NFTs offer options to create and trade rare and unique digital assets
NFT (not-fungible token) is a type of token created with the help of blockchain technology that allows equating digital belongings to physical ones. Its main characteristic is non-fungibility, which means that it can not be exchanged for a similar type of asset. To illustrate this definition, let’s compare it to a well-known fungible Bitcoin: the value of one Bitcoin is equal to the value of the other Bitcoin regardless of who owns it, and they can be easily swapped. At the same time, the ERC721 token is absolutely unique: another similar certificate merely can't exist.
ERC721 is a non-fungible token standard at the Ethereum smart contract network.
Let's dive a little deeper into the matter of uniqueness. Say you have a five-dollar bill and five one-dollar bills. Both these things are interchangeable; you can either pay for goods with them and, if compared together, their value is precisely the same: both in terms of the object it describes and in terms of value. However, if there was a unique 8-dollar bill, released for a special occasion, the one that only you own, it could be compared to the NFT's term of value: the 8-dollar bill is still a payment method, but it's collectible.
Therefore, a non-fungible token allows you to get ownership of a product that exists exclusively online thanks to uniqueness and exclusivity in its ― NFT's ― essence. Because of this, the token has its own value ― it cannot be shared or replaced by any other. It contains information about its owners and the transactions it has gone through. You can now assign an ERC721 to any digital object, which will give personal ownership of that object.
What can you do with NFTs today?
NFT collateralized loans. Say you own a painting that you would like to monetize. You can put it into the non-fungible token in order to use it as collateral and get cash. This is the technology allowing to fractionalize one ERC721 item into several parts, to which different people will be able to co-invest. This, again, makes the NFT's future look more available and closer to everyday usage.
Another offshoot of this technology is NFT-staking: it allows putting the tokens in pledge and receiving an income. Also, it is possible to use NFTs as collateral to get cryptocurrency. Consistently, after paying back the interest, it will be possible to get the NFT back.
Engagement in DeFi technologies. A great example of using NFT in DeFi space is Uniswap V3, where Liquidity Provider’s (LP) token is being represented in an NFT form. This is an important update, as such protocols used to be fungible: such a change contributes to the protocol’s security.
If you’d like to learn more about the protocols of decentralized finance and the way they influence securities liquidity, take a look at our video “How does Decentralized Finance enhance yield and liquidity of tokenized securities/security tokens”.
How can you apply NFT to middle-sized business practices?
NFT opens new possibilities for companies, the ones that broaden the horizons of business management. There is a range of new opportunities a non-fungible token provides, implementation of which is only possible thanks to the way it functions. Apart from collectible purposes, there are the following ways to use the token.1. Intellectual property can be now put into NFT. This means a chance to enumerate each item of the issued product. This function is especially relevant when it comes to the limited number of items: for instance, issuing a digital copy of the book will mean having a particular number of copies in circulation, if each copy is made as NFT. This way, the digital book market will equate its exclusivity to the printed editions. Such a way of NFT appliance will also change the ways in the pharmaceutical industry, as the brands will be able to mark the certified drugs with non-fungible tokens, which will mean that whenever a patient needs to buy medicine, they’ll have a complete assurance of the med being original and not counterfeit.
2. A more community-driven engagement activity. Companies can use NFTs in order to consolidate the community around their business by issuing their branded NFTs. This will help people identify themselves with a brand and feel a part of a united community. Football clubs have successfully implemented such a strategy: struggling with the alienation COVID pandemic brought to the international sports community, the need to reconnect with the audience became a burning question. The NFT technology came in handy, so a number of clubs like Juventus, Barcelona, and Paris Saint-Germain launched the so-called Fan Tokens - this process is called Fan Token Offering. For fans, possessing a token enables them to access or purchase items that cannot be purchased with "real money", which is a literal money-can't-buy experience. They may also have the privilege to vote on specific club decisions: only token owners may vote on the bus design that Juventus employs to travel. Fans will have a stronger connection to the club as a result of these experiences, and the club will be able to monetize their enthusiasm in a natural way. If you would like to learn more about how NFTs can help enhance the community, please see our video "How to Build and Grow community-based business in 2021. 3 innovative digital assets tools" about digital tools on empowering the connections with the community.
As can be seen, non-fungible tokens may be applied in a range of drastically different types of businesses and function in many diverse ways. If you have an inquiry about the way NFT can benefit your company, feel free to request a complimentary 30-minute consultation with Stobox specialists.
What is NFT's nearest future?
The marketplace for basic operations in this area like issuing or selling NFT is evolving towards making these operations cheaper and more straightforward. Issuing and supporting them on the Ethereum blockchain used to be expensive, so some companies started to consider issuing these tokens on other emerging blockchains like Solana, Polkadot or Algorand. The NFT community is also strong on the Binance Smart Chain, where most of the users come from Asian regions since this technology makes the release of NFTs cheaper and, therefore, more affordable. The commission rates are lower as well.
The nuance of reducing commissions is important because the possibility of selling the ERC721 token is not guaranteed; the ability to vend them is determined by the market and the narrative, not by specific economic indicators. When the release of NFT becomes more affordable, the average person or artist will have their risks eliminated. The entire NFT market is already becoming more commonplace as manufacturing companies are hiring workers to develop this product.
Apart from discussions around the minting process, there is an opinion that the NFT market is overheated, and it's moving at a speculating level. Stobox strongly disagrees: the closest example is the art market, which has existed for hundreds of years. The fact of people buying unique objects proves a point: it's valuable to be a part of a certain narrative.
The only possible shift in this area is possible because some types of non-fungible tokens will no longer be unique: the first tokenized tweet is exceptional because it was the first tweet ever to be converted to ERC721. After all famous people tokenize their first tweets, the value of this item, which is the first tweet of a famous person, will, in principle, be a little less because such NFTs are less exclusive. This is the only case where the NFT price may be slightly reduced.
NFTs can also be released as a medium, granting its owner access to some scope of privileges. In this case, these tokens represent some ranks or achievements, which can also entitle a special bonus within this application. Apart from business ecosystems, such usage can be applied in gaming platforms or cryptocurrency exchanges. For example, a cryptocurrency exchange may issue ERC721 tokens that entitle you to reduced fees for specific amounts of transactions (for example, 0.1% commission turns into 0.01%). Accordingly, businesses will engage their company through NFT, which gives various additional rights within their ecosystem.