Sebastián Romo
Managing Partner
Skala Ventures
/
Expert Contributor

NFTs: The Future of Business

By Sebastián Romo | Tue, 04/12/2022 - 10:00

NFT became one of the most used words toward the end of 2021, generating the most expectations for 2022. But is it a buzzword, or a true technological innovation?

By 2021, the market value of non-fungible tokens (NFTs) was estimated at US$50 billion and a minimum annual growth of 10.7 percent is calculated for the coming years, reaching an estimated US$130 billion by 2028.

Nowadays, the most recognized use of NFTs is the commercialization of art or digital collectibles, which are turning some people into new millionaires. But companies also use them to add value to their clients and generate other applications. The question that arises around them is: Where is the actual value of this technology for everyone else?

What Are NFTs?

An NFT is a digital asset registered in a Blockchain network (Ethereum, Solana, etc.) that allows traceability and security from the item's origin to the purchase/sale or change of status/owner.

Being created in a Blockchain network, the token is consolidated with cryptographic security, impossible to alter or manipulate, which provides great deal of security and certainty regarding the assets transmitted by this technological means.

Today, they are used to certify the ownership of virtual assets, mainly digital art or collectible items. Still, we can use them for other applications, such as      authenticat     ing the ownership of physical assets whose value changes over time (houses, cars, physical art), creating intelligent or unique and immutable contracts or information databasesthat allow the transformation of value chains worldwide.

Why Are They Relevant in the Business Context?    

NFTs allow traceability to what previously could not be measured or controlled and that depended on manual data capture (papers and documents) or communication between systems (ERPs). Being created under the Blockchain network allows having records and validations on each item's transaction automatically and in real-time.

The relevance of NFTs in the business context goes beyond the generation of additional revenue (like Adidas, NBA and others have done) or the speculation of digital assets that over time will increase in value thanks to market demand for collectible(Cryptopunks, Bored Ape Yacht Club).

The importance in the future of the technology for companies and corporations lies in the ability to certify and create smart contracts and digital decentralization of information, which allows adding value to their business models through decentralized and incorruptible tokens or certificates.

These tokens will have the ability, without depending on central database hubs (notaries, softwares, banks, etc) to verify in real-time the status of any operation, the position of physical elements, historical records of transactions, real-time and historic data of people and the monitoring of the use and exploitation of the intellectual property of a product.

Future Use for Businesses    

There are three primary potential future uses of NFTs in companies (some of them already in use by a few).

One application takes advantage of the moment of speculation and the monetary value of NFTs. The other two applications enhance technological importance in the coming years.

Monetization of Current Assets

The application that has the most economic benefit for companies in the short term, as Disney, Adidas, and TopShot (NBA) have done, is the generation of virtual collectible tokens that you can acquire, just like physical collectible cards are obtained and gain value over time.

These brands create collectible NFTs that they make public for purchase through their own or third-party NFT sales platforms.The brand's fans or followers acquire these collectibles, which will increase in value over time, as long as the brand remains relevant to the global market and popular culture, just like the physical trading cards of Pokémon or MLB.

This issuance of tokens allows brands to capitalize on their assets and intellectual properties quickly.

An example of capitalization is when Disney, through VeVe, launched a Mickey Mouse collection, made up of 40,000 collectible digital objects. In just minutes, 100 percent of the batch was acquired. Each token was sold for US$60.00     , representing an immediate revenue of US$2.4 million for the company.

Capitalization on the Future Appreciation of an Asset - Smart Contracts

With the issuance of a certificate or token (NFT), resale rules can be defined and allow the original author or creator of the NFT to continue to benefit from their token, even after the actual item has been sold.

A percentage of the resale value can be stipulated in the smart contract or initial setup of an NFT for the token's creator in each subsequent transaction.This would generate in each resale of the token, automatically (since this is programmed in the contract and the Blockchain of the token), a transfer of funds to the original creator of the token.

This means that the gain related to the appreciation of the asset, can be distributed between the current owner and the intellectual creator of the token.

For example, in the case of Disney's Mickey Mouse collection, through VeVe, each secondary resale of the collectible tokens will generate a fee to Disney of 6 percent of the value of the transaction and 2.5 percent to VeVe, permanently. Assuming the value of the collectibles only increases in value up to 10 percent, Disney would receive about US$150,000 in indirect and inmediate revenue.

This will allow direct benefits on the commercialization of objects and enable companies or creators of tokens to receive payments for licensing their products in secondary markets. Today, if you have a trading card, a painting, a house, or a car that has increased in value, the creator does not receive part of that capital gain.

Value Chain

Another crucial element of NFTs is providing information traceability to physical objects, which allows a single truth and gives certainty to value chains.

Each object created in the physical world can be accompanied by a unique digital token (NFT) instead of dozens of papers that change and are lost throughout the product's life. The token can include all the information related to the date and manufacturing method, geographical position of the last registration, client, etc.

All this information is stored in a blockchain, immutable and from a single source among all those involved in the chain, so conflicts resulting from discrepancies in databases, systems, or stationery that traditionally accompany these objects would disappear.

Today, NFTs used in value chains allow buyers to know all the steps and processes that the product went through, from the beginning of the assembly, until the moment the product was purchased or delivered to the end      user.

An example of a high-value application in value chains is the certification of an object's authenticity, ideal for chains such as pharmaceuticals where it is essential to have traceability and certification of each medicine box (its origin, components, expiration dates, etc.) to avoid the black market or piracy. In addition, this generation of records and metadata can allow value chains to solve problems in less time.

In these value chains, NFTs can function as a registry of records that does not depend on an entity but the group of those involved in a value chain, thus avoiding misinterpretations, loss of information, or delays in supply chains.

     Four Ideas for Using NFTs in the Future

Here are some ideas that will leave you thinking about the future of technology:

  • Personal ID. You could have your own NFT, where all your information, medical records, traffic tickets, lawsuits, visits to the pharmacy, immigration information, etc., are updated every day     , in such a way that all of your information is stored in one place, safely and immutably.
  • Blood donation. When donating, a donation certificate is generated, updated with everything that has happened in the chain of care until it is taken to the final patient. Additionally, it would contain the information of who donated and who received it.
  • School certificates and diplomas. These can be generated digitally and validated by employers or other universities to validate a person's acquired knowledge. Therefore, only a copy of the certificate will no longer suffice.
  • Obtaining funds and donations. This can be done by issuing tokens that allow, on the one hand, monetary funds to be raised for the organization and for the donor to know the status of their donation and even what their money has been invested in.

What others can you think of? Write to me at sebas@skalaventures.com and let's talk about those different applications that could come from this technology.

Photo by:   Sebastián Romo

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