Blog Post

Four Real-World Uses for NFTs

Lawrence Lerner • Jan 20, 2022
Quantum by Kevin McCoy and Anil Dash

Quantum by Kevin McCoy and Anil DashNew Paragraph

Non-Fungible Tokens. A CEO I worked for told me “You love your ten-dollar words.” I do, it’s true. It’s a failing and strength to be able to make complex concepts and bring them into everyday language. So, what is a Non-Fungible Token (NFT)?


Let’s start with the definition of a token. In the physical world, tokens are stand-ins to represent a fact, quality, or something than can be exchanged for goods and services. In the blockchain world, a token is a digital coin that uses technology (blockchains) to power its functionality. The most well-known blockchain, and one we owe the industry to, is Ethereum. Ethereum is the blockchain that introduced the concept of smart contracts (snippets of program like code). In 2014 when Vitalik Buterin, Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joe Lubin had become dissatisfied with the static function of Bitcoin, they built a programmable solution.


I touted the real benefits of NFTs back in 2017 before bitcoin became part of everyday vocabulary. I was running my first Blockchain fund and promoting the industry as far back as 2015. I was briefing other executives, doing interviews, blockchain was not on the radar of financial analysts. Today every investment report touches on an aspect of blockchains, cryptocurrencies, or tokens. In another year, deploying NFTs will be mainstream just like using your phone to pay for your morning coffee or bus ride.


ERC-20 tokens (the formal Ethereum name and standard that defines how they work) name represent a digital asset that can be traded or used on a blockchain. Tokens have utility on the blockchain meaning their value is inherent in what they do versus what they are. Today there are tens of thousands of different tokens. Cryptocurrencies (e.g., Bitcoin, Ether) have value because people believe in their value and what they represent to the market. Bitcoins, while wholly digital, are much like things people use every day. Cash and stock trades.

Bitcoins are represented as a series of transactions, there is no physical coin or paper token. They react to market whims and the transactions are not reversible, just like cash. If I give you a dollar, the only way for me to retrieve it is via another transaction.


NFTs are another type of token called ERC-721 (another standard). The standard describes methods (programmer speak for things it does with code) that tell you how it works and how it can be uniquely identified. Each NFT has a tokenId which is a uint256 (unsigned integer (greater than zero) with a value of 2256-1 or 



0 to 115,792,089,237,316,195,423,570,985,008,687,907,853,269,984,665,640,564,039,457,584,007,913,129,639,935

The commas are meaningless at this point, but you’re impressed because I took the time to put them in for you 😉. It is a very large number that allows a digital asset to be uniquely identified. In business terms, it creates “exclusivity.” If you are a collector of any kind (first edition comics, autographed guitars, baseball cards, beanie babies) then you understand what the non-fungible part means. Two of the same works of art painted by the same artist are not the same thing where two bitcoins or ten-dollar notes are interchangeable.


It brings to the digital world a unique and scarce asset. NFTs provides a way to securely exchange inherently scarce digital assets. The assets and trades are verifiable, traceable, and ultimately provable in a way that can be very difficult for physical artifacts. The ability to create a provable and verifiable claim is valuable. As I’ve said in the past, if the Internet is the web of communications, blockchain is the internet of value.


Scarcity is an important concept. It drives behaviors that can be measured and quantified in the digital world. Those behaviors include


  • Value
  • People have always found rare things interesting and worthy of acquiring
  • Authenticity
  • The claim that an object has the properties and/or origin must be verifiable
  • On a blockchain digital authentication enables you to validate something through mathematical proof or a trusted third party. Immediately and with a high degree of certainty
  • Decision-making
  • If everything were abundant there would be no need to make decisions or tradeoffs. Things would simply exist and likely be ignored or over-consumed until they became scarce, like freshwater or air


Scarcity can also be enforced through conscious or purposeful design or being naturally limited. This is also known as Absolute Scarcity in economics. One-of-a-kind artwork, songs, hours in the day, or a fingerprint and passcode are all examples of Absolute Scarcity.


Some examples


  1. Medical records
  2. I heard T.R. Reid speak years ago here in Seattle. His book “The Healing of America” is a must-read for anyone who wants to understand why you want to create portability in your personal medical records.
  3. NFTs provide highly portable and verifiable data transfer. In addition, they take thousands of dollars out of maintenance and substantially lower the risk for patients, healthcare personnel, and insurers.
  4. Tickets
  5. Tickets may be put onto the blockchain and made traceable and verifiable. The industry has ongoing issues with resale, scalping, and secondary markets.
  6. NFTs transform any type of ticketing and take costs out of the transaction flow  
  7. Certificates of Ownership
  8. Replacing physical world tags with digital ones. Here are examples of popular consumer goods.
  9. Domain names, titles, identity card, a poem, bottles of whiskey (“Glenfiddich Sells $18,000 Super-Rare Whisky As NFTs – Here’s What That Means”), memorabilia from a celebrity (“William Shatner’s NFT Collectibles Sell Out at Warp Speed”)
  10. The extension to business for legal contracts, plots of land, stock portfolios, and anything requiring verification is already running through your head
  11. Digital Art or Collectibles
  12. Popular media and press have been non-stop about digital collectibles using NFTs. It’s arguably a gateway drug and I am happy to see adoption in any form. So much so that last week we had the opening of the first NFT museum. "Tech entrepreneurs opening Seattle NFT Museum to showcase digital artform in a physical space"
  13. Due credit must be given to the OG of NFTs, Cryptokitties. This was blockchain’s first lesson in scarcity and managing economies. Cryptokitties became so wildly popular that they slowed down the entire Ethereum chain and drove up prices of doing transactions. It was a literal digital gas (gas is the fee you pay to make transactions on Ethereum) crisis. Transactions were backed up (think lines at a gas station) and gas fees skyrocketed


This just scratches the surface of NFTs. There is more to know and to come as they are built out for everyday use cases. What are your favorite examples?


Onward.


ABOUT THE AUTHOR

Lawrence


I translate the CEO, Owner, or Board vision and goals into market-making products that generate $100M in new revenue by expanding into geographies, industries, and verticals while adding customers.


As their trusted advisor, leaders engage me to crush their goals and grow, fix, or transition their businesses with a cumulative impact of $1B. 


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