In recent years, non-fungible tokens (NFTs) have garnered a remarkable amount of attention from many industries, stretching from the arts to diamonds or even luxury goods.
According to Bloomberg, as of mid-December 2021, an estimated US$41 billion worth of cryptocurrencies were sent to 2 types of Ethereum smart contracts associated with NFT marketplaces and collections.
If you're not sure what an NFT is, it is a unique asset that is recorded on a blockchain and is proven to be authentic and owned by one who holds the NFT using a blockchain digital signature, allowing it to retain and hold value.
The artist, Mike Winkelmann, for instance, sold his NFT titled, "Everydays-The First 5,000 Days" for US$69,346,250 at Christie's, a British auction house, on March 12, 2021. He challenged the whole world to consider how disruptive these NFTs can be by portraying a collage of his digital work in the piece.
Another example is Jay Chou's Phanta Bears: 10,000 NFTs that cost more than US$ 1,000 (0.26 ETH) each at the time were sold out in less than 40 minutes, which was also the first time in history that an NFT series rose to the top of OpenSea ranking in such a short period of time. Some buyers of Phanta Bears subsequently resold the NFTs at high prices. The most expensive one sold for approximately US$77,000 (20 ETH), according to The Value.
Decent's director of Strategic Partnerships Ashley Reeves commented, "I think NFT prices are unsustainable and definitely in a bubble. Many of these celebrities are inflating the NFT prices. There is too much hype. But, once this bubble bursts, maybe in the next few months, maybe in a year; that's when the real innovation begins." This raises the question of "What is the 'real' innovation of NFTs?"
Founded in 2015, Decent is a non-profit foundation that has developed an open-source blockchain ecosystem focused on helping businesses adapt to a decentralized future. Decent's proprietary technology and platform, DCore, can improve a wide range of real-world applications, especially content distribution networks. They are currently operating in 6 markets, namely Slovakia, Taiwan, United Arab Emirates, Indonesia, Moldova, and Switzerland.
Due to its unique nature that cannot be interchanged (i.e., no double spend) with anything else, under any circumstances, an NFT can be adopted in many forms, as long as it has recognizable and certifiable properties. During the interview, Reeves provided a few real-life applications of NFTs and what Decent has been working on. The following are the details:
NFTs solve the issue of originality in artwork, as well as in diamonds
One of the common things between these two industries – art and diamonds – is that both are obsessed with exclusivity and authenticity.
Technologies such as NFTs and blockchain are especially crucial when it comes to ensuring authenticity, ownership, and trustworthiness by recording asset ownership on a blockchain.
Looking through the lens of a "right-click, save" society, one is always concerned about the issue of authenticity. Imagine you were at the Louvre in Paris and couldn't resist taking a photo of the Mona Lisa's famously enigmatic smile.
Here comes the argument: Is the photo stored on your phone an original or is it a replica? Reeves believes that there is no original piece that is as valuable as 'the one and only' hanging in the Louvre. With NFTs, artists can for the first time separate their original creations from replicas in a digital manner and verified by the artist. This, therefore, creates value.
For the diamond industry, a physical commodity, Reeves was overwhelmed by the issue of exclusivity and trustworthiness. He said, "The organizations around the diamond industry have brainwashed the minds of people into believing that a diamond must be natural. Diamonds must be used for engagements. The prevalence is the reason why diamond ring needs at least 3 months of the man's salary who is buying it."
He continued, "And yet, these so-called 'artificial lab-grown diamonds', if you look at them closely, they're nearly identical down to the atomic level of the diamond structure. At least for the diamond industry, this creates an opportunity where NFTs can be embedded with the originality and info on the diamond itself creating a certificate of authenticity and thus providing immutable information from the origin. I imagine that in 10 to 20 years' time, the younger generation as well may feel the same as I do. That NFTs will represent a clear representation of any verification and validity needed towards physical and digital items."
NFTs ensure traceability along the supply chain in the luxury goods industry
The luxury goods supply chain has long been plagued by issues of credibility and lack of transparency. NFTs are now being adopted to ensure traceability along the supply chain with complete ownership for the end consumer.
Taking Decent's client, an Italian-based luxury handbag maker as an example, the company inserted an extremely thin, flexible, secure chipset into their handbags, which consumers could scan and direct to a front-end with a digital hash signature. This determined the handbag's authenticity. NFTs here serves as a certificate of authenticity. But that's not all.
Reeves explained, "The goal is to make some form of an embedded resale technology [in the luxury bag itself]." Decent's client is the company that makes these luxury bags; but the company buys materials from different places. He continued, "When a user sells his/her bag, the buyer has to scan the chip. Then, a portion of the money will automatically go to different companies through some frameworks that were agreed upon early on."
In other words, NFTs that live on the blockchain, and the transactions are transparent. This makes it possible to code features into the contract that dictate how they are bought, sold, or even resold.
Reeves believes that with this model, products will be more sustainable in the future. He clarified, "Instead of baking a one-year or few-year lifespan into electronics or into other consumer goods, companies can make things last much longer because they can continuously make money on higher-quality products that are resold."
Where NFTs have never gone
Applying the model discussed above to the electronics industry, the devices themselves could generate a portion of money through their resale. Reeves explained,
"Imagine you were the consumer. You bought an iPhone, for example, and you sell it. off. Apple sells everything off at one go. But, if one could think about creating a "quasi-royalty," modeled fee that can go down to the component level, and individually breakdown the value of the components: i.e., the CPU, the GPU, the memory, the RAM modules. By using smart-contracts and the NFT as the base certificate, resellers can bake in a portion of the resale back directly to the component manufacturers themselves."
He furthered, "TSMC has something, Foxconn has something, and many other companies that are part of the Apple's supply chain have something in the phone. When you sell the phone, each company might be able to get a very small percentage, maybe 5% to 10%, in the form of cryptocurrency or digital payment."
The NFT is there to prove that the sale was made, and NFT creators can collect royalties on future transactions by baking it into the blockchain's code. "In a Utopian future, this could be an incentive for manufacturers to make their products last longer, more environmentally friendly, and maybe even more modular," he added.
Charity applications
The latest endeavor by the Decent team in collaboration with their HumanityToken brand is the Ukraine Solidarity NFT project. Following the story of Maria Moroz, a young Ukrainian artist, the focus is to provide a narrative to Taiwanese donors of the official governmental donation portals with a moving and courageous story of a young lady fleeing her country.
Usage of NFTs in the philanthropy space is a new way to give back to people by giving something of value in return for charitable endeavors. In this case whilst Decent and its HumanityToken brand are not involved in the donations itself and only provide the art as the incentive, many platforms are getting involved including the likes of UNICEF who in December 2021 launched 1,000 data-driven NFTs to mark the 75th anniversary of its global school initiative.
To learn more about the Ukraine Solidarity NFT project, you can visit this site.
Limitations of NFTs
Although NFTs can be applied to many industries, they still have limitations. One of the biggest issues is that cryptocurrency mining uses huge amounts of power. But Reeves argued that Ethereum is moving away from proof of work (PoW) to proof of stake (PoS) soon. This is supported by a research project conducted by Rong Zhang and Victor Chan, showing that energy consumption can be reduced by more than 75% by the pure PoS mechanism.
To give our readers an understanding of PoW and PoS, in PoW, miners compete to be the first to solve a complex mathematical puzzle and thus generate a new block, meaning they receive some new coins as a reward. Whereas PoS is a consensus algorithm that chooses who gets to be the next validator. Instead of solving cryptographic puzzles with computing power, participants validate transactions with the number of coins they hold.
Reeves continued, "I think another very big issue is government regulations. When it comes to regulatory discussions, frankly speaking, people should be allowed to do whatever they want with their own assets. But half of those barriers are in place to avoid abuse. In the US, there has been a lot of discussions around how to regulate cryptocurrencies. I think the people in charge are trying to set the framework based on their own generation's perspective. They are looking at it with fear. Yet, I think they should look at it with optimism."
He urged the regulators to change augment mindset and consider that technologies such as cryptocurrencies or NFTs are the future. With clear, positive regulations the industry will flourish even further.
Another limitation that Reeves highlighted is standardization. Because there's no clear, comprehensive global framework, every company comes up with its own novel blockchain. This results in a lack of interoperability between blockchains. There are however companies like PolkaDot that solve this by creating multi-chain technologies that act as layers to connect all sorts of different blockchains together. However, these products are still in their early stages.
To conclude, although NFTs are still in the early stages for a number of different businesses, the NFT market will evolve quickly and allow us to grasp the full potential of the technology.
