How can businesses harness non-fungible tokens (NFTs)?

Before we go into a little more detail, let’s explore the term ‘fungible’ that is contained in the name.

For something to be fungible, it needs to be interchangeable. For instance, if I give you a $100 note and you give me a different $100 note, or two $50 notes, or five $20 notes, then this is ok; no value has been lost, making the notes fungible. What makes NFTs important, and very useful, is that they cannot be exchanged for anything else, making them a unique digital asset.

We have all gotten very used to ‘copy/paste’ and the idea that anything we see on the internet can be copied or screenshotted. Although the actual image of many NFTs can be easily viewed or copied, such as a picture of a sports trading card, its ownership is locked and can be verified online – meaning that the owner can act against misuse. However, given there is a lack of regulatory support for digital assets on blockchains, there have been some that have taken advantage by, for instance, stealing other works and creating NFTs of them, or making imperceptible changes to an image that produces a new identifier, and trying to pass it off as a separate asset.

For instance, an important way that businesses will begin to use NFTs is to protect intellectual property and prevent counterfeiting, particularly for digital assets such as music. The NFT can not only contain the actual digital items, such as a song, but it can also contain a smart contract that controls how the item is used. The music industry already has strong regulatory support to avoid copying and unlawful use, unlike images and digital artworks.

For instance, a song can be released on the blockchain as an NFT, and if people simply want to listen to it then it’s free and it will play in media software. However, should someone want to use it for a commercial purpose, such as in an advertisement or in a movie, then the file can only be used if the conditions contained in the smart contract are met, usually by agreeing to a form of acknowledgment and payment. Hence rather than releasing a music file itself and trying to control its use, the artist can release an NFT that effectively makes the song an autonomous business in and of itself, a business that can negotiate use based on the terms included, and then facilitate use and direct royalty or other payments.

NFTs can be used for physical assets as well, not just digital ones. It is likely that NFTs will fast become the preferred form of receipt for major purchases such as cars, motorbikes or even houses. The NFT would be linked to the physical asset and would not only establish ownership but also contain information about the item such as its ownership history, any major renovations, maintenance and upkeep records, and damages incurred. This way the item, say a motorbike, can have in effect a digital avatar that captures information about the bike, which can be passed onto future owners as part of the purchase.

NFTs can also be used in marketing. For instance, an NFT can be created for a specific product, such as a limited edition pair of sneakers. When you purchase the item, not only does the NFT become your proof of purchase and ownership, but it can also provide you with unique access to promotions, content, events etc.

This is where it gets a little sci-fi, as the sneakers may actually be both physical and digital, meaning that the owner can add the sneaker to their avatar for online environments or augmented reality. If the owner wishes to sell the item, they would sell the NFT as proof of ownership and it would then transfer any unique access rights to the new owner, along with the product history information.

Share your thoughts

What are the implications of NFTs becoming the preferred form of receipt for major purchases such as cars, motorbikes, or houses? How might this change the way we view ownership and transfer of ownership for physical assets?