Many people view NFTs as hype and a playground for the rich, but I disagree.

NFTs
were one of 2021’s weirder phenomenons. A popular gif called Nyan Cat
sold in May 2021 for 300 ETH, which was worth $580,000 at the time and
nearly $1,000,000 today. While that may seem like a lot of money, a
digital artist named Beeple famously sold an NFT of his artwork for $69
million dollars. The idea that someone would pay $69 million dollars for
a piece of digital art that can be downloaded by anyone on the internet
makes a lot of people shake their heads in confusion, and it has gotten
to the point where I see NFTs get a lot of criticism for being hype or
even worthless. This is where I believe we have to separate the
technology of NFTs from the incredibly unique digital art market that
they have assisted in creating.

While
I agree the prices of some digital artwork sold as NFTs in the past
year have been pretty crazy, the actual concept of NFTs for collectible
assets has a ton of potential. This is especially true when we consider
the challenges in the exchange of collectibles like art, sneakers,
watches, trading cards, and even concert tickets. So what I am saying is
that NFTs in their current state are a bit misunderstood, and I believe
they have a lot of utility outside selling memes.

In
this post, I will briefly explain what an NFT is and then dive into
some concrete examples of how NFTs aren’t just a fad, but rather a truly
useful creation.

What is an NFT

I’ve written a post
that goes into more depth on what NFTs are, but we’ll cover the basics
here so everyone is up to speed. Before we discuss NFTs specifically,
let’s talk about fungibility.

A
fungible asset can be easily interchanged and exchanged with other
assets of the same kind. If I have a $5 bill, I can give it to you in
exchange for five $1 bills and we will both come out of the deal with
the same amount of money. There are extreme examples where cash may not
be perfectly fungible, like if I were to try and buy a new Porsche with a
truckload of pennies. But for the most part, all currencies and
cryptocurrencies are fungible.

NFTs,
or Non-Fungible Tokens, are a type of digital asset that is completely
unique and exists on a public blockchain. Since an NFT is non-fungible,
there is no single thing that is identical to it, like a painting, and
we can’t just exchange one for another. This is why collectibles are
often appraised for a dollar amount; we need to come up with a value for
the unique item using a fungible asset, otherwise, it would be
difficult to exchange.

NFTs
allow us to mint a unique token on a blockchain — usually Ethereum —
that can be used to track information like the original owner, any
subsequent owners, and the price of each sale. This is what allowed
digital artists, like Beeple, to begin selling their artwork for much
more money. Now someone can prove that they own an original piece, and
support the artist directly by doing so.

For
collectors, this proof of legitimate ownership matters, and there is no
reason why NFTs have to be exclusively limited to digital assets.
Companies are exploring using NFTs to improve their businesses right
now, and we will likely start to see them in the next couple of years.
Next, we’ll discuss some of the companies and markets looking to
implement NFTs in the near future.

NFTs Incoming

Nike

In
2019 Nike obtained a patent to use NFTs to verify the legitimacy of
sneakers. That may sound like a relatively unimportant use of NFT
technology, but fake sneakers are a huge problem for the passionate
sneaker collectors of the world. If you’ve ever collected something
before, you will know how dangerous accurate fakes can be to the value
of real products. If people can’t tell the difference between the fake
and real product, then how does the real version maintain its value?

Figuring
out a robust system for identifying real shoes has proven quite
difficult, which has led to the rise of resale middlemen like StockX.
StockX is a company that specializes in verifying the authenticity of
luxury goods. Say that you wanted to sell a rare pair of Nike shoes. You
could list them on StockX’s marketplace, and when someone buys them you
ship them to StockX for verification. As long as they pass inspection,
StockX then ships the shoes to the buyer. Even this system is limited,
however, and many people still worry about receiving fake shoes from
Stockx, which drives buyer confidence down.

With
NFTs, the legitimacy of a sneaker could be more easily determined. As
long as there is an effective way to match the shoe with the proper
address on the blockchain there will always be a record of who currently
owns the shoes. If the original owner decides to sell the shoes then
the NFT will be updated to reflect that. It would be much harder to sell
a fake pair since the seller won’t be able to produce the proper NFT.
This even opens up potential revenue streams for companies like Nike who
could charge a commission on any resale that takes place through the
NFT.

Magic The Gathering

Magic
The Gathering (MTG) is a collectible card game that I enjoyed playing a
lot when I was younger. It’s a pretty fun game to play with friends and
even has an extensive competitive scene. It surprises many people just
how expensive Magic cards can be. Cards that are currently in print or
might be printed again can reach prices of $100 per card, while cards
that are guaranteed to never be printed again can reach upwards of
$10–45 thousand. A thriving secondary market to buy and sell cards has
long existed since Magic relies on acquiring the exact cards you need to
build a particular deck.

However,
Magic has a similar problem to Nike with fake cards that have been
getting better and better over the past ten years. If fake cards got
good enough to fool buyers, this easy secondary market for cards won’t
be able to exist in its current form. More money would need to be
invested into verification if possible, and buyer confidence would still
drop.

Hasbro,
the company that owns MTG, announced in 2021 that they were looking
into using NFTs with their collectible products. NFTs are an excellent
way to track the ownership of a card, particularly one with significant
value. Since the NFT is tied to the owner, even if a copycat printed a
card with the same identifier on it, the NFT it points to wouldn’t
belong to the owner of the fake.

NFTs
can also act as a theft deterrent. I recently saw a Reddit post from an
MTG store that had a Black Lotus stolen, which is an old card worth
upwards of $40,000. If that card was linked to an NFT, then there would
be no way for the thief to claim ownership thus limiting his potential
options for liquidating it. If a future buyer looked up the NFT, they
would find it belongs to someone else and is not transferable to them.

Ticket Sales

One
industry that is ready, right now, for NFTs is ticket sales for
concerts and events. I’m sure many people who read this know how much
money ticket sale platforms make to be intermediaries between people and
concert tickets, and reselling tickets can be a headache.

Concert
tickets are rife with issues. If I have two tickets to a huge concert
this week but I get sick and decide to sell them, I have to list them on
a resale site like TicketMaster. Many times people will list their
tickets on multiple sites to make sure that they sell before the
concert. However, if two of the sites happen to sell your tickets and
both buyers receive the digital code, the tickets can belong to both
people who will likely run into some trouble getting into the concert.
There is also the issue with fake tickets and scams, which happen
frequently with the current ticket systems.

NFTs
have the ability to do away with these issues. By properly tracking the
owner of the ticket, there is no possible way to end up with duplicates
or fakes. As soon as a buyer completes the transaction, the NFT will be
transferred to their wallet and the sale won’t exist anymore; even if
it had been listed on multiple sites, it couldn’t be sold again.

NFTs
have the potential to greatly simplify the entire market surrounding
ticket sales by providing access to a dependable public database for
tracking ownership. Large companies in the space, like Ticketmaster and
Seatgeek, are already working to implement them, so I expect we will see
them soon.

The Nay-Sayers

You
may have read this article and thought, “Well that’s great that this
digital thing says someone is the rightful owner, but people could just
buy and sell it without updating the NFT”. That’s true. But the world of
collectibles is a special kind of market. The authenticity of an item
matters just as much as the actual good itself to a collector.

Take
sneakers as an example. The quality of certain fake sneakers has become
incredibly high. So high that you would never know the difference while
wearing them, and even an expert with a real pair on hand would need to
nitpick details that could come down to regular variance in quality
control anyway. Despite this, collectors will pay ten to two hundred
times the price of a fake pair for an authenticated pair.

This
leads me to believe a properly implemented NFT system would be embraced
by collectors who could really use an easier way to know they are
buying the real thing. Collectible markets are some of the easiest to
get scammed in, and NFTs are a suitable way to mitigate that risk.

Improvements to Come

So
far I have been very positive about the possibilities of NFTs, but
there are some downsides that still need to be improved. Most NFTs are
currently minted on the Ethereum blockchain, which uses a Proof of Work
consensus protocol. This means that creating an NFT requires a lot of
energy since Ethereum relies on miners to process transactions. This
issue should be solved soon with Ethereum transitioning to Proof of
Stake. If that transition is successful then it will take essentially zero energy to mint an NFT.

But
it’s not just energy, Ethereum also has a problem with high fees and
creating an NFT isn’t always cheap. The actual price of minting an NFT
depends on the platform used, but the price can range from $1-$1,000
with many costing somewhere between $60 and $100.

There
are ways to make minting NFTs cheaper, like using a “sidechain”, which
is another blockchain that runs parallel to Ethereum and can have assets
transferred back and forth between them. Sidechains have the benefit of
very low network traffic, which keeps fees low. However, if a buyer
purchases an NFT on a sidechain and wants to move it, they will have to
pay an Ethereum gas fee to move it to the Ethereum blockchain.

Blockchain
networks are still improving to better support NFTs, but they are on
the right track. Ethereum 2.0 is expected to reduce fees and cut
electricity usage, which are the two largest issues the network
currently faces. New blockchains, like Solana, have also cropped up to
provide new ways to approach the expanding NFT market.

Wrapping Up

NFTs
may have made headlines because of the new digital art market they
helped to create, but the core technology doesn’t need to be restricted
to digital art marketplaces. We will probably start to see NFTs being
implemented for things like ticket sales sooner than many would expect,
and they have the potential to be implemented by far more companies than
we discussed in this article.