of NFTs. ARK Gallery allows you to buy and sell Cryptopunks together with other users. Ark Gallery introduces a new way to collect NFTs by introducing digital community ownership.
- Flamingo — NFT-focused DAO that invests in NFTs directly. Brought to you by the people that launched the LAO. Flamingo aims to develop a strong foothold in this emerging ecosystem, bringing together the “hive mind” of a DAO to the world of NFTs. Flamingo will give its Members the ability to develop and deploy NFT-focused investment strategies.
- Mol LeArt — Web3 creative commons DAO. Mol LeArt is a community-governed creative commons, where members can freely use and build on each other’s creative content. Their goal is to build a playground for artists to experiment with different NFT token models and controls for their NFTs. Through collective experimentation, they strive to build an ecosystem that self-sustains and grows the pie for everyone involved. Interesting Decaying Royalties experiment where the royalties pool for a given NFT includes both artists and its collectors.
📈 Finance 💰
- NFTfi — The first platform for NFT collateralized loans. Users can earn a yield by lending out ETH or DAI loans to users who put up their NFTs as collateral. Or Users can receive ETH or DAI loans by placing their NFTs up as collateral.
- NIFTEX — The spot to fractionalize your NFT into “shards.” These shards are ERC20 tokens that can be traded in a much more liquid manner compared to NFTs.
- Yinsure — Platform where users can create tokenized insurance contracts.
🎨 NFTs + DeFi 💸
- Rocket NFT — A project that gives loans against NFTs. The shared lending pool managed 170 ETH and returned 6.01% on ETH in its first 7 months. Amongst other things, Rocket performed the first-ever crypto-art-backed loan and the first-ever domain name-backed loan.
- Aavegotchi — Enables DeFi-staked Crypto Collectibles. They are pushing the boundaries because users can not only collect interesting NFTs but also earn yield from their assets.
- MEME — Allows MEME token holders to stake their tokens and, in return, acquire rare, fun, and arty NFTs. Fun and engaging experiment.
👗 Fashion 👠
- Digitalax is a decentralized and forkable protocol stack for web3 fashion & the open metaverse. It proves that web3 fashion is the missing bridge that will onboard millions of new users into web3. The team is building an entire ecosystem across digital and physical fashion, NFTs, gaming, esports, and the metaverse.
- Metafactory produces ‘digiphysical goods’ that connect multiple worlds via NFTs, embedded microchips, and more. A composable infrastructure that can be leveraged by all projects. Decentralized brands belong to no one and can be remixed by anyone.
- Overpriced is a high-end streetwear brand that creates “fashion for the crypto generation,” recently selling an NFT-linked hoodie for $26,000. The virtual hoodie was sold on the digital art marketplace Blockparty to an anonymous buyer who can “wear” the digital sweatshirt by scanning a unique V-code.
- DressX, a digital fashion store, is betting that they can make luxury buyers covet fashion NFTs. On DressX, customers buy a fashion piece and also submit a photo of themselves, and in return receive a digital photo back of them wearing the fashion item.
🖼️ Collectibles 🎨
- CryptoPunks — The first NFTs issued on Ethereum. The CryptoPunks are 10,000 uniquely generated pixelated collectible characters. No two are exactly alike, and each one of them can be officially owned by a single person on the Ethereum blockchain. They have reached cult status within the NFT space.
- The Bored Ape Yacht Club is a collection of 10000 unique Bored Ape NFTs — unique digital collectibles living on the Ethereum blockchain.
- Mutant Ape Yacht Club is a collection of up to 20,000 Mutant Apes that can only be created by exposing an existing Bored Ape to a vial of mutant serum or by minting a Mutant Ape in the public sale.
- NBA Top Shot — NBA officially licensed NFT collectibles. Note that these NFTs are on the Flow blockchain, not the Ethereum blockchain.
- CryptoKitties — The first NFT project to go viral and is credited with getting people excited about NFTs’ potential. They are cute cats with different traits and rarity that can be bred to create more cats.
- Avastars — Fully on-chain generative avatars.
- Hashmasks is a living digital art collectible created by over 70 artists globally. It is a collection of 16,384 unique digital portraits.
NFTs market overview
Innovation Trigger: Potential breakthroughs start to capture the public imagination and media interest.
Peak of Inflated Expectations: Early successes — and failures — see interest ramp up.
Trough of Disillusionment: Initial interest wanes. At this point, investment only continues if surviving providers improve to the satisfaction of early adopters.
Slope of Enlightenment: Benefits become more widely understood. New product generations appear some potential users stay cautious.
Plateau of Productivity: Mainstream adoption takes hold.
- Collectibles are the predominant segment in the industry, far ahead of art or even the metaverses.
- The resale profit volume is down 3% while the total loss volume is up nearly 50% compared to the previous quarter.
- For the first time, some segments show a negative balance: gaming shows a total loss of almost $50 million on the segment, which makes it the least profitable segment of the industry from a trading point of view.
The current NFTs market activity is also quite indicative. Let’s take a quick look at it in detail.
Since the beginning of 2021, NFT activity — mainly transaction volume — has notably grown, but this growth was not consistent but fluctuated. Furthermore, in 2022 NFT activity has been rising and falling month by month.
In Q1 2022, 950K unique addresses bought or sold NFTs, up from 627K in Q4 2021. Overall, the number of active NFT buyers and sellers has increased every quarter since Q2 2020. In Q2 2022 as of May, about 500K addresses have transacted with NFTs, putting the NFT market on pace to continue its quarterly growth trend in a number of participants.
Central and Southern Asia leads the way, followed by North America and Western Europe.
While some regions are certainly lagging behind, the fact that no region has accounted for more than 40% of all web traffic since the start of 2021 suggests that NFTs already captured a global audience.
Analysis of NFTs transaction sizes also tells us a lot about who is investing and collecting.
The vast majority of NFT transactions are at the retail size — below $10K worth of cryptocurrency. NFT collector-sized transactions — between $10K and $100K — grew significantly as a share of all transfers between January and September of 2021, but since then have stayed flat. This suggests that, for the time being, the addition of new retail NFT investors is keeping pace with the addition of bigger NFT investors.
However, the growth of institution-sized NFT transactions has not been consistently sustainable, as with the NFTs market as a whole.
Between late November and mid-February, institutional NFT purchasing grew each week, reaching about 2K transactions. After that, NFT institutional activity plummeted, dropping to 473 transactions in the week of February 20. As of May 2022, the institutional activity of the NFT has not yet reached the level that it was in the winter of 2021. This period of decline in institutional activity also roughly coincides with the general decline in interest in NFTs in general.
- The majority of the respondents are from the APAC region, aged 18–30 and 30–50. 72% of these own NFTs, with more than half of them having 5 or more NFTs.
- Metaverse/gaming NFTs are the most common type of NFTs owned, with half of the respondents having participated in metaverses before.
- Flippers top NFT ownership at 42%, the majority of crypto portfolios (70%) assign only 0–25% to NFTs and less than half of the respondents have profited from trading.
- PC is the preferred choice for trading and minting NFTs, while most of the respondents hunt for new projects on Discord/Twitter and track their portfolio via marketplace wallet UI.
- Most respondents are interested in floor price when trading NFTs, with over half motivated by current & future utility to HODL.
Part IV: Benefits and challenges
Benefits of the NFT technology
This section explores the opportunities of NFTs. Furthermore, several typical fields that may benefit from the proliferation of the NFT technology are discussed.
Digital art scarcity issue solvation
NFTs address long-standing digital art scarcity issues of how to keep virtual artworks rare if they can be copied digitally. The use of NFTs in this regard gives each piece of art a unique hash that allows it to be differentiated. If in the traditional art world the original and the copies are the same, each NFT is unique or limited in quantity as well as not replaceable with similar items. Artists of original artworks can include their signature in NFTs, thereby reinforcing the authenticity of the content created. While it is possible to make copies of digital art, NFTs ensure that each copy is solely owned by the purchaser so that it is not interchangeable with another copy, increasing the art’s appeal to amateur collectors and speculators.
Direct communication without the mediation of third parties
NFTs have created the possibility to eliminate intermediaries from the communication process, allowing content creators to connect directly to their audience. There are no more third parties in the face of labels, large distributors, or art portals, restricting the rights of creators of digital goods. Artists just upload their content to the NFT platform, mint non-fungible tokens, and choose the selling method. It could be a fixed price option at auction (English, Timed, or Dutch).
Transparency and authenticity
If in the traditional art industry ownership records are stored on servers controlled by centralized institutions, with NFTs ownership records stored on the blockchains, every NFT has an owner and this is of public record. Subsequently, users could view the entire history of the artwork, including the previous prices at which it was purchased and owned.
Security
Traditional art collectors must be aware of the risks of transacting artwork. Before making a purchase, they have to study the provenance of the piece and take additional security measures to ensure the transaction goes smoothly. In contrast, NFTs can be traded in a most secure and transparent way. NFTs function as immutable digital signatures, delivering unprecedented confidence to collectors.
This confidence extends to the future legacy of art, as well. Digital works stored on the blockchain are immune from censorship and physical decay — but must still be stored properly. Blockchain technology also allows people to move assets of massive value globally, securely, and in full public view. Just as blockchain technology established a protocol of trust enabling the formation of digital currency, NFTs now guarantee authenticity, uniqueness, and ownership of unique assets.
Honest monetization
With NFTs artists now have an opportunity to honestly monetize their work, as it is now possible to automatically and directly pay royalties, fairly distributed in accordance with the contribution to the creative process of each of the participants.
Due to the blockchain technology, each actor can now see the exact time of the creation of each digital object and the number of interactions with it, what income it brings, and who gets what percentage, which makes communication across industries direct and potentially fair.
New monetization opportunities for artists and collectors
NFTs open up new monetization opportunities for artists. If in the traditional art world, content creators usually did not receive a percentage of secondary sales, thanks to NFTs, today a digital artist can receive them in a fully automated way.
What’s more, blockchain platforms are designed to make the experience interactive and profitable not only for artists but for the audience as well, by offering all kinds of incentives, for example for compiling personalized collections, contributing to increasing the database of artists, venues, or events.
Availability
Anyone can create in NFTs regardless of age, geographic location, etc. All that is required is the registration on the NFT platform of interest. Several NFT platforms (e.g. Mintbase, Mintable, etc) have even established tools to support ordinary people to create their own NFT works easily.
Investing in tokenized assets is also accessible to everyone. Asset ownership that is tokenized into an NFT can more easily and efficiently be transferred among people anywhere in the world.
Global market access
In the traditional art world artists usually rely on the infrastructure and geographical restrictions of the distribution of the platforms they use as well as on the rules and standards of labels to which they belong and galleries where they exhibit. With NFTs, content creators can access global markets, and easily reach the collectors and the community of like-minded artists. From here, creators across all content channels can build around their NFTs and expand their digital fan clubs.
Possibility of fractionalizing ownership of physical assets
Today, it’s difficult to fractionalize ownership of certain assets, including real estate, artwork, and fine jewelry. It is much easier to divide a digitized version of a building among multiple owners than a physical one. The same goes for a prized piece of jewelry or a rare case of wine.
Through digitization, the market for certain assets can be greatly expanded, leading to greater liquidity and higher prices. On an individual level, it can enhance the way financial portfolios are constructed, allowing for greater diversification and more precise position sizing.
Boosting creative industries
NFT has great potential in the creative industries which involve the generation or use of knowledge and information and include art, design, music, film, fashion, etc.
NFTs change the way people share ideas. In this digital age, the ability to verify actions, authenticity, and origin is priceless. Beyond that, NFTs empower creators to capture and share their digital expressions on their own terms. The walls between artists, galleries, and buyers are crumbling in light of the boundless possibilities presented by the blockchain. NFTs let creators easily mint and copyright their work, listing it for sale on open marketplaces. All of these transactions are unchangeable. This means over time, tokens can gain value, increasing rarity and driving even more demand for creativity.
Back in 2008, the music industry experienced a crash like no other, introducing music piracy .mp3 platforms like Napster. To say that artists were losing a lot of money is putting it lightly. In many ways, the music industry still hasn’t recovered from the practice of illegal downloads. Next came the heavy-hitters: Spotify, iTunes, and YouTube. These platforms made accessibility convenient for fans but took away the value of scarcity and creativity. NFTs have reintroduced the concept of scarcity into the digital realm while giving creators a new way to monetize from their supporters. This holds for any tokenized assets from gaming to music, photography to art, and anything else one can dream up.
Flourishing virtual events
Traditional online events rely on centralized companies that provide trust and technology. NFTs greatly extend the scope of blockchain applications with the help of their additional properties like uniqueness, ownership, and liquidity. This enables each individual to link to a specific event just like the patterns in real life. For instance, the ticketing event. When buying tickets in a traditional event ticket market, consumers must trust the third party. Therefore, there is a risk of buying fraudulent or invalid tickets, which are counterfeit or possibly counterfeit or might be canceled. The same ticket may be sold many times or obtained by extracting from ticket images posted online. An NFT-ticket is issued by the blockchain to demonstrate entitlement to access to any event such as culture or sports. It is unique and scarce, meaning that the ticket holder cannot resell the ticket after it is sold. Consumers can buy and sell the crypto ticket from the smart contract rather than rely on third parties in an efficient and reliable way.
Inspiring the Metaverse
Metaverse is a collective virtual shared space that allows all types of digital activities. Generally, it covers a set of techniques like augmented reality, virtual reality, and blockchain to establish the virtual world. Participants under these blockchain-fueled alternative realities can have many types of intriguing use cases like enjoying games, displaying self-made arts, trading assets, and virtual properties (arts, land parcels, names, video shots, wearables), etc. In addition, users also have opportunities to get profits from the virtual economy. They can lease the buildings to others to earn the bond or raise rare pets and sell them to get the rewards. In fact, the metaverse ecosystem covers nearly all aforementioned NFTs use cases. The advantages of blockchain, cryptocurrencies, and NFTs will be offered directly within the Metaverse, removing barriers to entry.
Expanding horizons and accelerating adoption
NFTs could introduce millions of people to cryptocurrencies for the very first time. Investors can become more knowledgeable about blockchain, while diversifying their portfolios, by allocating a small sum to tokenized assets, as well as the artists while utilizing blockchain-based applications. This leads to a more diverse industry and accelerates the adoption of technology and innovation.
Challenges
Despite the apparent advantages of NFT solutions, it is difficult not to pay attention to several problems. In this paragraph some challenges are discussed from the perspectives of authenticity and ownership, usability, security and privacy, storage, extensibility, etc, covering both the system level issues caused by blockchain-based platforms and human factors such as governance and community.
Ownership
Owning NFTs doesn’t necessarily mean owning the underlying digital asset. Сollectors are not buying original content itself, as they probably won’t own the copyright to it. Due to the technology, the content creator retains the copyright and the majority of NFT platforms provide the opportunity for them to claim royalties in the future when the object is sold again. Rather, when purchasing NFTs, collectors buy tokens connecting their name with the content creator’s art on the blockchain, which is the most valuable thing. In fact, anyone else can download a copy of that digital asset, and there is hardly anything that the NFT owner can do beyond protesting. Thus, buying NFTs allows collectors to own original items recorded on the blockchain that serves as proof of ownership.
Governance consideration
Similar to the situations of most cryptocurrencies, NFTs also confront the barriers like strict management from the governance. On the other hand, how properly regulating this nascent technology with the corresponding market is also a challenge.
Legal pitfalls
There are still no official public registers of copyright, and no global standards of licenses since different rules apply in different regions. NFTs confront legal and policy issues across a wide range of areas. Potential concerned areas cover commodities, cross-border transactions, KYC (Know Your Customer) data, etc. It is important to understand the related regulatory scrutiny and litigation before moving into the NFT tracks. In some countries, such as India and China, the legal situation is strict for cryptocurrencies, and also for NFT sales. Exchanging, trading, selling, or buying NFTs have to overcome the difficulties of governance. Legally, users can only trade derivatives on authorized exchanges such as stocks and commodities or exchange tokens with someone person-to-person. Several countries, such as Malta and France, are trying to implement suitable laws with the aim to regulate the service of digital assets. Elsewhere, issues are resolved by using existing laws. They require buyers to follow complex or even contradictory terms. Therefore, undertaking due diligence is a necessity before investing serious tokens in NFTs.
Taxable property issues
IP-related products (including arts, books, domain names, etc.) are treated as taxable property under the current legal framework. However, NFT-based sales stay out of this scope. Although few countries, such as the U.S. (internal revenue service, IRS), tax cryptocurrencies as property, most areas worldwide have not yet considered it. This may greatly increase the financial crimes under cover of NFT trading. The governments would love to make the sale of NFTs reliable with tax consequences. Specifically, the individual participants should have tax liability on any capital gains that are related to NFT properties. Also, NFT-for-NFT, NFT-for-IP, and Eth-for-NFT (or vice versa) exchanges should be taxed. Furthermore, for high-profit properties, or collectibles, a higher tax bracket should be applied. Thus, NFT-related trades are suggested to seek more advice from professional tax departments after the profound discussions.
Authenticity
Difficulty in finding the original owner of the NFT as well as difficulty in assessing the uniqueness and understanding how many copies exist still remain. Copyright protection issues are arising more and more often. When uploading content to an open non-curated NFT-platform, never stop wondering that absolutely any media file can be sold on your behalf (no matter if it is a selfie taken a few seconds ago, a picture found on the Internet, or the masterpiece of a well-known artist).
Fraud risk
One of the great issues that are linked with authentication is cyber security and fraud risk. The growth of the digital world, as well as the number of NFT transactions, has resulted in a significant increase in them. Malicious actors can imitate well-known NFT artists and sell counterfeit NFTs in their names. Copyright theft, copying of popular NFTs or false airdrops, and NFT giveaways are some of the other major non-fungible token threats and issues in terms of cybersecurity and fraud. The advancement of technology not only allows for greater efficiency in the trade of digital assets but also introduces unwelcome danger, notably in the area of cyber security.
Storage
Security and privacy
The data from users is the first priority of any system. However, the data (stored off-chain but relates to on-chain tags) confronts the risk of losing linkage or being misused by malicious parties.
NFT data inaccessibility
In the majority of NFT projects a cryptographic “hash” as the identifier, instead of a copy of the file, is tagged with the token and then recorded on the blockchain to save the gas consumption. This makes the user lose confidence in the NFT because the original file might be lost or damaged. Several NFT projects integrate their system with a specialized file storage system such as IPFS in which IPFS addresses allow users to find a piece of content so long as someone somewhere on the IPFS network is hosting it. Still, such systems have inevitable flaws. When the users upload NFT metadata to IPFS nodes, there is no guarantee that their data will be replicated among all the nodes. The data may become unavailable if the asset is stored on IPFS and the only node storing it is disconnected from the network. Also, an NFT might point to an erroneous file address. If that is the case, a user cannot prove that s/he actually owns the NFT. In a word, Relying on an external system as the core storage component for an NFT system is vulnerable.
Anonymity
In the current stage, the anonymity and privacy of NFTs are still understudied. Most NFT transactions rely on their underlying Ethereum platform, which only provides pseudo-anonymity rather than strict anonymity or privacy. Users can partially hide their identities if the links between their real identities and corresponding addresses are known by the public. Otherwise, all the activities of users under the exposed address are observable. Existing privacy-preserving solutions (e.g. homomorphic encryption, zero-knowledge proof, ring signature, multi-party computation) have not been yet applied to the NFT-related schemes due to their complicated cryptographic primitives and security assumptions. Similar to other types of blockchain-based systems, decreasing expensive computation costs becomes the key to implementing privacy-promised schemes.
Maintenance
The risk of smart contracts and NFT maintenance is a prominent one currently prevailing in the NFT market. There are several scenarios where hackers attack DeFi networks and steal a large amount of crypto. The reason behind that theft was that smart contract security wasn’t adequate. If smart contracts have even a tiny flaw, NFT holders cannot expect complete security.
Usability
Usability is to measure the users’ effectiveness, efficiency, and satisfaction when testing a specific product or design. Most NFT schemes are built on top of Ethereum. Therefore, it is obvious that the main drawbacks of Ethereum are inherited. The two major challenges that have direct impacts on the user experience are:
High gas prices
High gas prices have become a major problem for all Ethereum-based NFT-marketplaces, especially when minting the NFTs at a large scale that requires uploading the metadata to the blockchain network. Every NFT-related transaction is more expensive than a simple transfer transaction because smart contracts involve computational resources and storage to be processed. Expensive fees caused by complex operations and high congestion greatly limit the NFTs’ wide adoption.
Slow confirmation
Extensibility
The extensibility of NFT schemes is two-fold. The first is to stress whether a system can interact with other ecosystems. The second focuses on whether NFT-systems can obtain updates when the current version is left behind.
Interoperability
The majority of existing NFT ecosystems are isolated from each other. Users who have selected one type of product can only sell/buy/trade them within the same network. This is due to the disconnected underlying blockchain platform. Interoperability and cross-chain communication are always the handicaps for the wide adoption of DApps. Fortunately, most of the NFT-related projects adopt Ethereum as their underlying platform. This indicates that they share a similar data structure and can exchange under the same rules.
Updatability
Transitional blockchain updates its protocols through the soft forks (minor modifications that are compatible forwards) and hardforks (significant modifications that may conflict with previous protocols). Despite the generic model, the new blockchain still has strict requirements such as tolerating specific adversarial behavior and staying online during the update process. NFT schemes closely rely on their underlying platforms and keep consistent with them. Although the data are often stored in separate components (such as the IPFS file system), the most important logic is still recorded on-chain. Properly updating the system with improvements will be a necessity.
Moreover, there is a low-level issue with the updatability of the NFTs themselves since they are recorded on the blockchain and the information they bring cannot be modified thereafter.
Environmental concerns
While a secondary issue, there has been increased concern around energy consumption related to NFTs and energy-intensive operating proof-of-work blockchains that could pose additional roadblocks to the widespread adoption of NFTs.
On the other hand, blockchain enthusiasts argue that an offsetting reduction in pollution is underway as NFTs transform global marketplaces, reducing the need for travel and office space utilization.
Value
The difficulty in determining the value of the NFT is one of the issues. There are considerable fluctuations in the prices of NFT because there is no fixed standard for any particular type of NFT. The price of any NFT may depend on the creativity, uniqueness, scarcity of the buyers and owners, and a lot more. People can’t determine the factors that might drive the price of NFT. Due to this, the fluctuations in prices remain constant, and evaluation of NFT becomes a big challenge. Moreover, the quality of many works is rather doubtful since anyone can mint an NFT without having any creative skills.
Oversupply
Complexity
Also, for the audience and consumers, it is still more common to use familiar major services as well as for the majority of non-techy artists. Much more simplification is needed so NFTs are easy to use for people who know nothing about blockchain.
All these problems still exist, and researchers and engineers are puzzling over their solutions.
Summary
NFTs renaissance continues to spread despite the volatility and undeveloped nature of the cryptocurrency market as a whole and the high level of uncertainty about NFTs valuations in particular.
The 2021 NFT boom aftermath showed the community the NFT technology’s pronounced advantages as well as revealed many shortcomings of the solutions that have to be addressed ASAP. No matter what, the ecosystem continues to flourish, many new projects are born, and every day we are witnessing how major players are showing interest in the area accelerating adoption.
One thing remains clear, the once-seemingly niche ecosystem of NFTs has forever emerged from the underground of small crypto communities, becoming an equal player in the world of finance, art, gaming, and the wide scope of leading creative industries.
References
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- Mani, Aadarsh. (2021). A Comprehensive Study of NFTs. International Journal for Research in Applied Science and Engineering Technology. 9. 1656–1660. 10.22214/ijraset.2021.34017.
- Ante L., The non-fungible token (NFT) market and its relationship with Bitcoin and Ethereum. (2021).SSRN Electronic Journal. Available: 10.2139/ssrn.3861106.
- Wang Q., Wang R. Li, Q., and S. Chen, Non-Fungible Token (NFT): Overview, Evaluation, Opportunities, and Challenges. (2021). Available: http://arxiv.org/abs/2105.07447
- Thilagaraj and J. Davis. Non-Fungible Token (NFT) — The Game Changer in The Digital Art World. (2021). Ciencia Y Sociedad, vol. 51, pp. 190–194.
- Kugler L., Non-fungible tokens and the future of art. (2021). Communications of the ACM, vol.64, no. 9, pp.19–20. Available: 10.1145/3474355.
- Casino F., Dasaklis T. K., Patsakis C. (2019) A systematic literature review of blockchain-based applications: Current status, classification, and open issues. Telematics and Informatics. Vol.36, 55–81.
- Zhang, C., & Chen, Y. (2020). A review of research relevant to the emerging industry trends: Industry 4.0, IoT, blockchain, and business analytics. Journal of Industrial Integration and Management, 5(1), 165–180.
- Puthal, D., Malik, N., Mohanty, S. P., Kougianos, E., & Das, G. (2018) Everything You wanted to know about the blockchain: Its promise, components. Processes, and Problems. IEEE Consumer Electronics Magazine, 7(4), 6–14.
L O A D I N G
. . . comments & more!
In this article, the NFTs phenomenon is explored in several aspects, starting with an overview of the NFT main features and their standards, then providing NFTs use cases, state-of-the-art NFT solutions, ecosystem landscape, and market overview. Afterward, the benefits and challenges of the NFT technology are discussed.
Non-fungible tokens (NFTs) are cryptocurrency tokens that replicate tangible attributes of physical items like uniqueness, scarcity, and proof of ownership. At the same time, they represent unique, intangible, and irreplaceable digital items based on the blockchain. NFTs are being applied to physical and virtual assets to monetize their value.
NFTs are not interchangeable. They are distinguished from one another by metadata and unique identifiers like a barcode that allows them to associate themselves with particular on-chain addresses. Metadata makes them an ideal instrument for confirming ownership of assets. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin or Ethereum. For example, one Bitcoin (BTC) is always equal in value to another. Similarly, a single unit of Ether (ETH) is always equal to another. This fungibility characteristic makes cryptocurrencies suitable as a secure medium of transaction in the digital economy. NFTs shift the crypto paradigm by making each token unique.
Today, the majority of NFTs are created on the Ethereum blockchain, which is basically a store of data that cannot be altered. Such data can be associated with files containing an image, a video, or an audio file.
While digital collectibles continue to attract the most attention in the crypto community, NFTs’ use cases continue to increase and expand from the general ones like digital art and games to fashion, music, academia, tokenization of real-world objects, patents, membership sales, and loyalty programs, domain name ownership, decentralized finance (DeFi) and metaverse items.
Part I: Technology and standards
Technology
Blockchain
Blockchain provides a solution to the long-standing Byzantine problem, which has been agreed upon with a large network of untrusted participants. Once the shared data on the blockchain is confirmed in most distributed nodes, it becomes immutable because any changes in the stored data will invalidate all subsequent data.
Logically, blockchain can be seen as consisting of several layers: infrastructure (equipment); networks (discovery of nodes, dissemination, and verification of information); consensus (Proof-of-Work, Proof-of-Stake); data (blocks, transactions); applications (smart contracts) and decentralized applications (dApps).
The overall development of blockchain technology can be divided into three streams and briefly described as shown in Figure 1. The first stream is “Blockchain 1.0”, a primitive level that includes cryptocurrencies such as Bitcoin, Ethereum, and others. The second stream is “Blockchain 2.0”, which has embedded distributed ledger agreements and related underlying technologies such as smart contracts and modified consensus protocols. The next-generation blockchain is called “Extensive”, it includes solutions for scalability and network interoperability, as well as specialized blockchains, such as, for example, the Flow blockchain, created for hosting and collecting NFTs.
Smart contracts
Ethereum developers further implemented smart contracts in their blockchain system. Blockchain-based smart contracts adopt Turing-complete scripting languages to achieve complicated functionalities and execute thorough state transition replication over consensus algorithms to realize final consistency. The objectives are to reduce the need for trusted intermediates, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions. Smart contracts technology enables decentralized participants to conduct fair exchanges without a third party and further propose a unified method to build applications across a wide range of fields.
These applications operating on top of smart contracts are based on state-transition mechanisms. The states that contain the instructions and parameters are shared by all the participants, thus guaranteeing transparency of the execution of these instructions. Also, the positions between states have to stay the same across distributed nodes, which is important for consistency. Most NFT solutions rely on smart contract-based blockchain platforms to ensure their order-sensitive executions.
NFTs standards
Basically, a token standard defines the smart contract and features that the token issued by it has. Today, there is a diversity of standards created on different blockchains.
Ethereum
The Main Ethereum standard is ERC-20. It refers to fungible tokens that function as regular cryptocurrency. ERC-20 tokens are smart contracts that provide great flexibility and functionality and can act as a financial asset, utility asset, or currency. Also, ERC denotes a set of rules that help developers improve the process of creating a standard Ethereum-based token, while ‘20’ is the unique identification number for the proposal. The main difference between ERC-20 and other cryptocurrency standards is that it is tied to Ethereum and can only be used within this network.
The NFTs phenomenon evolved from the Ethereum ERC-721 standard, developed by some of the people responsible for the smart contract with the same name. ERC-721 tokens are non-fungible. Each ERC-721 token is unique and cannot be duplicated. ERC-721 can be priced independently, this is why out-and-outer rare assets such as a digital art piece or a song can be represented by such token and stored offchain. ERC-721 defines the minimum interface — ownership details, security, and metadata — required for the exchange and distribution of tokens. Today ERC-721 is the most commonly used token standard.
Other notable non-fungible standards on Ethereum which aren’t as widely used as the ERC-721 standard are the ERC-998 and the ERC-1155 token standards.
ERC-998 tokens are ‘composable’ which means that assets within this type of token can be composed or organized into complex positions and traded using a single transfer of ownership. ERC-998 tokens are similar to ERC-721 as they are both non-fungible. Moreover, they can uniform fungible tokens such as the ERC-20.
The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract. It allows users to register fungible and non-fungible tokens using the same smart contract and address. This standard was developed with games in mind where fungible tokens could represent a transactional currency in a game and the non-fungible items could represent in-game collectibles and in-game exchangeable assets.
ERC-721 — non-fungible tokens.
ERC-223 — much like ERC-20 but with a feature that ensures the tokens are only sent to compatible addresses. This prevents loss of access to the tokens since they cannot be retrieved from incompatible addresses.
ERC-827 — allows the approval of fungible token transfers so the tokens can be spent by an on-chain third party.
ERC-777 — an improvement on ERC-20. Users can send tokens on behalf of different addresses.
ERC-1155 — a smart contract that allows users to manage Ethereum tokens of many types. It can contain ERC-20 or ERC-721 tokens and it works for all types of assets: fungible and non-fungible.
ERC-1137 — a token standard designed for recurring payments. It works well for subscriptions requiring payments at certain intervals.
ERC-998 — a smart contract that allows users to merge several NFTs into one NFT.
ERC-875 — a smart contract that allows users to transfer several NFTs in a single transaction.
Flow
Smart contracts on the Flow blockchain are written in Flow’s native language, Cadence. A unique feature of the Flow is that developers can release their Dapps in beta while updating the code as problems arise since Flow allows for ‘Upgradeable Smart Contracts’ development. Such smart contracts can be deployed in a ‘beta state’ and then be incrementally updated by the original authors until they are satisfied. Users will be notified that this smart contract isn’t finalized yet and can choose to wait until it is completed before trusting it. Once the original authors of the smart contract are satisfied with their code they can irrevocably release control and it becomes immutable from that point forward.
BNB Chain
BNB Chain has its own token standards that are quite similar to Ethereum ones.
- BEP-721 is like ERC-721 but on BNB Chain. BEP-721 offers all the benefits that come with this chain such as faster transactions and lower transaction fees compared to Ethereum. Thus, if users want to trade NFTs and pay less gas, BEP-721 is a good solution.
- BEP-1155 is like ERC-1155 since it offers the ability to issue several unique tokens at once in one smart contract. BEP-1155 tokens can be both fungible and non-fungible. This standard also provides support for atomic swaps and ’batch’ transactions.
Tezos
FA2 (TZIP-12) is standard for a unified token contract interface, supporting a wide range of token types and implementations such as fungible, non-fungible, non-transferable as well as multi-asset contracts. Therefore, FA2 contracts can be designed to support a single token type (like ERC-20 or ERC-721) or multiple token types (ERC-1155) to optimize batch transfers and atomic swaps of the tokens. It gives developers a lot of flexibility to define and invent new token types which can support complex token interactions while maintaining a standard API for external applications and wallets. These token structures can include NFTs and contain numerous different gaming items with interactive and transmutable features.
FA1.2 (TZIP-7) is an ERC-20-like fungible token standard for Tezos. At its core, FA1.2 contains a ledger which maps identities to token balances, providing a standard API for token transfer operations, as well as providing approval to external contracts (e.g. an auction) or accounts to transfer a user’s tokens.
TZIP-16 is a standard for accessing contract metadata in JSON format in on-chain storage or off-chain using IPFS or HTTP(S).
Kusama / Polkadot
‘The rules for how to interpret this are called specifications or standards, and RMRK is one such set of rules. RMRK deals with applying rules to remarks, which is what we call blockchain graffiti on Substrate-based blockchains like Kusama or Polkadot.’ — RMRK Docs
The beauty of NFTs built on RMRK is that they are not the usual still images you find as NFTs. These NFTs come with extra functionalities, and users can interact with them, and they allow the creation of highly customizable protocols.
Other NFTs standards
Part II: Use cases
NFTs’ potential use cases include prominent ones like digital art, collectibles within gaming, music, fashion, sports, decentralized finance (DeFi), tokenization of real-world objects, domain name ownership, licenses and certifications, and others. Furthermore, NFTs could be used to track metadata, improve event ticketing and even transform real estate.
This section discusses 20 main NFTs areas of use. A summarized version of the NFTs use cases is given in Figure 3.
Intellectual property and patents
NFTs allow users to prove their rights to any piece of content, which is not possible with traditional intellectual property rights protection tools such as trademarks and copyrights. Ownership of an NFT can be distinguished, especially by timestamps, throughout the history of the NFT. Blockchain is immutable, meaning that the owners of the NFT can prove that they are the original creators of a particular piece of work at any given time.
Similar benefits apply to patents. NFTs can be used to protect and prove ownership of innovations or inventions. NFTs can also provide the necessary data for verification, thus creating a public ledger in which all transactions related to patents are documented and stored.
Art
Like its counterpart, physical art, digital art can be sold by artists and bought by art collectors and enthusiasts. However, it is also subject to counterfeiting or theft. The NFTs technology can help track the originality of a specific piece and reduce or completely eradicate counterfeit artwork in circulation no matter if it is a physical or digital artwork.
NFTs address the long-standing digital art scarcity issues on how to keep virtual artworks rare if they can be copied digitally. The use of NFTs in this regard gives each piece of art a unique hash that allows it to be differentiated. Artists of original artworks can include their signature in NFTs, thereby reinforcing the authenticity of the content created. While it is possible to make copies of digital art, NFTs ensure that each copy is solely owned by the purchaser so that it is not interchangeable with another copy, increasing the art’s appeal to amateur collectors and speculators. Subsequently, users could view the entire history of the artwork, including the previous prices at which it was purchased and ownership.
Tokenization of digital art by means of NFTs has enabled the artists to not only gain more profits from the sales of their work but also receive a royalty each time their artwork is transferred to a new owner. The concept of royalty was previously impractical, especially in the case of physical art, as it was difficult to trace its ownership. The incorporation of NFTs has enabled novel monetization opportunities for artists to be compensated for their craft.
Music
Collectibles
Crypto collectibles are a significant entrant among non-fungible token use cases. They are designed in most cases to be bought, sold, and traded as one would with a baseball card. Such collectibles are tied to unique identifiers, which makes them scarce and feeds into the entertainment value associated with purchasing and swapping them — they are truly one of a kind, or at least limited to a defined number.
Games
There is a huge demand in gaming for unique items that can be sold and bought. Their rarity directly affects their price, and gamers are already familiar with the idea of valuable digital items. Microtransactions and in-game purchases have created a multi-billion dollar gaming industry that can leverage NFT and blockchain technology. There is also an exciting area in terms of what NFTs are. Video game tokens combine the elements of art, collectibles, and player utility. However, when it comes to high-budget video games, NFTs are still a long way off.
In 2021, NFTs gained significant attention from the gaming community and developers as they provide an opportunity to own data for in-game items, fuel in-game economic systems, and provide many other perks to facilitate the players. Many standardized games allow players to purchase various inventory items and objects. However, if the purchased item is an NFT, the player can claim a refund by selling the item when they no longer need it. The player can even make a profit if the value of the said item increases over time. This process is beneficial not only for gamers but also for developers in many ways. Every time an NFT is sold on the market, the developers also receive royalties. This leads to a more interdependent profitable business environment in which both players and developers profit from the NFT intermediate market. This also indicates that if the developers stop supporting the game, the items accumulated by the players remain their property.
“Gaming is really exciting, as you already have billions of people who are buying digital goods inside of games,” said Devin Finzer, CEO of OpenSea. The reason we haven’t yet seen an even wider adoption, said Finzer, is that “the development cycle is a little longer with games than with simpler arts and collectible projects. There’s a little more of a delay.”
To summarise, NFTs give game developers another way to expand their brand and create another revenue stream, while gamers are given more incentive to keep playing a game if they already own characters or items within it. Needless to say, NFTs can be integrated into gaming worlds by allowing NFT cross-platform playability.
Sports
NFTs are completely transparent which is a great benefit for users. For example, NBA cards use a rating system, and the original owner has no idea about their location or the value of the card. With NFTs, the value of these NBA cards can be tracked digitally. Since the NFT has introduced a new way to generate income, it is more beneficial for athletes and fans than traditional ways such as advertising. It is also a new approach to connecting with fans and providing them with a unique experience. As more athletes and celebrities get involved in the NFT space, there is a growing number of things that can be tokenized and traded as NFTs like digital autographs, avatars, stickers, and animations.
Blockchain is serving as the perfect alternative for resolving such crucial issues plaguing the sports industry as counterfeit tickets and merchandise without any complications. The immutable nature of blockchain technology helps in preventing it.
Fashion
The use of NFTs in fashion is still a relatively new concept, in the pandemic, due to the closure of physical stores, the fashion industry is trying to expand its perspective by venturing into fashion technology. Companies have already begun incorporating new technologies such as AR, VR, and NFTs into physical items to distinguish ownership and maintain exclusivity. NFTs as a blockchain technology have been able to fit seamlessly into the fashion world, guaranteeing benefits for all participants in the supply chain. Consumers could easily verify the ownership information of their products and accessories digitally, thereby reducing the risk of counterfeit fraud. Users could simply scan a QR code on the price tags with apparel and accessories that are in the form of NFTs.
In this way, consumers could get a clear view of details such as the location where the asset was created. In addition, consumers could know details about the people who owned the asset before the buyer bought it. The introduction of blockchain into the fashion world has played a pivotal role in reducing carbon emissions. As a result, they can improve the well-being of employees along with customer protection. Thus, NFTs could create a new type of blockchain for the supply chain in the fashion world.
Luxury fashion brands are taking advantage of the unique ownership, permanence, and royalty benefits of the NFTs solutions. Many fashion brands are using their online presence to expand but still remain economically out of reach of the masses, who support the demand for counterfeit and replicated goods. Businesses are losing large sums of money due to counterfeits of their brands, the consequences of which can be prevented by NFTs, if not completely eradicated.
Event ticketing
Currently, the ticketing system is devoid of memories, which serve as a reminder of the memorable occasions of previous events. NFTs introduced the new functionality and memorability of tickets. The paper ticket can be lost or get wet and damaged. In addition, traveling with a paper ticket is difficult due to the possibility of losing it. Also, organizers do not get enough protection with paper tickets, which are easy to forge. QR codes proved to be a viable option for organizers but proved to be inefficient in terms of attendees purchasing them.
The NFTs ticketing scheme is quite simple. Event organizers can mint the appropriate amount of NFT tickets using their preferred blockchain platform in the ticketing system. They can code the NFTs to establish a sale price or conduct the sale as an auction in which participants can begin bidding for tickets. Customers then purchase NFT tickets and save them in their mobile wallets. They generate NFTs upon their visit to the event.
There are a lot of advantages of utilizing NFT-ticketing, since they have the ability to improve both the attendee and organizer experience when purchasing tickets.
First of all, such a system prevents forgeries and frauds. Blockchain technology establishes a single point of truth for both ticket holders and organizers. The movement of NFTs from the original sale to resale is immutably recorded on the blockchain, allowing all parties to independently verify the ticket’s legitimacy. In situations where the resale of tickets is prohibited, NFTs can be created as non-transferrable, and unable to be physically transferred to another customer.
Also, compared to the old ticketing system, the expenses involved with selling and minting NFTs are minimal. You may obtain an unforgeable ticket at a lower manufacturing cost, allowing customers and organizers to verify the validity of each ticket in the chain and monitor its ownership history.
Because programmable NFTs can include built-in rules for merchandise, content, resales, and royalty splits, the organizer can analyze profit sharing percentages for future resales or creative content on secondary markets and collect funds with the assurance that they will not be altered within the NFT’s coding.
NFT-based tickets serve as programmable money, creating an infinite number of new revenue streams. For instance, reselling NFT tickets as collectibles, utilizing NFT tickets to offer food and beverage discounts, and rewarding fans who have amassed a large number of event tickets.
Moreover, it is very time savvy. In less than a minute an NFT may be minted and ready to be sold. NFTs could be emblazoned with artwork and serve as concert memorabilia. Or maybe visitors will even make money by attending the show.
Domain names
Domain NFT (also known as decentralized domain, crypto domain, or blockchain domain) is a unique domain represented by a single NFT.
A domain NFT offers several exceptional advantages to traditional domains. First of all, they are usually one-time purchases, in comparison to the annual renewal fee-based traditional Web2 domain business models. NFT domains are also 100% user-owned, meaning a centralized entity such as GoDaddy or Google Domains can’t censor or repossess your domain at their will. What makes domain NFTs so interesting is that they can also function as cryptocurrency public addresses, meaning that the domain can send and receive other compatible cryptocurrencies and tokens as payment.
To sum up, they are domains that live on public blockchains and give users complete ownership of their stored data with the benefits of owning one and simplifying crypto transactions by replacing wallet addresses with the domain name and easily creating and hosting websites on Web3.
Metaverses
The metaverse refers to a simulated digital environment that combines multiple elements of technology, such as AR, VR, MR, and blockchain, along with social media concepts to create spaces that enrich users’ interaction by mimicking the real world.
It is a theoretical concept of a digital 3D world that users can enter via VR headsets. In this virtual world, they have a “body” (avatar) that they can customize, a home to fill with the stuff they like, and hundreds of spaces to visit. In metaverses, users can interact with others, do work, play games, and basically perform most of the activities that they do in everyday life.
In the proposed NFT-based metaverse, users can own things like avatars, land, digital clothing, and other items and move them between platforms through their crypto wallets. Interoperability is key for crypto startups pushing the technology: it’s not just about being tied to one platform from Facebook, Google, or any other tech giant.
Blockchains behind the top metaverses:
Ethereum — is the most popular blockchain with the ability to create third-party projects.
Cardano is a public blockchain platform with consensus achieved using proof of stake. It was founded in 2015 by Ethereum co-founder Charles Hoskinson.
Solana is an open-source scalable and energy-efficient blockchain that has become wildly popular in 2021. In terms of development, Solana is very different from others, it uses the Rust programming language.
Polygon is a decentralized Ethereum scaling platform that enables developers to build scalable user-friendly dApps with low transaction fees without ever sacrificing security.
BNB Chain is a blockchain that was developed by the team of the largest crypto exchange Binance.
Decentralized finance (DeFi)
DeFi Decentralized finance (abbreviated as DeFi) is an umbrella word that refers to peer-to-peer financial services provided on public blockchains. Most of the things that banks allow you to do — earn interest, borrow, and lend; buy insurance; trade derivatives; trade assets; and more — are available to you through DeFi. Plus is far faster and does not necessitate the involvement of third parties.
Since NFTs depict the financialization of digital products and services, NFT setups and marketplaces have come to be an undeniable thriving sector of DeFi. Like Ethereum has employed ERC-20s to embody digital assets, NFTs can be comprehended as provable ownership rights for digital art. NFTs enable asset tokenization, and DeFi provides decentralized access to financial services.
The holders of RARI tokens, which include producers and collectors, are able to vote on platform enhancements while also actively participating in the moderating of the marketplace itself. RARI has also included a non-profit trust index, which serves as a portfolio for non-profit trusts to assist all collectors in seeing the artworks and selecting the most appropriate one for investment.
Supply chain
Blockchain technology can be useful in logistics, particularly because of its immutability and transparency. These aspects ensure that supply chain data remains authentic and reliable. With food, commodities, and other perishable goods, it’s important to know where they have been and for how long.
NFTs work for supply chain purposes because companies are particularly concerned with maintaining trustworthy digital data related to their physical world assets. Therefore, companies can benefit by using NFTs to represent their physical assets digitally. Some ways in which NFTs address supply chain needs are in the areas of tracing products through supply chains, identifying product origin and authenticating ownership, and verifying product certifications.
Product origin and authentication
NFTs can be used to verify the authenticity of the product users are purchasing. Since the blockchain can permanently store product information, rarity and authenticity checks became relevant for physical products as well. NFTs can also be used to store information about the manufacturing process, ensuring everything is fair trade.
One of the crucial problems is fake food products such as supplements and drugs. NFTs can help solve this problem by tracking and tracing food products. Imagine that you simply scan the QR code of a nutritional supplement you bought online and see its entire journey from production to shipment. In this case, products that erroneously claim to have been made and sourced in a particular country will end up being debunked because the track record is transparent.
Traceability
Product traceability and provenance is a popular use case of blockchain technology. In many industries, blockchain and tokenization are applied to track products such as food, medicines, or fashion items. Tokens are used to track the exchange and movement of goods throughout a supply chain. By creating NFTs for products or product batches, a unique digital twin can be created that is linked to unique identifiers of the physical products.
Because NFTs can represent real-world objects, supply chains can use NFTs to track a variety of products and materials. To track physical world objects via NFTs, the owner must create a digital representation of the physical object on the blockchain so that transactions related to the physical object can be safely stored and tracked.
Product certifications
Business documents such as certifications, invoices, and sales orders always contain a unique identifier. These types of documents can also be represented by NFTs.
The modern-day consumer is selective about product certifications. As a result, providing consumers with trusted certifications such as ‘organic’ or ‘fair trade’ can increase sales. To accomplish this, third-party certifiers for product standards or labor safety requirements could mint an NFT with the appropriate certification onto the blockchain, which supply chain members would pass downstream until it reaches the end-user in the supply chain who can ultimately access the certification via a web link.
DAOs
Decentralized autonomous organizations or DAOs are built on the focal concept of decentralization, introducing organizations run by groups of people with no typical business hierarchy. In DAOs, the rules and transactions of the group are recorded and managed on the blockchain, removing the requirement for central entities.
There are many different kinds of DAOs already in place today.
Social DAOs: A collaborative platform for social networking in the crypto landscape, often involving a number of members with a common interest.
Investment DAOs: Venture or investment DAOs allow people to come together to raise money for a variety of DeFi activities. These organizations are ideal for attracting younger investors in search of transparent money-making opportunities.
Collector DAOs: Collector DAOs are specifically focused on the NFT landscape. These allow members to fractionally own various high-priced digital assets as a group.
Grant DAOs: One of the primary functions of DAOs, grant DAOs allow users to collect funds in a central pool and allocate those finances based on community votes.
Protocol DAOs: Protocol DAOs involve using various smart contracts to provide decentralized financial services.
All these types of DAOs can benefit from the connection with NFTs.
One of the ways NFTs and DAOs are closely connected is in the form of collector DAOs, a kind of decentralized organization specifically focused on the collective ownership and the development of NFT communities.
The second case here is community governance with NFTs.
DAOs operate on specific sets of rules established using smart contracts in a blockchain. Through smart contracts, these groups can create transparency in their operations. No central authority can override or make changes to the smart contract, as changes are only made with a community vote.
Users usually need tokens to participate in DAOs, and token ownership usually comes with various voting and governance rights to ensure users can influence decisions in the wider group. As a result, NFTs naturally play an important part in how DAOs generally operate. NFTs could be something a member of a DAO will need to have access to in order to make meaningful changes in the organization.
Identity
Blockchain technology has introduced a new chapter to the world of identity management and cybersecurity through a decentralized system of data protection. The intention is to keep the sensitive information of individuals and organizations safe from malicious attacks by a third party or hacker. It can also be used to track the identities of individuals and items. Its security innovations revolve around: decentralized technology, security through blocks, private and public blockchain, and smart contracts.
Self-sovereign identity (SSID) has long been one of the most intriguing applications of blockchain technology, and NFTs could be the key that unlocks the door. NFT-secured virtual selves may in many ways become more secure than identities in everyday life. Passwords can be stolen, biometrics hacked, and passports forged. Identity secured in the blockchain is more difficult to fake and steal. From a privacy standpoint, NFTs could spell the end to online anonymity, but there are a fair amount of benefits to having a completely verified network, including a reduction of fraud, crime, and maybe even nasty comments.
Furthermore, an identity validation-dependent process such as voting could be integrated with NFTs. It is known that in many countries, voters are required to bring a photo ID and proof of residence with them when going to polling booths to vote. However, many are being disenfranchised as they do not have copies of their IDs or any form of documentation that will prove where they live, or if they are even registered to vote. NFTs can help solve this problem since they would provide a digital identity for people without physical documentation that proves who they are and where they reside in the country. This will also help eliminate cheating and voter fraud as NFTs will serve as an official record of those who voted and their votes.
Medical records
NFT-ledgers can store an individual’s medical records without compromising confidentiality or risking tampering from external sources since NFT transactions are validated on multiple nodes before being added to the blockchain permanently — ensuring that every record is accurate and secure from malicious attempts at manipulation.
NFT applications have been designed specifically to aid healthcare professionals as well — one such example is NFT Birth Certificates that can be issued to newborns by healthcare providers. Issuing one of these NFTs for each child can be an effective way to quickly create a lifelong identity on the blockchain that’s linked to their birth certificate — which is then verified with NFT verification apps.
NFT ledgers also provide safer methods of storing sensitive medical data while still allowing authorized healthcare providers access when required. Narrowly-defined NFT use cases have emerged in recent years where hospitals, health insurance companies, and other organizations are beginning to explore how blockchains could help improve hospital operations by verifying patient identities and recording medical procedures performed without compromising patient confidentiality.
More importantly, that information is valuable. “In the era of big data, health information is its own currency; it has become commodified and profitable,” says Dr. Amy McGuire, a senior author of the paper. Ownership of it, via the NFT blockchain ledger, could let individuals track the sale of their data — or stop it, or even cash in. “Using NFTs for health data is the perfect storm between a huge market place that’s evolving and the popularity of cryptocurrency”.
Memberships and community development
NFTs are the best way of producing and maintaining membership proof for clubs, events, or communities. Since they are blockchain-backed, they can be used as digital tickets to various events as well as exclusive clubs. They may even be used to access limited edition articles and items that are out of reach for many.
Also, with increasing exposure to social media, users and fans are spending more and more time online. These influencer-loyal / celebrity-loyal folks can be offered limited edition NFTs of their favorite entity along with special benefits. The privileges could range from entry to meet-and-greet events to restricted-access merchandise or even access to live events. Brands that are able to identify their die-hard followers can drop some limited edition NFTs in the market and reward them with some enhanced offerings to expand the community of fans.
NFTs have a lot of potential over and above their highly secure protocol. The possible applications of the technology are plentiful and could be harnessed to unlock all sorts of possibilities even if the buzz around them dies down.
Licenses and certifications
NFTs use cases can also lend profound benefits for license and certificate validation. Assigned to individual licenses and certificates, NFTs can minimize the time and effort that companies have to expend on reviewing critical documentation, in this way improving administrative operations.
Certification and licensing agencies can eliminate the workload of record checking, record keeping, and verification as each document has a unique NFT that can be checked for authenticity. The issuance of the licenses and certificates on the blockchain makes them resistant to forgery, which reduces the likelihood of detecting fraudulent documents.
Academic credentials
NFTs are also a good way to represent academic credentials. NFTs can provide proof of attendance, degree earned, and other important information which will be stored on the NFT chain that cannot be altered or hacked into. NFTs can create immutable records for courses taken by issuing tokens for each course completed along with verifying any degrees earned through smart contract verification systems.
In the future, issuing a paper certificate will no longer be a thing. NFTs will be used as a record of academic achievement and NFT education tokens can be transferred to other individuals, giving them proof that the person holding it earned such an NFT.
Real estate
Real estate is also one of the profound entries among use cases of non-fungible tokens, and today its industry is one of the most NFT-ready sectors.
One of the downsides of investing in it is the hassle of transferring property ownership. It currently takes a tremendous amount of paperwork to buy a property or open an equity line. With an NFT, the transaction process is streamlined, allowing a buyer to assume ownership of a piece of real estate within minutes. In this way, NFTs could be used to transfer land deeds, provide proof of ownership and even keep track of changes in property value over time using timestamped NFTs.
NFTs can simplify and speed up transactions, enable smart contracts for properties — allowing automatic payments — and create decentralized home rental services — all while protecting sensitive data like credit card details.
Real-world asset NFTs
Linking real assets with NFTs could digitize the way people prove ownership. For instance, in real estate, they usually deal with physical property deeds. The creation of tokenized digital assets of these deeds can result in the movement of highly illiquid items such as a house or land onto the blockchain. When it comes to this promising case, there is still not much support from regulators so far. It’s in development, but it is worth looking into in the future.
When it comes to small items such as for example jewelry, NFTs can help prove legal ownership in resale. Thus, a real ethical diamond usually comes with a certificate of authenticity. This certificate is also a way to prove the ownership rights. Anyone attempting to resell an item without a certificate cannot verify its authenticity and may run into trouble convincing buyers that they are the rightful owner.
The same concept is possible with NFTs. By having an NFT associated with an item, owning an NFT can become as important as owning an asset. Users can even embed an NFT into an item with a physical cold storage wallet. And as the Internet of Things develops, more NFTs being used to represent real assets will be likely to see.
And many more…
Part III: Ecosystem and market overview
NFT landscape
Over the past two years, the NFT landscape evolved from a miniature ecosystem with a few hundred million in sales volume to a multi-chain ecosystem with several layers that can be distinguished. Each layer has specific characteristics and goals, performs certain functions, and has a number of projects specializing in this area.
Layer 1
Layer 2
Storage
Application layer
Secondary applications
NFT financialization
NFT issuance platforms and marketplaces currently make up one of the largest categories of non-fungible tokens protocols and are one of the more obvious market opportunities given the business model.
Aggregators
Main industry players
Here is the list of the significant NFT industry players divided by categories.
📒 Mass-marketplaces 🛍️
- OpenSea — The is an NFT aggregator and the ruler of the ecosystem. It’s an overall one-stop-shop that allows users to trade NFTs, create NFTs, view data, and inspect other wallets ranging from gaming items, virtual real estate, and digital collectibles to crypto art, basically everything that can be wrapped in an NFT. It is one of the largest NFT marketplaces in terms of transaction volume. Announcing the funding round in a blog post in January, co-founder and CEO Devin Finzer noted that the “NFT ecosystem exploded last year, with OpenSea’s transaction volume increasing over 600x in 2021.” OpenSea stores the media files or content to the NFT on an InterPlanetary File System.
- LooksRare is the hot new NFT marketplace challenging OpenSea and the community-first marketplace with rewards for participating. The platform was launched in January 2022 by two anonymous co-founders — who go by Zodd and Guts. The site had planned to add new features to lure NFT enthusiasts, according to a blog post at the time. Almost all of those initiatives have focused on the incentive program built around the Looks token awarded to active users of the platform. The ability to earn tokens, while a prominent aspect of DeFi, is a relatively new feature to NFT platforms. Rarible was among those that pioneered the idea last year.
- Magic Eden — Magic Eden is the leading NFT Marketplace on Solana that allows users to buy, sell and trade unique digital assets. It is built on the Solana blockchain but at the same time, it allows users to interact with each other in a trustless environment.
- Solanart is the largest fully-fledged NFT marketplace on Solana that allows easy access to digital collectibles and ways to explore, buy and sell NFTs.
- Async Art — Programmable art platform Async Art allows artists to create multiple and layered NFTs from one piece of art that can alter their form dynamically. Interestingly, these NFTs can change their “state” and therefore are not static like a painting, but rather dynamic like an ever-changing movie. For example, an art piece can change from a sunny island scene to a stormy island if someone changes the state from sunny > stormy.
- Mintbase — A marketplace to buy, sell, and mint NFTs. Mintbase’s major differentiator is that it offers NFTs that are not commonly found on other platforms. For example, Mintbase covers niche NFT categories like music, memberships, services, tickets, news, and photography.
- TokenTrove — A marketplace to buy and sell gaming and the virtual world-related NFTs for the likes of Gods Unchained, Cryptovoxels, and Crypto Space Commander.
🧓 Curated art platforms 🎨
- SuperRare — One of the earliest and most dominant curated crypto art marketplaces. Artists must apply to start selling on SuperRare and there is a long waitlist.
- Nifty Gateway — Nifty, slang for NFT like NiftyCryptoNomad, Nifty Gateway is an NFT art platform that has become an extremely important player in the NFT scene. It is wholly owned by Gemini, the crypto exchange started by the Winklevoss brothers.
- MakersPlace — As the name implies a place to make and create NFTs. The art platform allows artists to tokenize and trade their work.
- KnownOrigin is a platform where artists can mint and trade crypto art. Having launched in 2018, they are another OG in the NFT art scene.
- Palm is a collective of technology, entertainment, crypto art, and art industry leaders. The studio provides creative services for artists and rights holders looking to establish NFT marketplaces and next-generation work on Palm. It was brought together by ConsenSys founder and Ethereum co-founder Joseph Lubin, film producer and owner of Heyday Films, David Heyman, and founder of world-class art house HENI Group, Joe Hage.
🆓 Permissionless art platforms 🎨
- Rarible — The first NFT art marketplace to implement a token (RARI) that incentives trading. This is a big brain move, which many will follow. By buying, selling & participating on the platform you earn RARI. Additionally, they made headlines with a mixture of DeFi, insurance and NFT minting when they began offering wrapped NFTs-DeFI-Insurance on Rarible.
- Zora is a universal media registry protocol. A media register is a centralized, simple, and effective way of tracking and managing copyrights. It is a platform for creators to share their work, earn money from it, and have others build and share it with them.
- Foundation is an Ethereum-based NFT marketplace that launched in 2021. It’s a platform that aims to build a new creative economy where creators can use the Ethereum blockchain to value their work in entirely new ways and build stronger connections with their supporters.
- Cargo, is the all-in-one multi-chain non-fungible token management platform. On the platform, users can create, store, sell and buy digital collectibles from Ethereum, xDao, Polygon, and more. Cargo supports audio, video, 3D, and image NFTs.
- Blockparty is an NFT marketplace and storefront platform, for creators and brands cross-chain compatible with Ethereum and Flow.
- InfiNFT is a token minting platform that allows users to create their own NFTs with fully on-chain metadata. The focus on token integrity ensures that creations will be around as long as the blockchain underpinning them.
- Mintable is an NFT marketplace where users can create, buy, and sell digital items for the easiest way to earn and get started with crypto and NFTs. Its intuitive and powerful UI allows users to mint any information as an ERC-721 token on the Ethereum blockchain.
- Portion is the marketplace connecting artists and collectors through blockchain technology to easily sell, invest and own art and collectibles with complete transparency.
🖌️ Non-Ethereum art platforms 🎨
- The Binance NFT marketplace is a marketplace that features all forms of digital artworks and collectibles. Powered by the Binance blockchain infrastructure and community, the Binance NFT marketplace provides a high liquidity platform for users to launch and trade NFTs.
- The Crypto.com NFT Marketplace is an NFT marketplace with the sole purpose of being orientated toward artists who want to sell audio files as NFTs. The marketplace itself contains an array of the best NFTs to buy, from categories such as art, gaming, sports, music, and more. The Crypto.com NFT app and marketplace offer Crypto.org chain and Ethereum NFTs. Each NFT will be listed for a fixed price or through a traditional auction, offering flexibility for buyers and sellers. Interestingly, Crypto.com NFTs can be purchased instantly using a credit or debit card. This is in contrast to many other NFT marketplaces that require crypto to facilitate payments.
- Efinity is a metaverse blockchain built by the Enjin team. Efinity’s primary purpose is to act as an NFT highway for crypto projects and dApps. The blockchain is a parachain built on Polkadot that enables EFI to feature an independent economic structure.
- Kalamint is a blockchain-based digital art marketplace that allows users to create, sell and collect NFTs on Tezos. The platform lets users mint NFTs native to Tezos using the FA2 token standard.
- Mintbase is a global platform that allows anyone to create NFTs without worrying about technical complexities. Artists can create NFTs to sell digital art, musicians can use them for music, and event organizers can use them to sell tickets for their next event. Mintbase is related to the nonprofit NEAR Foundation.
- NFT Showroom is a digital art marketplace built on Hive, a fast and free blockchain that makes creating and collecting rare digital art simple and accessible.
- VIV3 is a gas-free marketplace for NFTs on Flow. On VIV3 all the works made by each creator are minted from their own blockchain smart contract. In doing so, any application in the Flow ecosystem can easily integrate directly with contracts from individual artists, instead of the entire marketplace pool.
🤖 Generative/programmable art 🎨
- ArtBlocks is an Ethereum-based platform providing unique, programmable, and on-demand generative NFT art to collectors worldwide. It does so using NFT drops, a process by which a user mints an NFT but doesn’t know what they’re receiving beforehand. Artists selected by the AB team at the Curated level get leeway to create an NFT drop considered part of the official Art Blocks collection.
- Async Art is a programmable art platform that allows artists to create multiple and layered NFTs from one piece of art that can alter their form dynamically.
- POB (Proof-of-Beauty) is the experimental NFT studio that generates unique art through various hash attributes of a certain event/transaction in the past. This eventually creates a great incentive to document and collect history, in a very crypto-native way to say the least.
🎶 Music platforms 🎧
- Audius is a fully decentralized music streaming platform that enables listeners to support artists directly via its native cryptocurrency, AUDIO. Artists are able to distribute their music free of charge, and the team states that it will always be free for artists. What’s more, unlike most other music streaming services, Audius doesn’t take a cut of artists’ revenue. In their whitepaper, the team outlined the mechanics of Audius. As of May 2022, Audius has almost 10 million monthly unique users and hosts over 100,000 artists.
- Opus is a decentralized music hosting, discovery, and listening platform. The platform uses the Ethereum blockchain, and tracks are stored on the IPFS. Using the IPFS, the platform is able to deliver thousands of tracks per second in a way that’s fully decentralized. Ultimately, users listen to music through smart contracts, which the company notes contain the decryption keys and file hashes. And the smart contracts also provide a way for users to compensate creators for their music. According to the company, OPUS enables artists to receive 90% of the money they take in.
“By basing the OPUS Player [on] the Ethereum blockchain and storing all the tracks on IPFS, there is no central server and so the storage costs are drastically reduced. This allows for more of the revenue to go directly to the artist, in a more secure, transparent way than ever before,” they said.
- BPM is a music NFT Discord bot that was built by SongCamp. It is essentially a music streaming bot that can be installed into a Discord server to play music NFTs minted via Catalog, Zora, Sound, and other services. Although BPM isn’t a traditional streaming platform and requires that a track already be minted as an NFT to stream it, it can be a useful tool when it comes to getting your music heard by the right crowd.
- Catalog is a specialized marketplace for 1-of-1 NFT music releases. On this platform, users can add a record to Catalog’s open music library (which is available to stream for free), set a “buy it now” price, list it in a reserve auction, or accept an offer made by a collector. Artists receive 100% of their initial sales and also earn a creator share every time their records are resold. What’s more, artists set the resale price they receive themselves. However, the platform is currently invite-only. It will likely remain so for some time, as the platform is run by a very small team and onboarding takes time. Artists can still complete the Catalog submission form to get their names on the waitlist.
- Sound.xyz is a service that combines streaming with minting and community listening. On Sound, artists can launch a listening party for new song releases with a series of limited edition NFTs. Listening parties happen daily, and nearly every collection has sold out since the platform initiated its first drop. Artists get to keep 100% of the proceeds generated by the sale. The platform is currently still in beta. Similar to Catalog, it is currently invite-only.
- Async music is the music-focused arm of prominent NFT platform Async Art. On Async Music, each track that makes up a song (guitar, piano, vocals, percussion) is uploaded separately and with numerous different versions. This allows artists to mint music in a dynamic way — with layers that come together to form one master track. Because these tracks are randomly compiled in a master NFT, songs on the platform have the ability to change their composition, meaning they may sound different each time a user comes back to listen.
- Royal is 3LAU’s new music NFT marketplace that gives NFT owners the rights to songs sold on the platform. The platform is currently highly curated, with 3LAU and his team hand-picking each artist and song that is minted on the site. While Royal isn’t open for minting, the mechanics of the platforms LDAs (Limited Digital Assets, a.k.a royalty-bearing NFTs), is definitely something to become familiar with.
- Other general marketplaces for minting music NFTS are OpenSea and Rarible, SuperRare, Foundation, and Zora.
🎼 Non-Ethereum music platforms 🎧
- Emanate is a blockchain-powered music streaming platform. It’s built on EOSIO and uses its EMT token for payments. Both the EMT token and the internal stable token run on the EOS mainnet, and anyone can track payments via EOS mainnet block explorers. One major difference between Emanate and Audius is that Emanate pays artists in its native token per stream, while Audius only currently employs the rewards system for artists to earn crypto. Emanate also has the Emanate Music Lovers group, which is $6 per month. From every $6 the company gets, $5 is passed on to the artists.
- Mint Songs is a music NFT marketplace running on the Polygon blockchain, helping music artists build web3 communities by building tools that enable music artists to turn their core creative assets into NFTs that they can sell and give away to their community. Users can mint their songs (audio + album artwork) into NFTs for $0 gas/network fees.
- BitSong is a blockchain music ecosystem born in December 2017, to create a decentralized and trustless hub that interconnects the various market players. Bitsong uses blockchain technology to track and store the analytics of streams and to distribute streaming payments, donations, and tips to artists in real-time. The project belongs to the Cosmos Network ecosystem.
- OneOf is a platform hosted on the Tezos blockchain. The platform is currently highly curated and doesn’t allow for independent minting, only collecting, but it is a good place to list your work.
- Objkt has become both the de facto marketplace to trade NFTs on the Tezos blockchain and a great place to mint music NFTs.
- Kalamint is another good marketplace built on Tezos that’s worth a look.
🎮 Games 🎲
- Axie Infinity is the most popular crypto game. Axie Infinity borrows heavily from the Pokemon game series and adds its own blockchain twist to give the finished product an even more exciting feel. In this Ethereum-based game, players breed and collect NFT-based digital pets called Axies for the core purpose of battling other players. Each individual Axies has its own genetic imprint. Axie Infinity has been extremely popular in developing countries like the Philippines, where players can earn a substantial income playing the game. Players from the Philippines can check the price of 1 SLP to PHP directly on CoinMarketCap.” and link “1 SLP to PHP. For every attempt to breed a new Axie, you must pay a specific amount of SLPs, which you can also purchase at exchanges. Another ERC20 token native to Axie Infinity is Axis Infinity Shard (AXS), which functions as the platform’s governance token.
- Etheria is a digital world launched just three months after Ethereum’s mainnet, presenting users with a virtual open world composed of hexagonal tiles that can each be bought, sold, and built on, as non-fungible tokens (NFTs). Each piece originally sold for 1 ETH, then worth under a dollar.
- CryptoKitties is a blockchain game on Ethereum developed by the studio Dapper Labs that allows players to purchase, collect, breed, and sell virtual cats. The game’s popularity in December 2017 congested the Ethereum network, causing it to reach an all-time high in the number of transactions and slowing it down significantly.
- Gods Unchained — Digital trading card game where users can battle other players and buy and sell cards. It is a free-to-play game designed to infuse elements of NFT into a familiar card trading gaming genre. Players accumulate cards by purchasing them from other players or winning PVP matchups where the quality of cards and the gaming skill of players often determine the winner. Notably, more emphasis is being placed on skills and strategy. This is because the game utilizes a ranked game mode where players with the same ratings are matched.
- Splinterlands is a free-to-play tradable card game that lets users earn as they play, similar to Gods Unchained.
- Sorare is a fantasy football trading card game on the Ethereum blockchain. Players collect or buy trading cards to compete in weekly competitions, and stand a chance to unlock rare cards or win Eth. Sorare has over 200 clubs officially licensed on their platform — including renowned names like Real Madrid, Liverpool, Paris Saint-Germain, and Bayern Munich — with more added each week.
- DeFi Kingdoms is a Harmony-based game to truly leverage the value of NFTs and intertwine it with nostalgic fantasy pixel art. This is a title that looks like a SNES role-playing game from the 90s or a modern indie, think Harvest Moon. DeFi Kingdoms shows us how NFTs can be used in games as it marries the underlying utility of NFTs with classic game design. You can play DeFi Kingdoms as you would a retro RPG — questing for XP and items, managing your in-game resources, and developing your hero. But in DeFi Kingdoms it accumulates JEWEL tokens that can be converted to Harmony One cryptocurrency.
- Battle of Guardians (BOG) is a real-time multiplayer NFT PvP arena developed on the Unreal Engine. This is an advanced fighting game based on the Solana network in which players constantly fight to defeat other opponents for more rewards. It allows users to benefit not only from the blockchain’s power but also from its unrivaled graphics. Here, players can engage in fierce multi-realm battles in various areas of the vast SciFi game world. BOG is designed for PC gamers, but it will eventually support cross-platform multiplayer on iOS and Android.
- Star Atlas is a play-to-earn game that mixes space exploration with mining, trading, and combat to promise an experience close to Elite; but here you earn from your galactic endeavors. Star Atlus aims to offer Triple-A gaming visuals and performance and could set the standard for future NFT games. It’s currently building to launch later this year so the player versus player (PvP) and player versus environment (PvE) missions aren’t yet up and running, but you can invest in a fleet by purchasing ships and items from the in-game marketplace.
- Parallel is a science fiction card game akin to Magic: The Gathering (another one). The story revolves around concepts such as different races coming together to find common truths, in order to solve differences and save the universe, which means Parallel has a community-based cooperative aspect in its card-collecting.
- Thetan Arena is a multiplayer online battle arena game, which everybody can play and enjoy. The game uses NFTs to give players ownership over game characters and certain items. It also features a free-to-play option without NFT. There are two tokens THC and THG. Players earn Thetan Coins through gameplay and can spend this on for example NFTs. In addition, Thetan Gem, which serves more as a governance token also has a function to upgrade characters in-game.
- Illuvium is an open-world RPG adventure game built on the Ethereum Blockchain with a play-to-earn structure wherein users can earn in-game rewards. Thanks to the integration with Immutable X, players can enjoy a new era of NFTs. You gain access to zero gas fees, peer-to-peer minting, and get instant transactions, all while you securely maintain custody of your assets. It combines elements of traditional RPG collection games with fight mechanics seen in the popular Autobattler genre.
- Pegaxy is a Player v Player (PVP) horse racing game that offers several ways to be involved in the game and its ecosystem. Players can buy NFT horses to race, breed, or rent out to other players.
- Battle Racers — An action-packed blockchain racing game where you design, build and race NFT cars on arcade-sized tracks.
- My Crypto Heroes — Quick and casual RPG where players collect, train, and battle heroes.
- Crypto Space Commander — Space MMO where users can battle, trade, and build spaceships and items.
🌍 Virtual worlds 🕹️
- Cryptovoxels — Known as the “blockchain Minecraft’’ since users build with blocks, Cryptovoxels was the first blockchain-based virtual world to launch and first became popular with crypto artists and crypto art collectors. Now the world is inhabited by all types of people and teams building awesome content.
- Decentraland — Decentraland was the first blockchain-based virtual world to raise capital and put together a great team. They were busy building since their ICO in 2017 and launched this year to much fanfare.
- Somnium Space — The high-end virtual world for all but especially those who really love VR. Users can enter Somnium Space through PCs or use VR headsets to experience everything in great detail.
- The Sandbox is a voxel-based gaming metaverse and one of the most active NFT gaming platforms where players can build and trade virtual assets. In this game, players can manipulate and monetize voxel assets. Think of it as the blockchain iteration of popular gaming titles like Minecraft and Roblox. The platforms offer the tools to create and animate objects and subsequently sell them on marketplaces. Additionally, users can create and play custom games on the platform. Sandbox 3D has introduced SAND, an ERC-20 token, as the native token of the metaverse. With this, players can purchase in-game items on the platform’s marketplace. There is also LAND, which are NFT tokens and by far some of the most valuable and sought-after assets in the Sandbox game. A record of $8.5 million in LAND sales was concluded in April alone.
- Alien Worlds is an NFT Defi metaverse that simulates economic competition and collaboration between players in a bid to explore other planets. This is achieved by incentivizing players to compete for Trilium (TLM), which is required to control competing decentralized autonomous organizations (Planet DAOs) and to gain access to additional gameplay. In the Alien Worlds metaverse, players can acquire NFTs to mine TLM, engage in battles, and complete in-game quests.
🔡 Domains 💻
- Ethereum Name Service or ENS, is a distributed technology based on the Ethereum blockchain that provides an elegant solution to long and confusing crypto addresses: one URL, just like a website name or email, that represents a crypto address.
- Unstoppable Domains are NFT domains that let you create and own your digital identity and will help shape the future of Web3.
- Handshake & Namebase are placing ownership of the Internet into the hands of people, not corporations or governments. Namebase is a top-level domain (TLD) name registrar that operates on the Handshake blockchain. You can now own your own TLD extension — one of the most powerful and valuable digital assets in existence — that is fully decentralized on the blockchain.
👥 DAOs 🙋♂️
- Ark.Gallery — A DAO focused on community ownership of NFTs. ARK Gallery allows you to buy and sell Cryptopunks together with other users. Ark Gallery introduces a new way to collect NFTs by introducing digital community ownership.
- Flamingo — NFT-focused DAO that invests in NFTs directly. Brought to you by the people that launched the LAO. Flamingo aims to develop a strong foothold in this emerging ecosystem, bringing together the “hive mind” of a DAO to the world of NFTs. Flamingo will give its Members the ability to develop and deploy NFT-focused investment strategies.
- Mol LeArt — Web3 creative commons DAO. Mol LeArt is a community-governed creative commons, where members can freely use and build on each other’s creative content. Their goal is to build a playground for artists to experiment with different NFT token models and controls for their NFTs. Through collective experimentation, they strive to build an ecosystem that self-sustains and grows the pie for everyone involved. Interesting Decaying Royalties experiment where the royalties pool for a given NFT includes both artists and its collectors.
📈 Finance 💰
- NFTfi — The first platform for NFT collateralized loans. Users can earn a yield by lending out ETH or DAI loans to users who put up their NFTs as collateral. Or Users can receive ETH or DAI loans by placing their NFTs up as collateral.
- NIFTEX — The spot to fractionalize your NFT into “shards.” These shards are ERC20 tokens that can be traded in a much more liquid manner compared to NFTs.
- Yinsure — Platform where users can create tokenized insurance contracts.
🎨 NFTs + DeFi 💸
- Rocket NFT — A project that gives loans against NFTs. The shared lending pool managed 170 ETH and returned 6.01% on ETH in its first 7 months. Amongst other things, Rocket performed the first-ever crypto-art-backed loan and the first-ever domain name-backed loan.
- Aavegotchi — Enables DeFi-staked Crypto Collectibles. They are pushing the boundaries because users can not only collect interesting NFTs but also earn yield from their assets.
- MEME — Allows MEME token holders to stake their tokens and, in return, acquire rare, fun, and arty NFTs. Fun and engaging experiment.
👗 Fashion 👠
- Digitalax is a decentralized and forkable protocol stack for web3 fashion & the open metaverse. It proves that web3 fashion is the missing bridge that will onboard millions of new users into web3. The team is building an entire ecosystem across digital and physical fashion, NFTs, gaming, esports, and the metaverse.
- Metafactory produces ‘digiphysical goods’ that connect multiple worlds via NFTs, embedded microchips, and more. A composable infrastructure that can be leveraged by all projects. Decentralized brands belong to no one and can be remixed by anyone.
- Overpriced is a high-end streetwear brand that creates “fashion for the crypto generation,” recently selling an NFT-linked hoodie for $26,000. The virtual hoodie was sold on the digital art marketplace Blockparty to an anonymous buyer who can “wear” the digital sweatshirt by scanning a unique V-code.
- DressX, a digital fashion store, is betting that they can make luxury buyers covet fashion NFTs. On DressX, customers buy a fashion piece and also submit a photo of themselves, and in return receive a digital photo back of them wearing the fashion item.
🖼️ Collectibles 🎨
- CryptoPunks — The first NFTs issued on Ethereum. The CryptoPunks are 10,000 uniquely generated pixelated collectible characters. No two are exactly alike, and each one of them can be officially owned by a single person on the Ethereum blockchain. They have reached cult status within the NFT space.
- The Bored Ape Yacht Club is a collection of 10000 unique Bored Ape NFTs — unique digital collectibles living on the Ethereum blockchain.
- Mutant Ape Yacht Club is a collection of up to 20,000 Mutant Apes that can only be created by exposing an existing Bored Ape to a vial of mutant serum or by minting a Mutant Ape in the public sale.
- NBA Top Shot — NBA officially licensed NFT collectibles. Note that these NFTs are on the Flow blockchain, not the Ethereum blockchain.
- CryptoKitties — The first NFT project to go viral and is credited with getting people excited about NFTs’ potential. They are cute cats with different traits and rarity that can be bred to create more cats.
- Avastars — Fully on-chain generative avatars.
- Hashmasks is a living digital art collectible created by over 70 artists globally. It is a collection of 16,384 unique digital portraits.
NFTs market overview
Innovation Trigger: Potential breakthroughs start to capture the public imagination and media interest.
Peak of Inflated Expectations: Early successes — and failures — see interest ramp up.
Trough of Disillusionment: Initial interest wanes. At this point, investment only continues if surviving providers improve to the satisfaction of early adopters.
Slope of Enlightenment: Benefits become more widely understood. New product generations appear some potential users stay cautious.
Plateau of Productivity: Mainstream adoption takes hold.
- Collectibles are the predominant segment in the industry, far ahead of art or even the metaverses.
- The resale profit volume is down 3% while the total loss volume is up nearly 50% compared to the previous quarter.
- For the first time, some segments show a negative balance: gaming shows a total loss of almost $50 million on the segment, which makes it the least profitable segment of the industry from a trading point of view.
The current NFTs market activity is also quite indicative. Let’s take a quick look at it in detail.
Since the beginning of 2021, NFT activity — mainly transaction volume — has notably grown, but this growth was not consistent but fluctuated. Furthermore, in 2022 NFT activity has been rising and falling month by month.
In Q1 2022, 950K unique addresses bought or sold NFTs, up from 627K in Q4 2021. Overall, the number of active NFT buyers and sellers has increased every quarter since Q2 2020. In Q2 2022 as of May, about 500K addresses have transacted with NFTs, putting the NFT market on pace to continue its quarterly growth trend in a number of participants.
Central and Southern Asia leads the way, followed by North America and Western Europe.
While some regions are certainly lagging behind, the fact that no region has accounted for more than 40% of all web traffic since the start of 2021 suggests that NFTs already captured a global audience.
Analysis of NFTs transaction sizes also tells us a lot about who is investing and collecting.
The vast majority of NFT transactions are at the retail size — below $10K worth of cryptocurrency. NFT collector-sized transactions — between $10K and $100K — grew significantly as a share of all transfers between January and September of 2021, but since then have stayed flat. This suggests that, for the time being, the addition of new retail NFT investors is keeping pace with the addition of bigger NFT investors.
However, the growth of institution-sized NFT transactions has not been consistently sustainable, as with the NFTs market as a whole.
Between late November and mid-February, institutional NFT purchasing grew each week, reaching about 2K transactions. After that, NFT institutional activity plummeted, dropping to 473 transactions in the week of February 20. As of May 2022, the institutional activity of the NFT has not yet reached the level that it was in the winter of 2021. This period of decline in institutional activity also roughly coincides with the general decline in interest in NFTs in general.
- The majority of the respondents are from the APAC region, aged 18–30 and 30–50. 72% of these own NFTs, with more than half of them having 5 or more NFTs.
- Metaverse/gaming NFTs are the most common type of NFTs owned, with half of the respondents having participated in metaverses before.
- Flippers top NFT ownership at 42%, the majority of crypto portfolios (70%) assign only 0–25% to NFTs and less than half of the respondents have profited from trading.
- PC is the preferred choice for trading and minting NFTs, while most of the respondents hunt for new projects on Discord/Twitter and track their portfolio via marketplace wallet UI.
- Most respondents are interested in floor price when trading NFTs, with over half motivated by current & future utility to HODL.
Part IV: Benefits and challenges
Benefits of the NFT technology
This section explores the opportunities of NFTs. Furthermore, several typical fields that may benefit from the proliferation of the NFT technology are discussed.
Digital art scarcity issue solvation
NFTs address long-standing digital art scarcity issues of how to keep virtual artworks rare if they can be copied digitally. The use of NFTs in this regard gives each piece of art a unique hash that allows it to be differentiated. If in the traditional art world the original and the copies are the same, each NFT is unique or limited in quantity as well as not replaceable with similar items. Artists of original artworks can include their signature in NFTs, thereby reinforcing the authenticity of the content created. While it is possible to make copies of digital art, NFTs ensure that each copy is solely owned by the purchaser so that it is not interchangeable with another copy, increasing the art’s appeal to amateur collectors and speculators.
Direct communication without the mediation of third parties
NFTs have created the possibility to eliminate intermediaries from the communication process, allowing content creators to connect directly to their audience. There are no more third parties in the face of labels, large distributors, or art portals, restricting the rights of creators of digital goods. Artists just upload their content to the NFT platform, mint non-fungible tokens, and choose the selling method. It could be a fixed price option at auction (English, Timed, or Dutch).
Transparency and authenticity
If in the traditional art industry ownership records are stored on servers controlled by centralized institutions, with NFTs ownership records stored on the blockchains, every NFT has an owner and this is of public record. Subsequently, users could view the entire history of the artwork, including the previous prices at which it was purchased and owned.
Security
Traditional art collectors must be aware of the risks of transacting artwork. Before making a purchase, they have to study the provenance of the piece and take additional security measures to ensure the transaction goes smoothly. In contrast, NFTs can be traded in a most secure and transparent way. NFTs function as immutable digital signatures, delivering unprecedented confidence to collectors.
This confidence extends to the future legacy of art, as well. Digital works stored on the blockchain are immune from censorship and physical decay — but must still be stored properly. Blockchain technology also allows people to move assets of massive value globally, securely, and in full public view. Just as blockchain technology established a protocol of trust enabling the formation of digital currency, NFTs now guarantee authenticity, uniqueness, and ownership of unique assets.
Honest monetization
With NFTs artists now have an opportunity to honestly monetize their work, as it is now possible to automatically and directly pay royalties, fairly distributed in accordance with the contribution to the creative process of each of the participants.
Due to the blockchain technology, each actor can now see the exact time of the creation of each digital object and the number of interactions with it, what income it brings, and who gets what percentage, which makes communication across industries direct and potentially fair.
New monetization opportunities for artists and collectors
NFTs open up new monetization opportunities for artists. If in the traditional art world, content creators usually did not receive a percentage of secondary sales, thanks to NFTs, today a digital artist can receive them in a fully automated way.
What’s more, blockchain platforms are designed to make the experience interactive and profitable not only for artists but for the audience as well, by offering all kinds of incentives, for example for compiling personalized collections, contributing to increasing the database of artists, venues, or events.
Availability
Anyone can create in NFTs regardless of age, geographic location, etc. All that is required is the registration on the NFT platform of interest. Several NFT platforms (e.g. Mintbase, Mintable, etc) have even established tools to support ordinary people to create their own NFT works easily.
Investing in tokenized assets is also accessible to everyone. Asset ownership that is tokenized into an NFT can more easily and efficiently be transferred among people anywhere in the world.
Global market access
In the traditional art world artists usually rely on the infrastructure and geographical restrictions of the distribution of the platforms they use as well as on the rules and standards of labels to which they belong and galleries where they exhibit. With NFTs, content creators can access global markets, and easily reach the collectors and the community of like-minded artists. From here, creators across all content channels can build around their NFTs and expand their digital fan clubs.
Possibility of fractionalizing ownership of physical assets
Today, it’s difficult to fractionalize ownership of certain assets, including real estate, artwork, and fine jewelry. It is much easier to divide a digitized version of a building among multiple owners than a physical one. The same goes for a prized piece of jewelry or a rare case of wine.
Through digitization, the market for certain assets can be greatly expanded, leading to greater liquidity and higher prices. On an individual level, it can enhance the way financial portfolios are constructed, allowing for greater diversification and more precise position sizing.
Boosting creative industries
NFT has great potential in the creative industries which involve the generation or use of knowledge and information and include art, design, music, film, fashion, etc.
NFTs change the way people share ideas. In this digital age, the ability to verify actions, authenticity, and origin is priceless. Beyond that, NFTs empower creators to capture and share their digital expressions on their own terms. The walls between artists, galleries, and buyers are crumbling in light of the boundless possibilities presented by the blockchain. NFTs let creators easily mint and copyright their work, listing it for sale on open marketplaces. All of these transactions are unchangeable. This means over time, tokens can gain value, increasing rarity and driving even more demand for creativity.
Back in 2008, the music industry experienced a crash like no other, introducing music piracy .mp3 platforms like Napster. To say that artists were losing a lot of money is putting it lightly. In many ways, the music industry still hasn’t recovered from the practice of illegal downloads. Next came the heavy-hitters: Spotify, iTunes, and YouTube. These platforms made accessibility convenient for fans but took away the value of scarcity and creativity. NFTs have reintroduced the concept of scarcity into the digital realm while giving creators a new way to monetize from their supporters. This holds for any tokenized assets from gaming to music, photography to art, and anything else one can dream up.
Flourishing virtual events
Traditional online events rely on centralized companies that provide trust and technology. NFTs greatly extend the scope of blockchain applications with the help of their additional properties like uniqueness, ownership, and liquidity. This enables each individual to link to a specific event just like the patterns in real life. For instance, the ticketing event. When buying tickets in a traditional event ticket market, consumers must trust the third party. Therefore, there is a risk of buying fraudulent or invalid tickets, which are counterfeit or possibly counterfeit or might be canceled. The same ticket may be sold many times or obtained by extracting from ticket images posted online. An NFT-ticket is issued by the blockchain to demonstrate entitlement to access to any event such as culture or sports. It is unique and scarce, meaning that the ticket holder cannot resell the ticket after it is sold. Consumers can buy and sell the crypto ticket from the smart contract rather than rely on third parties in an efficient and reliable way.
Inspiring the Metaverse
Metaverse is a collective virtual shared space that allows all types of digital activities. Generally, it covers a set of techniques like augmented reality, virtual reality, and blockchain to establish the virtual world. Participants under these blockchain-fueled alternative realities can have many types of intriguing use cases like enjoying games, displaying self-made arts, trading assets, and virtual properties (arts, land parcels, names, video shots, wearables), etc. In addition, users also have opportunities to get profits from the virtual economy. They can lease the buildings to others to earn the bond or raise rare pets and sell them to get the rewards. In fact, the metaverse ecosystem covers nearly all aforementioned NFTs use cases. The advantages of blockchain, cryptocurrencies, and NFTs will be offered directly within the Metaverse, removing barriers to entry.
Expanding horizons and accelerating adoption
NFTs could introduce millions of people to cryptocurrencies for the very first time. Investors can become more knowledgeable about blockchain, while diversifying their portfolios, by allocating a small sum to tokenized assets, as well as the artists while utilizing blockchain-based applications. This leads to a more diverse industry and accelerates the adoption of technology and innovation.
Challenges
Despite the apparent advantages of NFT solutions, it is difficult not to pay attention to several problems. In this paragraph some challenges are discussed from the perspectives of authenticity and ownership, usability, security and privacy, storage, extensibility, etc, covering both the system level issues caused by blockchain-based platforms and human factors such as governance and community.
Ownership
Owning NFTs doesn’t necessarily mean owning the underlying digital asset. Сollectors are not buying original content itself, as they probably won’t own the copyright to it. Due to the technology, the content creator retains the copyright and the majority of NFT platforms provide the opportunity for them to claim royalties in the future when the object is sold again. Rather, when purchasing NFTs, collectors buy tokens connecting their name with the content creator’s art on the blockchain, which is the most valuable thing. In fact, anyone else can download a copy of that digital asset, and there is hardly anything that the NFT owner can do beyond protesting. Thus, buying NFTs allows collectors to own original items recorded on the blockchain that serves as proof of ownership.
Governance consideration
Similar to the situations of most cryptocurrencies, NFTs also confront the barriers like strict management from the governance. On the other hand, how properly regulating this nascent technology with the corresponding market is also a challenge.
Legal pitfalls
There are still no official public registers of copyright, and no global standards of licenses since different rules apply in different regions. NFTs confront legal and policy issues across a wide range of areas. Potential concerned areas cover commodities, cross-border transactions, KYC (Know Your Customer) data, etc. It is important to understand the related regulatory scrutiny and litigation before moving into the NFT tracks. In some countries, such as India and China, the legal situation is strict for cryptocurrencies, and also for NFT sales. Exchanging, trading, selling, or buying NFTs have to overcome the difficulties of governance. Legally, users can only trade derivatives on authorized exchanges such as stocks and commodities or exchange tokens with someone person-to-person. Several countries, such as Malta and France, are trying to implement suitable laws with the aim to regulate the service of digital assets. Elsewhere, issues are resolved by using existing laws. They require buyers to follow complex or even contradictory terms. Therefore, undertaking due diligence is a necessity before investing serious tokens in NFTs.
Taxable property issues
IP-related products (including arts, books, domain names, etc.) are treated as taxable property under the current legal framework. However, NFT-based sales stay out of this scope. Although few countries, such as the U.S. (internal revenue service, IRS), tax cryptocurrencies as property, most areas worldwide have not yet considered it. This may greatly increase the financial crimes under cover of NFT trading. The governments would love to make the sale of NFTs reliable with tax consequences. Specifically, the individual participants should have tax liability on any capital gains that are related to NFT properties. Also, NFT-for-NFT, NFT-for-IP, and Eth-for-NFT (or vice versa) exchanges should be taxed. Furthermore, for high-profit properties, or collectibles, a higher tax bracket should be applied. Thus, NFT-related trades are suggested to seek more advice from professional tax departments after the profound discussions.
Authenticity
Difficulty in finding the original owner of the NFT as well as difficulty in assessing the uniqueness and understanding how many copies exist still remain. Copyright protection issues are arising more and more often. When uploading content to an open non-curated NFT-platform, never stop wondering that absolutely any media file can be sold on your behalf (no matter if it is a selfie taken a few seconds ago, a picture found on the Internet, or the masterpiece of a well-known artist).
Fraud risk
One of the great issues that are linked with authentication is cyber security and fraud risk. The growth of the digital world, as well as the number of NFT transactions, has resulted in a significant increase in them. Malicious actors can imitate well-known NFT artists and sell counterfeit NFTs in their names. Copyright theft, copying of popular NFTs or false airdrops, and NFT giveaways are some of the other major non-fungible token threats and issues in terms of cybersecurity and fraud. The advancement of technology not only allows for greater efficiency in the trade of digital assets but also introduces unwelcome danger, notably in the area of cyber security.
Storage
Security and privacy
The data from users is the first priority of any system. However, the data (stored off-chain but relates to on-chain tags) confronts the risk of losing linkage or being misused by malicious parties.
NFT data inaccessibility
In the majority of NFT projects a cryptographic “hash” as the identifier, instead of a copy of the file, is tagged with the token and then recorded on the blockchain to save the gas consumption. This makes the user lose confidence in the NFT because the original file might be lost or damaged. Several NFT projects integrate their system with a specialized file storage system such as IPFS in which IPFS addresses allow users to find a piece of content so long as someone somewhere on the IPFS network is hosting it. Still, such systems have inevitable flaws. When the users upload NFT metadata to IPFS nodes, there is no guarantee that their data will be replicated among all the nodes. The data may become unavailable if the asset is stored on IPFS and the only node storing it is disconnected from the network. Also, an NFT might point to an erroneous file address. If that is the case, a user cannot prove that s/he actually owns the NFT. In a word, Relying on an external system as the core storage component for an NFT system is vulnerable.
Anonymity
In the current stage, the anonymity and privacy of NFTs are still understudied. Most NFT transactions rely on their underlying Ethereum platform, which only provides pseudo-anonymity rather than strict anonymity or privacy. Users can partially hide their identities if the links between their real identities and corresponding addresses are known by the public. Otherwise, all the activities of users under the exposed address are observable. Existing privacy-preserving solutions (e.g. homomorphic encryption, zero-knowledge proof, ring signature, multi-party computation) have not been yet applied to the NFT-related schemes due to their complicated cryptographic primitives and security assumptions. Similar to other types of blockchain-based systems, decreasing expensive computation costs becomes the key to implementing privacy-promised schemes.
Maintenance
The risk of smart contracts and NFT maintenance is a prominent one currently prevailing in the NFT market. There are several scenarios where hackers attack DeFi networks and steal a large amount of crypto. The reason behind that theft was that smart contract security wasn’t adequate. If smart contracts have even a tiny flaw, NFT holders cannot expect complete security.
Usability
Usability is to measure the users’ effectiveness, efficiency, and satisfaction when testing a specific product or design. Most NFT schemes are built on top of Ethereum. Therefore, it is obvious that the main drawbacks of Ethereum are inherited. The two major challenges that have direct impacts on the user experience are:
High gas prices
High gas prices have become a major problem for all Ethereum-based NFT-marketplaces, especially when minting the NFTs at a large scale that requires uploading the metadata to the blockchain network. Every NFT-related transaction is more expensive than a simple transfer transaction because smart contracts involve computational resources and storage to be processed. Expensive fees caused by complex operations and high congestion greatly limit the NFTs’ wide adoption.
Slow confirmation
Extensibility
The extensibility of NFT schemes is two-fold. The first is to stress whether a system can interact with other ecosystems. The second focuses on whether NFT-systems can obtain updates when the current version is left behind.
Interoperability
The majority of existing NFT ecosystems are isolated from each other. Users who have selected one type of product can only sell/buy/trade them within the same network. This is due to the disconnected underlying blockchain platform. Interoperability and cross-chain communication are always the handicaps for the wide adoption of DApps. Fortunately, most of the NFT-related projects adopt Ethereum as their underlying platform. This indicates that they share a similar data structure and can exchange under the same rules.
Updatability
Transitional blockchain updates its protocols through the soft forks (minor modifications that are compatible forwards) and hardforks (significant modifications that may conflict with previous protocols). Despite the generic model, the new blockchain still has strict requirements such as tolerating specific adversarial behavior and staying online during the update process. NFT schemes closely rely on their underlying platforms and keep consistent with them. Although the data are often stored in separate components (such as the IPFS file system), the most important logic is still recorded on-chain. Properly updating the system with improvements will be a necessity.
Moreover, there is a low-level issue with the updatability of the NFTs themselves since they are recorded on the blockchain and the information they bring cannot be modified thereafter.
Environmental concerns
While a secondary issue, there has been increased concern around energy consumption related to NFTs and energy-intensive operating proof-of-work blockchains that could pose additional roadblocks to the widespread adoption of NFTs.
On the other hand, blockchain enthusiasts argue that an offsetting reduction in pollution is underway as NFTs transform global marketplaces, reducing the need for travel and office space utilization.
Value
The difficulty in determining the value of the NFT is one of the issues. There are considerable fluctuations in the prices of NFT because there is no fixed standard for any particular type of NFT. The price of any NFT may depend on the creativity, uniqueness, scarcity of the buyers and owners, and a lot more. People can’t determine the factors that might drive the price of NFT. Due to this, the fluctuations in prices remain constant, and evaluation of NFT becomes a big challenge. Moreover, the quality of many works is rather doubtful since anyone can mint an NFT without having any creative skills.
Oversupply
Complexity
Also, for the audience and consumers, it is still more common to use familiar major services as well as for the majority of non-techy artists. Much more simplification is needed so NFTs are easy to use for people who know nothing about blockchain.
All these problems still exist, and researchers and engineers are puzzling over their solutions.
Summary
NFTs renaissance continues to spread despite the volatility and undeveloped nature of the cryptocurrency market as a whole and the high level of uncertainty about NFTs valuations in particular.
The 2021 NFT boom aftermath showed the community the NFT technology’s pronounced advantages as well as revealed many shortcomings of the solutions that have to be addressed ASAP. No matter what, the ecosystem continues to flourish, many new projects are born, and every day we are witnessing how major players are showing interest in the area accelerating adoption.
One thing remains clear, the once-seemingly niche ecosystem of NFTs has forever emerged from the underground of small crypto communities, becoming an equal player in the world of finance, art, gaming, and the wide scope of leading creative industries.
References
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