NFTs

Much more than just encrypted images

27 Apr 2023

In the crypto world, the term "NFT" was massively hyped in 2021, with galleries of encrypted images popping up everywhere on the web that could be purchased and collected for more or less money. But what is behind this technology, which is based on blockchains, and can NFTs possibly even be put to good use?

NFT - an attempt at explanation

The abbreviation "NFT" stands for "Non-Fungible Token", i.e. a digital unit that cannot be copied or reproduced. To explain it with the small pictures mentioned in the introduction: A file - in this case, a small work of art in the form of a digital image - can be stored in a blockchain with a digital signature. This token is therefore unique and cannot be copied or duplicated at will - in other words, it is non-fungible. What a blockchain is has already been explained elsewhere in this blog.

What is special now is that this token can represent a certain value that is determined by demand - comparable to a work of art in real life. And this is exactly how NFTs differ from cryptocurrencies or even cash. It doesn't matter which ten-euro note or bitcoin is used to pay for something, because each of these units has the same value. In contrast, an NFT is something absolutely unique and therefore not exchangeable.

USE CASES FOR NFTs

So what is the need for NFTs? Digital art and unique, non-reproducible images have already been mentioned. Transferred to the analogue world, NFTs can be compared to trading cards, for example. Some of them are highly coveted by collectors because they were only issued in small numbers. This approach can be mapped in the same way in the blockchain: An artist or a card manufacturer could produce 50 copies of a special trading card and store them in a public blockchain (such as Ethereum). 50 prospective buyers now have the option to buy these assets at a fixed or tradable price. Ownership can later be proven in the blockchain.

In this way, NFTs worth crazy millions have already changed hands. A look at the NFT platform "Open Sea" is enough to get an impression of the scene and its willingness to pay. Virtual assets can also be traded with NFTs. For example, in a blockchain-based game called Axie Infinity, there was already the case that a virtual land that can be used in the game could be purchased for 1.5 million US dollars, which also happened. Payment was made with the cryptocurrency ETH within the same Ethereum blockchain. The famous blockchain game Cryptokitties also caused a furore, with a picture of a cat with a dinosaur tail changing hands in the form of an NFT for around one million dollars.

But artists from other genres are also discovering the practical benefits of non-fungible tokens. The musician Fynn Kliemann, for example, has produced around 100 jingles and, by storing them as NFTs, has given them a uniqueness and thus security against forgery. The Canadian music producer, performance artist and ex-girlfriend of Elon Musk, Grimes, turned over around six million US dollars in just 20 minutes with her digital artworks on the NFT platform Nifty Gateway.

Practical use of NFTs

Now, one may wonder if there are applications for non-fungible tokens that can be put to good use. And indeed there are. Even though NFTs initially caused a sensation in virtual worlds and as an art form, many things can be digitally and legally represented with the tokens: ID cards, contracts of all kinds, tickets and more. And the encrypted tokens do not even stop at the health sector.

In the blog article on the blockchain, we already reported on so-called smart contracts. In these, certificates, deeds and also legally valid contracts can be stored, which can replace the classic paper versions of these documents. An NFT would thus be proof that someone owns something or has special knowledge in the form of university degrees or certificates. Furthermore, smart contracts can play out their advantages in the real estate industry, for example, by noticeably speeding up the once laborious process leading up to the conclusion of a house purchase contract.

The American football league NFL made use of NFT technology in 2021 by giving away free tokens to fans as complementary souvenirs in digital form. The respective seat number in the stadium is noted on the individual NFTs. Experts are already predicting that these tokens will develop as rare collector's items and increase in value, comparable to Rolling Stones concert tickets from the 1960s.

The travel industry also sees a great future in NFTs on the blockchain. For example, a passport would be much better off in a securely encrypted database as an NFT than in a rarely used drawer. In addition, this would effectively prevent identity theft, as airport staff could check the NFT documents in the blockchain for validity and authenticity at any time. But travel documents such as boarding passes or tickets for tourist attractions can also be reliably stored in the blockchain as NFT instead of on paper or as PDFs.

Finally, another useful application of NFTs in healthcare: A complete medical record with all health data can also be stored as an encrypted token in the blockchain in a way that is secure from access - including vaccination certificates and prescriptions. This makes it much easier to change doctors. The usefulness of COVID-19 vaccination cards as NFTs has also been considered. Such vaccination NFTs can make it possible to check a person's current vaccination status - for example when visiting events or places with 3G regulation. This has already been put into practice in San Marino: In 2021, a law was passed there that regulates the introduction of vaccination cards. The digital vaccination passport is based on QR codes and is stored in the publicly accessible blockchain "VeChain Thor" (VET).

Conclusion

Almost everything can be stored as NFT in a legally secure way. However, digital collectible cards (crypto-collectibles) and crypto-art still dominate the scene in this environment. In virtual worlds, entire properties have already been sold as NFTs for a lot of money. The fact is that art forgeries are a thing of the past with NFTs, which contributes to more trust and security. However, only time will tell when applications such as the digital execution of documents and contracts will become widespread as NFTs.