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Nonfungible Tokens (NFTs) in the virtual world have generated tremendous interest in recent years. NFTs are unique and authentic digital tokens that are verified on digital blockchains. They can be bought, sold and exchanged on the metaverse, usually with cryptocurrency. What really stands out about NFTs is the fact that the ownership can be verified on the blockchain. To draw a parallel to the physical world, while there are many replicas of the Mona Lisa by the Renaissance artist Leonardo da Vinci, there is only one original painting, which is on permanent display at the Louvre Museum in Paris, France. Only the original painting is of true value.
Just as original artworks are authenticated by art galleries and experts, the authenticity of NFTs is verified on digital blockchain, which acts like a public ledger and records every transaction pertaining to the NFT, including the transfer of ownership. When the concept of NFT investment first appeared, NFTs became extremely popular as people saw them as a way to invest in unique and authenticated digital assets. With the digital culture becoming prevalent during the pandemic, NFTs saw a boom with the perception that you could buy a piece of digital artwork, a collectible, or even a piece of digital history. The NFT surge extended beyond the art world to music, gaming and even virtual real estate. However, as the pandemic ebbed, interest in speculative investments reduced and cryptocurrency too experienced a decline. A grim economic scenario further plummeted interest in NFT investments and the initial bubble burst.
However, this has been followed by a sustained interest around the possibilities offered by NFTs, although the interest level is very different from the frenzied popularity during the pandemic. The interest remains because blockchain technology, the backbone for NFT, can authenticate and secure NFTs, letting them provide a unique value proposition.
Advantages of NFTs over traditional digital ownership
Unlike traditional digital assets, NFTs are verified and authenticated, which eliminates the risk of fraud and counterfeiting. The transfer of ownership and any transactions on an NFT are recorded on the blockchain, making them immutable. Multiple owners can own the same digital asset, thereby democratising ownership. Also ownership is decentralised with global accessibility, giving both creators and collectors freedom and control over the digital assets. Smart contract capabilities enable automatic tracking and collection of royalty payments.
Given these benefits, the potential for NFTs go way beyond the arts and entertainment and in fact, there are several use cases for NFTs in digital ownership.
The potential for NFT in business
In 2021, at the peak of its popularity, one of the most noteworthy NFT transactions was the sale of an NFT created by digital artist Mike Winkelmann/Beeple. The asset was sold at Christie’s auction house for a whopping $69.3 million. However, the potential for NFTs goes way beyond the arts. Fashion industry players are experimenting with NFT for building brand awareness, creating digital collectibles and wearables, and virtual garments that customers can wear in a virtual environment. Luxury brand Louis Vuitton created a splash in the NFT world by launching a video game with collectibles on the occasion of their 200th anniversary.
In the music industry, artists are releasing singles and albums as NFTs thereby establishing direct contact with their fans, and experiencing both freedom and control over their intellectual property. The gaming industry uses NFTs to represent in-game collectibles such as unique armours and weapons, thereby generating new revenue streams while creating deeply immersive experiences. Cross-industry collaborations are another possibility. For example, a game developer could partner with an NFT artist to use their art in the game, creating immense monetising opportunities across industries.
The banking and finance sector (BFSI) is keeping a close eye on NFTs and the possibilities they offer. For instance, they can be used to tokenize contracts in contract management or for fraud prevention in financial trade. Security and scalability concerns, as well as regulatory and compliance requirements need to be addressed for a widespread adoption of NFT in banking.
Another potential use case for NFTs is for identity management, both in the real world and the metaverse. NFTs can be used to issue tokens for unique identification of individuals and certify document ownership. Potential applications include academic degree certificates, driver licences, passports and so on. In the supply chain, NFTs can be used to authenticate products and to verify quality and origin. They can trace the movement of goods from start to finish, all with one trusted handshake, rather than multiple checkpoints. They could also help the case of sustainable supply chains, with the ability to trace origins of raw materials. With NFTs, supply chains can improve efficiency, reliability and be more transparent.
There is plenty of research around leveraging NFT power in business, with players in key sectors such as real estate, banking and finance and healthcare showing interest in laying the groundwork for the future. While NFTs have the potential to revolutionise the way business is done, enterprises need to pave the way by simultaneously addressing challenges regarding scalability and regulations.
How can Infosys BPM help
At Infosys BPM, a dedicated blockchain technology practice runs multiple networks for our clients to facilitate digital assets investment and NFT investment. Our Digital Financial Services help businesses craft the digital strategic journey to become an intelligent enterprise facilitating real-time-finance.
