Non-fungible Tokens (NFTs) have become the latest craze thanks to celebrities such as rapper Ja Rule and Twitter founder Jack Dorsey, helping put NFT technology in the spotlight. But the value of NFTs goes beyond the celebrity phenomenon. They are used in several decentralized applications (DApps) in various sectors ranging from digital art to luxury.
There is no limit to innovation around blockchain technology. NFTs are not only fighting with brands against the counterfeit threat, or safeguarding copyrights, they are also evolving to incorporate any complex ownership structure. The ERC-1155 standard used for the EulerBeats project has a huge range of applications in ticketing (e.g., theatre seats), gaming (e.g., in-game weapons) and many more sectors, meaning NFTs could be here to stay.
An NFT is a unique token governed by smart contracts that lives on the blockchain. Smart contracts are designed to automatically execute transactions if certain conditions are met. NFT smart contracts define two major transactions: the “transfer” transaction which handles the transfer of NFT ownership from one owner to the next, and the “approve” transaction that lets the NFT owner approve the ownership transfer initiated by an intermediary. Like any other token, an NFT is transferrable and tradable. However, it is not interchangeable: An NFT has a unique signature that is embedded in its metadata.
Keeping the NFT's metadata size low makes the NFT cheaper to produce or transfer. However, improvements have been considered and developed by several projects since the Cryptokitties craze at the end of 2017, including techniques to compress data and improve transfer fees such as Efficient Balance Packing. While some argue that NFTs are not ready for the mass market given the high transaction fees or the need to own a crypto wallet, tokenized ownership rights could make targeted markets (e.g., the art market) more accessible and economically exploitable by a larger pool of small investors.
Creating an NFT does not require any knowledge of cryptocurrencies, as it’s available to anyone with an internet connection. It takes a few minutes for a creator to
Ethereum is currently the most popular blockchain for NFT issuance, but all major blockchains that support the design and deployment of DApps can also be NFT issuers provided they implement the right standards: for those interested to find out more, refer to the ERC-721 and ERC-1155 standards that need to be supported by a smart contract platform to be an NFT issuer.
Louis Vuitton (LVMH) was an early adopter of the NFT technology. The world’s leading luxury group recognized the benefit of NFTs to trace the ownership and authenticity of its products. LVMH partnered with Microsoft and Consensys to launch the Aura platform on the Ethereum Blockchain two years ago. Bulgari also reportedly joined the platform last year.
LVMH paved the way for more brands to experiment with the advantages of NFTs. The luxury market size is thought to be worth hundreds of billions of U.S. dollars per year, and was continuously growing before COVID-19, but so was the counterfeit market. Although the sales of counterfeit luxury goods are very difficult to estimate, it could be at least in the hundreds of millions of US dollars each year. Luxury brands have been fighting this threat from different angles by securing their IP, enforcing the law against infringement, and working with customs officials. One solution could be NFT technology, which can provide a buyer, in both primary and secondary markets, with a unique untampered certificate of authenticity.
Aside from this, tracing ownership can also revolutionize customer relationship management. A brand can leverage the ownership chain for targeted marketing such as exclusive offers or exclusive event invitations.
The Aura platform is not the only NFT solution out there for brands. Another application called Treum leverages the NFT technology to "provide companies the ability to track the entire lineage of their products." Treum recently launched a project called EulerBeats, a limited edition of music tracks that are generated by a mathematical algorithm. The parameters of the mathematical algorithm needed to create the music track are stored in the NFT metadata. The EulerBeats smart contract manages the original non-fungible track and its fungible “copies.” The original track’s NFT grants its owner royalties rights: She will receive "8% of the print price on each print sold of the original token she owns." The NFT technology used in this case is based on the latest ERC-1155 standard.
