The hype around non-fungible tokens (NFTs) doesn’t seem to be calming down. But it still isn’t clear how exactly businesses can benefit from this technology and whether it’s reasonable to launch an NFT project to gain a competitive advantage.
Multimillion-dollar sale prices for GIFs and expectations that NFTs will disrupt almost all industries are stimulating businesses to adopt NFTs sooner rather than later. Indeed, you can use NFTs as security tokens, collectibles, and even proof of ownership.
However, the results of investing in digital tokens without proper research may fall short of your expectations. To help you avoid this, we discuss what NFTs really are and how they work.
We also explore what impact non-fungible tokens can make on businesses in different industries and what nuances to keep in mind when working on an NFT project.
Non-fungible tokens (NFTs) are digital blockchain-based assets that have unique identification codes and metadata that distinguish them from each other. NFTs can represent objects from the real world like images, songs, in-game items, and videos. Such objects can be bought and sold online with cryptocurrency or fiat money.
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
Although the underlying technology behind NFTs is pretty much the same as that underlying cryptocurrencies, these things are not the same. The main difference between NFTs and crypto is that NFTs are not equivalent. All cryptocurrency of a particular type, on the contrary, is equivalent (one Bitcoin is equal to any other Bitcoin), and cryptocurrencies can serve as an intermediary for commercial transactions.
The four key elements and components of NFTs are:
- Blockchain — A decentralized ledger across a peer-to-peer network that handles and stores transactions and allows for executing smart contracts. The most popular blockchain platform for NFT projects is Ethereum.
- Smart contracts — Programs that execute automatically when predefined conditions are met. Smart contracts enable parties who do not know each other and decentralized participants to conduct fair exchanges without intermediaries.
- Blockchain address — A unique identifier for a user to send and receive assets. It usually consists of a number of alphanumeric characters generated from a pair of public and private keys.
- Cryptocurrency wallet — A place where a user can securely keep their coins and tokens. Crypto wallets help to securely exchange and store NFTs.
NFTs are not only about buying and selling GIFs but also about creating new business opportunities. In particular, NFTs offer new ways to fund projects, trade money, and invest in digital assets.
Currently, we can outline two main approaches for businesses to use NFT technology:
- Develop an NFT marketplaces and make money from service fees. NFT marketplaces allow NFT creators to sell their digital tokens and users to browse a selection of items for sale and make purchases. Marketplaces vary depending on the blockchain platforms they use and the type of digital items they list, since NFTs can represent digital works of art, musical recordings, and even tweets.
- Create and mint your own NFT tokens. Minting NFTs has a variety of business use cases, which we will discuss in detail further in this article.
Why do businesses strive to implement NFTs?
Let’s discuss the five major reasons why businesses want to join the NFT game.
1. Drive attention to your brand. Although the NFT hype began in 2018, projects that create non-fungible tokens still receive clickbait headlines in the media and recognizability among the target audience. Some companies launch an NFT initiative for marketing purposes or to improve the value of their services and business. Either way, you can achieve significant brand promotion and increase your chances of attracting new customers.
2. Bring transparency to your product lifecycle. Businesses already leverage blockchains to ensure the reliability of supply chain data. NFTs can also be used as digital footprints to track products through their entire lifecycle and help you prove the authenticity of products to win your customers’ trust.
3. Gain additional revenue. A series of NFT items can be a source of extra profit. For example, you can sell digital art based on your brand logo, products or services, and mascots. When selling such NFTs, some businesses provide buyers with discounts or free products to encourage sales. Or you can sell brand-related NFTs as tickets to special community meetings.
4. Secure data and transactions. NFTs inherit the blockchain’s ability to store records and data securely, yet ensure its transparency. You can leverage the uniqueness of each token to guarantee data immutability and record accuracy.
5. Attract investments. You can use NFTs to gather funds for launching new projects. The Antara movie is a groundbreaking example of using NFTs for crowdfunding in the film industry. In January 2022, the Antara producers announced a pre-sale of the Antara Movie NFT, which will be the first NFT that allows buyers to partly own the rights to a Hollywood film.
With that in mind, let’s explore how exactly businesses can use NFTs by discussing the key tasks this technology can help you accomplish.
As unique digital items, non-fungible tokens can be applied in various scenarios within various industries. But before we dive into real-life examples of how to use NFTs in business, let’s discuss how exactly these digital tokens can be helpful and what goals they can help you achieve.
1. Address licensing issues
One of the most discussed ways of applying NFTs is for changing how licensing works.
A simple example is an opportunity for artists and creators to avoid situations in which they have to negotiate the reward rate with license organizations when trying to sell their work. With modern technologies, creators can place their original art pieces on an NFT marketplace in a few clicks. They set their own conditions and don’t have to worry about scams, as the purchase is performed under the terms of a smart contract.
Business can use NFTs for advanced licensing opportunities that include:
- Easily controlling the use of their assets
- Tracking royalties with less expenses compared to traditional licensing
- Simplifying payment terms across multiple territories
2. Prove product authenticity
Continuing with the blockchain’s promising use for tracking goods and proving product authenticity, NFTs are also being linked to physical objects. Thus, NFTs can act as digital certificates of authenticity stored on the blockchain. But unlike a conventional paper certificate, a token can also show the full history of the product, from manufacturing to sale.
This is especially valuable for supply chains and logistics, since it can help companies track products in real time through all stages of their production and transport. For this task, businesses can use Enterprise NFTs (ENFTs), digital tokens created to solve issues in the supply chain, manufacturing, and other industries.
ENFTs can be used to:
- Represent ownership of goods
- Track assets through CRM systems
- Verify product authenticity
- Record ownership rights
Companies that produce luxury goods that can be subject to counterfeiting can also benefit from using NFTs to prove authenticity. For instance, a customer can receive a token when purchasing a physical product as an extra proof that they have bought an authentic item. The same principle can be applied to fight counterfeit pharmaceuticals by streamlining the authentication process.
3. Achieve marketing goals
Businesses already understand that almost every blockchain-based technology attracts attention, and adopting blockchain technologies can help organizations make it to the front pages and receive massive brand awareness.
Here are a few major NFT use cases for marketing purposes:
Provide exclusive brand community membership. One way to use NFTs is as access rights for your private community, offering NFT holders an exclusive experience and perks. NFTs, for example, can grant access to some of your services and products for free or for a decreased price. Or they can be used to provide access to exclusive brand content like webinars, video conferences, behind-the-scenes photos, or blog posts.
You can also send NFT invitations to different VIP community meetings, like the famous Bored Ape Yacht Club did for their private parties. NFTs can provide access to physical locations like clubs, bars, lounges, gyms, and workspaces, as well as to virtual locations and in the metaverse. For example, the Masaij Members’ Collective NFT provides access to VIP lounges across the USA and the metaverse.
Some large restaurant businesses already sell NFTs, allowing token holders exclusive memberships and perks like special meals and events as part of NFT ownership. The first NFT restaurant, Flyfish Club, has already raised $14 million through the sale of nearly 1,500 tokens.
When creating NFT invitations, consider using the proof of attendance protocol (POAP). POAP is an NFT that commemorates and proves that a person attended a certain physical or virtual event. These tokens work both as physical memorabilia, like concert tickets, and as an alternative to checking in or tagging your location on social media, but without revealing any sensitive personal data. Businesses can mint POAP badges to attract tech-savvy leads, reward the most dedicated customers, and encourage the audience to join online or physical events.
Offer collectible digital items. Selling and gifting collectibles like baseball cards and toys is common practice. NFTs have also become valuable collectible items, especially because they can’t be replaced, interchanged, or divided. The NBA has already seized this opportunity and launched Top Shot, a website where fans can purchase NFT packs that contain random significant moments from NBA history.
To distribute digital tokens, you can use NFT airdrop. It works similarly to a cryptocurrency airdrop, in which a company automatically or manually sends crypto tokens to the wallets of their community members as a reward for their activity. Marketing opportunities related to NFT airdrops are numerous and depend on business specifics and creativity. For example, you can reward your followers with custom NFT collection items for participating in social media initiatives to increase brand awareness.
4. Enhance cybersecurity
As a blockchain-based technology, NFTs inherited the ability to efficiently encrypt and securely store data, ensuring immutable yet transparent data records. Therefore, these technologies are considered promising for such industries as insurance and intellectual property protection. For example, if an accident occurs, ENFTs will provide an accurate record of claim events and serve as proof of ownership of insured goods.
You can also use NFTs for other cybersecurity purposes, such as creating NFT digital signatures to verify transactions and using NFTs for authentication to access sensitive information. These tokens can be applied to secure digital assets by leveraging NFT capabilities for validation and smart encryption.
When it comes to finding new ways of using modern technologies, the sky’s the limit. Since blockchain enthusiasts keep coming up with more and more scenarios in which to use NFTs, the list of use cases for businesses will expand.
The impact of NFTs for a business depends on the industry. Let’s explore some key use cases of NFTs for different industries.
Tech enthusiasts expect that NFTs will tackle a lot of aspects of our lives. Let’s take a closer look at both theoretical and existing use cases for implementing non-fungible tokens in organizations across industries.
1. Digital art
Selling and buying digital art is where NFTs started. But not only individual artists and collectors can benefit from digital art. Businesses can as well.
As we mentioned in the first section, businesses can gain extra profit from creating and selling brand-related NFTs. However, organizations that operate within industries that involve graphic design, like the gaming or entertainment industry, can also create and mint art pieces related to their products. Thus, architecture and interior design firms can mint and sell digital art pieces of their projects, while galleries and museums can make extra profit from selling digital copies of famous paintings and sculptures.
You can also use digital art for raising attention around charity events and various social initiatives launched by your business. For example, NIVEA launched a series of free limited-edition NFT digital art pieces to promote their The value of touch social project. The Ukrainian Ministry of Digital Transformation even launched an NFT sale to both fund the fight against Russia and drive attention to Russian war crimes.
Striving to enhance the protection of personal health information (PHI), healthcare organizations often examine the opportunities of cutting-edge technologies including those based on the blockchain.
Researchers from Baylor College of Medicine assume that NFTs can help patients more efficiently and securely control their data. They offer the idea of developing NFT digital contracts that will allow people to specify who can access their PHI and track how it’s shared.
Such control of personal data could help patients not only keep private information protected but also monetize it. NFTs provide the potential for healthcare organizations and patients to sell data to third parties for research purposes — within the scope of laws and common sense, of course. The parties interested in purchasing such data could be pharmaceutical companies that conduct drug research and artificial intelligence (AI) development companies that need data for training AI models.
Another interesting application of NFTs in healthcare is tokenized blood. The idea is to record all locations in which blood has been between the time of its donation and its arrival in the hospital. Blood tokenization can help to improve the inventory of blood donations, detect and fix shortages of specific blood types in particular regions, and prevent human errors. EY Canada is already working with Canadian Blood Services on such a project.
3. Real estate
Right now, we can already witness NFTs being used for selling real estate in the virtual world. Mostly, buildings are being sold in games and online worlds like Decentraland, where in 2021 a patch of virtual real estate was sold for a record $2.4 million worth of cryptocurrency.
However, real estate in the real world could also benefit from adopting NFTs for various purposes.
Fractional ownership tokenization is similar to crowdfunding. You can create a platform that allows for selling NFTs that represent ownership of fractional shares to investors. For now, this concept is still theoretical for real estate businesses, but we expect that real-life examples will appear in the foreseeable future.
Entire asset tokenization means wrapping real estate into a legal entity and creating a single non-fungible token that represents ownership of that entity. Although this use case is challenging both technically and legally, using NFTs to represent ownership of physical items on blockchain networks when selling and buying properties is already happening.
In 2021, TechCrunch founder Michael Arrington became the first person to sell his apartment in an NFT real estate auction via the Propy platform. Another example of a blockchain-related real estate initiative is Prometheus, which offers NFT smart contract services to help customers underpin their property ownership. NFT ownership means property ownership in one of their properties across 24 locations in Europe.
NFTs are commonly integrated into the gaming industry, and it seems this trend is here to stay. The two most common use cases for NFTs in games are trading in-game characters and items and purchasing exclusive plots.
Trading characters and items. Projects can allow gamers to make money out of their characters by trading or selling these characters as NFTs. Also, customers can receive more control over their characters’ looks and virtual items, including the ability to purchase skins from limited-time sales from other players if they miss the sale. For example, NFT trading of Axie Infinity characters managed to surpass $4 billion in all-time sales.
Purchasing plots. Some organizations provide opportunities for gamers to purchase plots of land and various virtual real estate items inside video games. Decentraland allows gamers to buy, sell, and rent land via their official marketplace or the OpenSea platform. Another example is Axie Infinity, which also features digital land and assets. One user spent $1.5 million dollars worth of cryptocurrency for nine plots of land in this game.
Having a huge fan base around the globe, sports clubs and leagues are also adopting digital tokens to engage the community and make extra profit. Also, digital tokens can be used as rewards in various sports and wellness-related apps. Let’s explore a few popular ways to use NFTs in the sports industry.
Memorabilia and collectibles. Video games based on sports tend to let gamers become rightful owners of epic video moments. For example, Cristiano Ronaldo’s unique card from the NFT-based fantasy soccer game Sorare was sold for $265,275.55 in 2021. Digital memorabilia is so popular that Deloitte expects NFTs for sports media to generate more than $2 billion in transactions in 2022. Popular soccer clubs like Liverpool and Manchester City have already launched exclusive NFT collections.
Move to earn. Another NFT adoption idea is using digital tokens to motivate people to practice sports. A famous example is the STEPN app that provides users with NFT sneakers. Such activities as walking, running, and jogging allow users to earn tokens and use them to level up their sneakers and mint new ones. Later, people can lease or sell their digital sneakers on the in-app marketplace.
Improve fans’ experience. Sports clubs can use NFTs for engaging their fan community by rewarding them with unique digital artworks for activities like attending games, purchasing the club’s crypto tokens, or participating in various events. Another idea is to offer fans exclusive content about their sports icons. For example, the SportsIcon platform sells videos with famous athletes, packaged as NFTs, where fans can learn insights and untold stories from a sports star’s life and career.
According to Gartner, fashion and luxury brands can benefit from such NFT attributes as uniqueness, release and royalty, and permanence. We can also add one more benefit to the list — attention. Let’s explore a few NFTs use cases for the fashion industry.
Fighting goods duplication and counterfeiting. Luxury brands can leverage the ability of NFTs to serve as proof of ownership for authentic items like bags, purses, clothes, and accessories to address the challenge of duplication and infiltration of counterfeit merchandise. And if an owner decides to resell the physical fashion item together with the attached token, a buyer will be able to verify its authenticity before purchasing, since the NFT is transparent on the blockchain. Not only does this simplify auctions and sales; it also makes certification almost indestructible and timeless.
Nike already holds a patent for a system in which the blockchain is used to attach digital assets to sports shoes. Another example is Dolce & Gabbana’s launch of five pieces of physical creations with a nine-piece collection of digital NFTs.
Making profit on product resale. With NFTs and smart contracts, there’s a possibility for brands to track the product life cycle and make commissions from secondary market sales. To do that, companies can develop a transparent commission model that drives profit to the original creator each time the product is sold. This use case, however, exists only in theory.
Drive audience attention. NFTs can be used not only for hype but also for driving people’s attention to business issues or history. For instance, Louis Vuitton is about to release new NFT rewards for their game, developed to engage players to learn the history of this brand. Earlier, LVMH, which is the parent company of Louis Vuitton, joined the global blockchain initiative together with Prada and Cartier for addressing challenges of providing authenticity information, responsible sourcing and sustainability in a secure digital format.
Manufacturers can use NFTs as attached digital tokens for every item they produce and benefit from further resale. Say a vehicle production company minted non-fungible tokens to go with each car. Since manufacturers will receive a percentage from the car’s release and resale, they are interested in assembling high-quality and easy-to-maintain vehicles.
Speaking of the car business, famous brands also mint NFT digital art collections. For example, there’s McLaren Racing Collective, a platform that encourages fans to collect all 3D car parts in NFT form by the deadline to claim a 3D interactive collectible of one of their legendary cars.
Once you come up with your NFT business ideas, it’s essential to research all possible pitfalls. The use of NFTs is still in its infancy in many industries. Therefore, you have to be aware of possible challenges and the peculiarities of developing solutions that use non-fungible tokens. In particular, as a blockchain-based technology, NFTs inherit some security and scalability concerns.
Let’s discuss the four most important details you should know before starting an NFT project.
1. Be aware of common business challenges
Before you turn your idea into an NFT project, make sure to conduct research and know what pitfalls to expect on the business side. Here are three major businesses challenges to keep in mind:
- Legal challenges. Do your research regarding the legal definitions of blockchain and NFT in different countries before you start developing and promoting your solution. Some countries severely limit or even forbid the use of crypto-related technologies. Also, pay attention to regions where blockchain-related laws and initiatives are in the discussion stage.
- Price assessment challenges. One of the biggest uncertainties regarding NFT projects is the price for tokens. Apart from creativity and uniqueness, you’ll also have to take in consideration more practical things like development, marketing, and research expenses as well as what transaction fees to charge.
- Intellectual property rights challenges. A huge problem of digital art is that users can take advantage of others’ work. And ensuring that artists can only display NFTs they own is challenging. Not to mention that it’s impossible to relate NFT markets to traditional property laws. Intellectual property rights in the world of NFTs is still in the gray zone.
- Talent shortage. Consider if your in-house development team will need to outsource development to create a reliable NFT product. And since the demand for qualified and experienced specialists is rising, you should take into account that searching for developers can be challenging.
The best way to overcome these challenges is to consult experienced developers and business analysts who can offer advice regarding various nuances of launching an NFT project. At Apriorit, we have seasoned blockchain specialists who are ready to help you with any questions on your projects.
2. Choose your blockchain platform wisely
The blockchain platform you use is what defines the specifics of the solution you develop and the capabilities of NFT smart contracts. Therefore, it’s essential to explore all possibilities and check whether they match your project’s needs.
Originally, NFTs were developed on the Ethereum platform. Then, other platforms started gradually offering their own solutions for creating digital tokens. Here are a few of the most popular blockchain platforms for developing NFT projects:
- Ethereum offers the ERC-721 and ERC-1155 token standards
- TRON has announced their own NFT standard, called TRC-721
- Tezos offers the opportunity to build NFT marketplaces using its protocol
- Cardano provides functionality to develop NFT projects
- Solana offers a customizable NFT standard and minting program with ecosystem-wide support
- Polkadot already has an NFT infrastructure built into its ecosystem
How to Build a Parachain on Polkadot
3. Think of testing and QA activities
Testing and quality assurance (QA) for blockchain projects can be tricky and requires QA engineers to be aware of common blockchain attack vectors and vulnerabilities . When it comes to NFT solutions, make sure your specialists pay double attention to authorization and performance.
Authorization. It’s essential to thoroughly test the authorization process and make sure it can’t be tricked by malicious actors. Otherwise, there will be a high risk of sleepminted tokens . Sleepminting is a fraudulent technique that allows hackers to mint an NFT directly to the wallet of its valid creator with permission to reclaim it or pull the token out. Thus, blockchain records will show that the creator minted an NFT and sent it to the scammer.
Performance. Since some non-fungible tokens can be worth millions of dollars, interest in NFT platforms comes along with high expectations for how these platforms look and perform. It’s vital to perform stress and load testing of your solution to ensure it can perform flawlessly no matter what.
4. Keep an eye on security
Although the blockchain offers data transparency and immutability, it also might have some security risks and vulnerabilities you should be aware of. Vulnerabilities can be present in smart contracts, marketplaces, and wallets. To detect and eliminate them, make sure to conduct regular security audits of your solution.
NFT smart contracts are believed to be better protected than smart contracts for fungible tokens because they have simpler code, which lowers the risk of mistakes. However, that doesn’t mean you can neglect cybersecurity best practices when developing NFT solutions. Smart contract risks originate from the vulnerabilities that smart contracts can hold. Make sure your team follows best practices for writing secure and efficient smart contracts and thoroughly tests them.
If you’re developing an NFT marketplace, make sure to secure it from risks like possible platform compromise that can result in the loss of digital tokens. In 2022, the Veve NFT Marketplace confirmed they suffered from a cyber attack and had to temporarily shut the platform because of this exploit.
Keeping up with new technologies like NFTs is a must for businesses that want to grow and improve their services. However, doing it without proper research and a clear understanding of business value may not be worth the effort and money.
At Apriorit, we have dedicated teams of experienced blockchain developers who are ready to answer all your questions regarding NFT projects and build an efficient and secure solution for your business.
Want to pick our brains and develop a top-notch NFT project? Contact us right now!