A non-fungible token, or NFT, is a type of digital asset that contains unique metadata. While NFTs have become synonymous with digital artwork and gaming, these use cases are just scratching the surface of what's possible. Utility NFTs can permanently store any data on the blockchain, where it's easy for anyone to read or verify it.
Let's examine five use cases where utility NFTs could play an essential role in the future.
NFTs prove incredibly valuable in use cases ranging from identity verification to voting – disrupting multi-million dollar markets.
What are NFTs?
Most people are familiar with Bitcoin, Ethereum, and other cryptocurrencies. Like any currency, these cryptocurrencies are fungible, meaning each token is the same. So, for example, one Bitcoin is the same as another Bitcoin. That makes them useful as a currency: You can buy and sell them knowing their face value.
Like cryptocurrencies, NFTs are digital tokens stored on a blockchain and tradeable between wallets. But unlike cryptocurrencies, each token is encoded with unique metadata. For instance, digital artists might encode NFTs with a link to a piece of digital art. However, you can also store arbitrary identification codes or financial transaction data.
Most NFTs exist on the Ethereum blockchain, but several other blockchains have become popular to lower gas fees or meet special requirements. For instance, Polygon has become a popular Ethereum alternative that exists as an interoperability protocol (sidechain) and framework on top of Ethereum with a significantly lower cost.
#1. Verifying Authenticity
Roughly $3 trillion worth of counterfeit goods trade hands worldwide each year, according to OEDC data, including everything from footwear to pharmaceuticals. As a result, there's a growing market for technologies that track products across the supply chain and enable customers to verify their authenticity at the point of purchase.
For example, imagine scanning a QR code on a pair of Nike sneakers and seeing the product's entire journey from manufacturing to arrival at the store. While it's easy to spoof a website and generate a fake QR code, altering transactions on a blockchain is impossible. You could even transfer ownership to another person and record it on the blockchain.
#2. Identity Verification
Nearly 50 million consumers have their identity stolen each year, according to Javelin, costing upwards of $56 billion annually. While two-factor and biometric authentication can reduce these incidents, verifying someone's identity typically involves handing over sensitive information when data breaches are at all-time highs.
NFTs could make it easier for people to verify their identity without disclosing any personal details. For instance, WISeKey's NFT platform is a trusted identity service, enabling users to authenticate with various other platforms using an NFT. Like a single sign-on (SSO), users don't need to sign up to use multiple services or rely on a central entity.
#3. Financial Transactions
The finance industry isn't exactly known for its cutting-edge innovation, but decentralized finance (DeFi) and NFTs could change the game. For example, the real estate industry uses deeds to transfer land and provide proof of ownership using physical paper. NFTs could help digitize these records while using smart contracts to handle escrow and other tasks.
At the same time, a bank could mint an NFT for each account holder that specifies their credit rating and balance. Then, suppose an account holder wants to apply for a loan elsewhere. In that case, the NFT could enable a third party to verify their credit rating and income without disclosing personal details or making a hard credit check.
For instance, SolidBlock leverages tokenization to unlock the value of real world assets and enable lower management costs and capital flexibility. The SolidToken makes it easy for asset owners to tokenize their properties to raise capital while providing shareholders with yield from rental income along with liquidity through NFT marketplaces.
#4. Voting on the Blockchain
One-third of Americans believe there was fraudulent voting in the 2020 election, according to an NPR/Ipsos poll. While there is no evidence of widespread voter fraud, the lack of public confidence in an activity core to democracy is a dangerous problem in the U.S. and abroad. In the future, NFTs and blockchain technology could play a role in building voter trust.
As discussed earlier, NFTs can serve as a form of digital identification that doesn't require a physical document. As a result, voters could use NFTs to cast a vote onto a blockchain (visible and verifiable in the public record), ensuring that everyone has easy access to vote from any computer while preventing any possibility of cheating or voter fraud.
For instance, Voatz leverages NFTs to make voting convenient, secure, and accessible for everyone. Voters can pair their identity to their phone’s biometrics or PIN and easily vote, while election administrators can easily support highly-secure remote voting or conduct customizable polls to gather valuable and verifiable insights.
#5. Event Ticketing
Most event ticketing has become electronic already, with QR codes and custom applications. However, NFTs could combine ticketing with memorabilia to create a more compelling experience. They could also help event organizers stay connected with attendees well after the event, creating tremendous value for everyone.
For example, GET Protocol makes it easy for event organizers to mint NFT tickets that become tradable digital collectibles. In addition to connecting with attendees, these tickets make it easy for organizers to control the primary and secondary markets, taking in profits that would have gone to scalpers and putting them in the hands of artists and performers.
The Bottom Line
NFTs may be synonymous with digital art and crypto gaming, but their potential extends well-beyond these use cases. From verifying identity to saving democracy, there are hundreds of different use cases for non-fungible tokens. And a growing number of startups are bringing new solutions to market.
If you trade NFTs or other crypto assets, ZenLedger can help you keep everything organized from a tax standpoint. Our platform automatically aggregates transactions across wallets and exchanges, computes your capital gains or losses, and populates the IRS forms you need to file each year. We also provide native support for ERC-721 NFT taxes. Get started for free today!