The real use case for NFTs

Proponents are bullish on the potential for NFTs but critics are wary that it may be a digital bubble in the making.

An NFT or non-fungible token acts like a digital certificate of authenticity.

The market for NFTs ballooned in 2020, climbing to a market cap of at least 338 million from about 41 million in 2018. But skeptics are asking whether these assets are really worth the value assigned to them, especially if all it takes to view them is an internet connection.

Fungibility refers to the ability of an asset to be exchanged or substituted with similar assets of the same value.

Each non-fungible asset is unique and can't be easily substituted for something similar. Think of the "Mona Lisa." It's an original piece of art. It couldn't be swapped out for, say, a "Mona Lisa" poster from the Louvre gift shop because the poster doesn't hold the same value.

So what exactly are NFTs?

NFTs are cryptocurrencies but unlike fungible cryptocurrencies like bitcoin, they are completely unique. They exist as a string of numbers and letters stored on a blockchain ledger. This information can contain who owns the digital asset, who sold it, and when it was sold. This information is also encrypted, ensuring the NFT's authenticity and scarcity. In doing so, they fix a difficult problem for digital creators on the internet:

How to make your creation scarce and therefore more valuable.

People are really excited about NFTs because unlike with the blockchain underlying bitcoin, you can do a lot more complex things with it. You can wind up setting terms within it such as the original creator upon each resale of this asset will get X amount. Or you can take it and you can have an NFT that itself mints other NFTs. The surface has only been scratched in terms of its potential.

Is the hype based on fundamentals?

Along with all the hype around NFTs, some are skeptical that ownership alone makes digital assets valuable. When it comes to digital art, a buyer owns the original digital painting but the person can't keep others from copying the image and sharing or changing it online.

So what does the future hold?

So this is how I think things will go: The NFT bubble will grow bigger and then pop. After this NFTs will get a bad reputation when all the hype fades but then after this, the real-world uses will start arising.

Just like google and amazon rose from the ashes of the dot-com bust when many others didn't survive, NFTs will start having wide appeal in applications that have real-world utility.

So what are the “real“ use cases of NFTs?

  1. Purchasing domain names

  2. Collateral in decentralized crypto loans

  3. The registration of a car, land, or a deed to a home

These are all uses that the average person can understand and take part in. In fact, during the first crypto hype cycle back in 2018, I and some of my college friends developed a blockchain-based decentralized government document storage system on the Ethereum network using Solidity language. You can catch a small demo of the application here. (The audio is very terrible)

With the news stories focusing on the outrageous side of this technology, it's easy to see NFTs as a hyped craze waiting to die out but as I just described I think there's actually more to it. NFTs are already primed for widespread applications in both outrageous and mundane ways.