The last 3 years have had us rethinking how we perceive ownership entirely. Diverse Non-Fungible-Token (NFT) forms have been emerging with increasing innovations. These have been around digital ownership with non-fungible assets.Virtual baseball cards, redeemable physical tokens, tweets, paintings, memes, digital autographed collectibles, and an endless list of NFTs.
Before we continue let’s get a general overview of NFTs.
What NFTs are
Non-fungible tokens (NFTs) are digital certificates recorded on a public blockchain database. Platforms like the Ethereum virtual machine or the Binance smart chain support them. Created (or minted) using smart contract protocols.
This serves as immutable public proof of ownership for digital or physical non-fungible assets. It can be for a digital or physical non-fungible asset. Some examples of Non-fungible assets are:
- Antique and digital collectibles
- Some physical and digital paintings
- An artist’s intellectual property
- Certifications or licenses
Recently the very question of what can be represented as an NFT has changed. Now it’s, “What limits will we reach with NFTs? Let’s have a short brief of how we got here with NFTs. This is before looking at how they will shape the way we see possession.
Centralized ownership of digital collectibles, the unmarked roads to NFTs
With the rise of faster and better internet and media, the age of online gaming opened a new era. It’s the era of collectibles across various shared digital spaces. Especially for social gaming platforms like Fornite. These platforms share digital collectibles of all sorts in their closed economies.
According to a stat by Business for Apps, Fortnite had a revenue generation of over 1.8 Billion. All from game skins and collectibles. Several other closed gaming economies like these have been emerging recently. With virtual and fantasy sports games drawing billions of dollars in their economies.
But, these economies operate as closed isolated metaverses (digital communities). With each having its unique collectible. They function only within the metaverse that the platform provides.
In other words, a fortnight game skin is only functional with the fortnight gaming economy. This is due to the inability to maintain a unique copy of a digital file outside a central network or platform.
Bitcoin and absolute, decentralized ownership
Bitcoin’s double-spending breakthrough gave birth to a new age. The age of creating and maintaining ownership across a network. One without a central point to certify creativity. Ethereum took it further. It lays the groundwork for the creation, storage, and exchange of identity. That too on a global scale using decentralized smart contracts.
With Ethereum, users did not have to worry about its computational structure. Especially the ones interested in value exchange. The structure ensures that the network is active for secure value storage and exchange.
Another great feature of Ethereum is the ability to create several isolated Metaverse. All within similar computational standards. This is why Ethereum based smart contracts can work better.
The rise of NFTs
The successful minting and sales of 10,000 kittens gave rise to NFTs. So did the success of the decentralized virtual spaces on the blockchain. In fact, at the time of writing, the entire space is worth over 2 billion.
In just over 3 years the NFT space has seen a flood of several use cases. Presently on Orica, there are 8 NFT categories which are:
- Digital arts
- Various levels of Intellectual Property rights to designs
- Redeemable physical products, with an NFT acting as the right to claim
- Various media files like videos audios and both
- And Printable 3D designs
It is worth noting that there are NFTs beyond these lists, such as the sales of tweets. Also, the possibilities of what NFTs can represent are limitless. It’s all possible through minting a cryptographic representation of the item.
However, certain limitations need to be crossed for us to see a full-blown adoption of NFTs across the whole nine yards of ownership.
In a blog post on Arca’s website, a cryptocurrency investment firm, Jeff Dorman, chief investment officer at Arca, writing about NFTs wrote:
“Further, NFTs will expand beyond current use cases such as collectibles, art, and gaming into more traditional use cases like KYC, asset-backed loans (i.e. putting the value of your house/car on-chain to collateralize a loan), and fractional ownership of specific properties.”Jeff Dorman
Now let’s look at some important areas we will likely be seeing changes with NFTs in the future.
Copyright laws and NFTs
Since NFTs are on the verge of gaining traction, there are no regulations for them at the moment. Neither are there laws that define their exact legal state. It’s like where cryptocurrencies were in their earlier years.
Currently, at the time of writing, you do not get intellectual rights. No matter if it’s art, a collectible, or whatever entity you’re minting into NFT. This is because such a transfer of ownership is only done on a writing document. Which seals the owner of the said Intellectual Property (IP) copyrights.
As the NFT space continues to evolve we will likely see the deeds of properties. Like the IP copyright certificates, and various high-end contracts. As they trade on NFT marketplaces like Orica.
NFTs and property rights in real estate
“At present, people are dependent on land registries maintained by other parties, as a government agency, to record that they are the owners of a piece of land,” said Andrew Hinkes of Carlton fields, in a statement published by coin desk, “an NFT could instead represent that land, letting an individual prove ownership using a cryptographically secured and signed digital token,” he added.Andrew Hinkes
This could mean loans backed by real estate NFT title deeds.
NFT intellectual property rights and record deals
The music business is where the revenue distribution is in favor of intermediaries. Rather than the actual artist providing the value. In every record deal, an artist earns somewhere around 10-15% on a record deal. The bulk of the payments end up in the wallet of the record label.
Image credit: Techdirt.com
Audius is one NFT platform that is hard at work on a solution that cuts out all the middlemen. Allowing the creators a fair share in revenue over their intellectual property. Audius is an NFT streaming platform. It allows creators to earn the most of their streaming revenue. It has over 150k users.
NFT setbacks holding back adoption
With all this innovation and insights, there are still some setbacks to overcome. These will allow the NFT space to finally evolve into what this post predicts and beyond.
Oracle Problem in light of authentication and validation
Oracles are digital feeds. They provide a system/platform or enclosed network of users with external information. It is about the state of an entity operating in that network. Think of it as an external validation about the status of something internal.
For instance, at the airport, there is a validation of your passport. It needs to check if your identities are exactly what is being presented. These verifications come from trusted oracles. For this to happen, nations need to know which oracles to trust as feeds.
With blockchain systems, this is often a problem because blockchain networks like Bitcoin and Ethereum, operate independently of external validation or verification. While this is responsible for their impervious security and data integrity, it stifles interaction with other networks.
So in the case of NFTs, there is no way of knowing who owns an NFT in real life when it is registered (or minted) into a blockchain. For NFTs to scale, there needs to be a universal standard for validating ownership. It has to be across every marketplace like Opensea, Orica, Mintable, and so on.
Astronomical Carbon Footprint figures due to mining
Mining is the process by which decentralized networks, like Bitcoin and Ethereum, validate transactions and contracts like the creation or transfer of NFTs.
Ethereum consumes as much energy as the whole of the East African nation of Namibia. While Bitcoin, the whole of Denmark. This is according to information published on Cleancoins. At such a scale, it concerns anyone who cares about the climactic fate of the Earth.
Most NFT projects build on the Ethereum network. With this, many projects are seeking alternatives like the Binance smart chain network. It uses an alternative protocol to keep the network active and secure.
Considering all this, the Orica team settled for the Binance smart chain. Rather than Ethereum, the more populated and used network.
High Minting Cost
Due to Ethereum’s mining process, a lot of computational effort is required. This forces the miners carrying out the mining process to raise the gas fee to enable them to make up for the computational cost due to mining.
With this situation, several decentralized platform developers seek out more cost-effective alternatives. For instance the Binance smart chain. Due to its consensus model, the gas fee on Binance is within reasonable figures.
Also, it’s worth noting that with regards to wide-scale acceptance and network integrity, Ethereum is great for all things smart contracts like NFT creation.
That being said, in building Orica the team settled for Binance, while also making plans for cross-chain Ethereum NFT integration.
While some may liken the NFT space to where cryptocurrencies were in the ICO craze of 2018. But it seems obvious that it’s going to undergo several changes. There is a possibility of a reduction in numbers. It may change to something which reflects the true value of the market.
Consider which NFTs to invest in for the long term. Try to make your decision in perspective of the coming change. If you are in the middle of choosing a platform to begin your NFT journey, check out Orica. It gives a zero minting bonus and you can enjoy a safe exchange with its Proof of Art (POA) verification.