What are NFTs used for?

Here’s more information of some of the better developed use-cases and visions for NFTs on Ethereum.

• Digital content
• Gaming items
• Domain names
• Physical items
• Investments and collateral

Maximising earnings for creators

The biggest use of NFTs today is in the digital content realm. That’s because that industry today is broken. Content creators see their profits and earning potential swallowed by platforms.

An artist publishing work on a social network makes money for the platform who sell ads to the artists followers. They get exposure in return, but exposure doesn’t pay the bills.

NFTs power a new creator economy where creators don’t hand ownership of their content over to the platforms they use to publicise it. Ownership is baked into the content itself.

When they sell their content, funds go directly to them. If the new owner then sells the NFT, the original creator can even automatically receive royalties. This is guaranteed every time it’s sold because the creator’s address is part of the token’s metadata – metadata which can’t be modified.

The copy/paste problem

Naysayers often bring up the fact that NFTs “are dumb” usually alongside a picture of them screenshotting an NFT artwork. “Look, now I have that image for free!” they say smugly.

Well, yes. But does googling an image of Picasso’s Guernica make you the proud new owner of a multi-million dollar piece of art history?

Ultimately owning the real thing is as valuable as the market makes it. The more a piece of content is screen-grabbed, shared, and generally used the more value it gains.

Owning the verifiably real thing will always have more value than not.

Boosting gaming potential

NFTs have seen a lot of interest from game developers. NFTs can provide records of ownership for in-game items, fuel in-game economies, and bring a host of benefits to the players.

In a lot of regular games you can buy items for you to use in your game. But if that item was an NFT you could recoup your money by selling it on when you’re done with the game. You might even make a profit if that item becomes more desirable.

For game developers – as issuers of the NFT – they could earn a royalty every time an item is re-sold in the open marketplace. This creates a more mutually-beneficial business model where both players and developers earn from the secondary NFT market.

This also means that if a game is no longer maintained by the developers, the items you’ve collected remain yours.

Ultimately the items you grind for in-game can outlive the games themselves. Even if a game is no longer maintained, your items will always be under your control. This means in-game items become digital memorabilia and have a value outside of the game.

Decentraland, a virtual reality game, even lets you buy NFTs representing virtual parcels of land that you can use as you see fit.

Making Ethereum addresses more memorable

The Ethereum Name Service uses NFTs to provide your Ethereum address with an easier-to-remember name like mywallet.eth. This means you could ask someone to send you ETH via mywallet.eth rather than 0x123456789……

This works in a similar way to a website domain name which makes an IP address more memorable. And like domains, ENS names have value, usually based on length and relevance. With ENS you don’t need a domain registry to facilitate the transfer of ownership. Instead, you can trade your ENS names on an NFT marketplace.

Your ENS name can:

• Receive cryptocurrency and other NFTs.
• Point to a decentralized website, like ethereum.eth. More on decentralizing your website
• Store any arbitrary information, including profile information like email addresses and Twitter handles.

Physical items

The tokenisation of physical items isn’t yet as developed as their digital counterparts. But there are plenty of projects exploring the tokenisation of real estate, one-of-a-kind fashion items, and more.

As NFTs are essentially deeds, one day you could buy a car or home using ETH and receive the deed as an NFT in return (in the same transaction). As things become increasingly high-tech, it’s not hard to imagine a world where your Ethereum wallet becomes the key to your car or home – your door being unlocked by the cryptographic proof of ownership.

With valuable assets like cars and property representable on Ethereum, you can use NFTs as collateral in decentralized loans. This is particularly helpful if you’re not cash or crypto-rich but own physical items of value.

NFTs and DeFi

The NFT world and the decentralized finance (DeFi) world are starting to work together in a number of interesting ways.

NFT-backed loans

There are DeFi applications that let you borrow money by using collateral. For example you collateralise 10 ETH so you can borrow 5000 DAI (a stablecoin). This guarantees that the lender gets paid back – if the borrower doesn’t pay back the DAI, the collateral is sent to the lender. However not everyone has enough crypto to use as collateral.

Projects are beginning to explore using NFTs as collateral instead. Imagine you bought a rare CryptoPunk NFT back in the day – they can fetch $1000s at today’s prices. By putting this up as collateral, you can access a loan with the same rule set. If you don’t pay back the DAI, your CryptoPunk will be sent to the lender as collateral. This could eventually work with anything you tokenise as an NFT.

And this isn’t hard on Ethereum, because both worlds (NFT and DeFi) share the same infrastructure.

Fractional ownership

NFT creators can also create “shares” for their NFT. This gives investors and fans the opportunity to own a part of an NFT without having to buy the whole thing. This adds even more opportunities for NFT minters and collectors alike.

• Fractionalised NFTs can be traded on DEXs like Uniswap, not just NFT marketplaces. That means more buyers and sellers.
• An NFT’s overall price can be defined by the price of its fractions.
• You have more of an opportunity to own and profit from items you care about. It’s harder to be priced out of owning NFTs.

In theory, this would unlock the possibility to do things like own a piece of a Picasso. You would become a shareholder in a Picasso NFT, meaning you would have a say in things like revenue sharing. It’s very likely that one day soon owning a fraction of an NFT will enter you into a decentralised autonomous organisation (DAO) for managing that asset.

These are Ethereum-powered organisations that allow strangers, like global shareholders of an asset, to coordinate securely without necessarily having to trust the other people. That’s because not a single penny can be spent without group approval.

As we mentioned, this is an emerging space. NFTs, DAOs, fractionalised tokens are all developing at different paces. But all their infrastructure exists and can work together easily because they all speak the same language: Ethereum. So watch this space.