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Non-fungible tokens (NFTs) are a red hot topic, but understanding how they operate and the defining traits of these tools are critical for continued growth.




The idea of partial or fractional ownership of certain assets, such as equity securities, is nothing new, but the rise of NFTs has the potential to revolutionize this sector. There are certainly some project such as Cryptokitties that might strike some as more of a joke than a legitimate enterprise, but that misses the wider point. Blockchain and crypto are rapidly becoming mainstream, and new ideas are a natural sign of this maturation.

This all sounds well and good, but what are some of the use cases that NFTs can create, outside of collectibles and certain benefits connected to video games? It is also important to note that there might be some signs of froth in this sector, with millions of dollars being spent on various sports video clips; it remains uncertain what will happen to the (currently) publicly available versions of these same clips.

Framed against the wider backdrop of increasing digitization and automation across the economy at large, there are actually quite a few use cases for NFTs. Clearly the creation of digital or crypto collectibles or assets is the application that has seized the most attention, but this is just the tip of the iceberg. Any intellectual property, artwork, content, or other digitally based information can be secured by blockchain and NFTs, enabling content creators and owners to 1) maintain control and custody, and 2) receive compensation that can be accurately and transparently calculated and tracked.

With high flyers such as William Shatner and Mark Cuban (among many others) actively participating in the NFT space, this entire conversation continues to generate buzz and excitement on an almost daily basis.


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So, what are NFTs?

Off the top there is an important difference between an NFT and other existing market options. Unlike cryptocurrencies such as bitcoin, every single NFT is non-fungible and that makes it distinct from both fiat and decentralized cryptocurrencies. For all intents and purposes, every $100 dollar bill or bitcoin is the equivalent to every other one in the marketplace; they are worth the same, can be used equivalent purposes, and can exchanged for one another. NFTs in this respect are completely different, are not able to be treated as the equivalent to other NFT’s, and even NFTs connected to the same underlying asset are not exchangeable for each other.

Let’s take a look some of the other specifics and characteristics that NFT development continues to expand.

Unique and indivisible. Every NFT is a unique and indivisible cryptoasset, meaning that unlike bitcoin, these cryptoassets cannot be subdivided and have these portions used as a transaction tools. Supported (primarily) by the Ethereum blockchain, these cryptoassets also have the benefit of blockchain-based data integrity and security.

Asset focus. There is a debate going on in the marketplace as to whether or not cryptocurrencies will, or how they will, eventually move to supplant fiat options as the primary medium of exchange. NFTs, generally speaking, are designed specifically to serve as assets and represent value, versus serving as a widely used medium of exchange.

Smart contract expansion. The uniqueness of NFTs is delivered by smart contracts, an executable set of programmable code integrated into an underlying blockchain and (in this case) cryptoassets that verifies the uniqueness of these cryptoassets. Such a situation also delivers an application for smart contracts that the larger non-expert population can see, and is outside of the payment/confirmation realm. In addition, smart contracts play an integral role in delivering the blockchain-based security associated with NFTs.

Specific and multiple. Since every NFT is connected or linked to a specific asset, be it digital of physical in nature, these assets can provide a traceable, transparent, and blockchain-secured proof of ownership as well as delineating rights to dividends, royalties, or other multiple payment arrangements such as annuities. This holds tremendous potential, especially as streaming and other independent content creation continues to grow rapidly.

The blockchain and crypto space continues to accelerate and develop at what seems to be an ever-increasing pace. Even just since 2017 the entire conversation around bitcoin, blockchain, and other crypto has changed dramatically; from a rule breaking and permissionless financial instrument to a part of mainstream asset allocation decisions at institutions the world over. Against this backdrop it is interesting to take a look a rise of the NFT ecosystem, some of the implications of this iteration for wider adoption, and what organizations might want to keep in mind as these (and other iterations) enter the marketplace.

What has, to date, remained an under-the-radar aspect of the NFT movement and various use cases remains the accounting for these unique cryptoassets. That set aside the moment, the continuing introduction and refinement of new and innovative use cases connected to blockchain and cryptoassets should be seen as an encouraging sign for advocates and proponents of further adoption. Specifically, and mirroring the continuing integration of crypto as a diversification tool, further diversification of cryptoassets and applications should be seen as a welcome change.