Digital ownership of physical assets
Physical assets linked to NFTs are coming
Within the current landscape of Non-Fungible Tokens (NFT) a very obvious next step will start to emerge in the market; ownership representation of different physical items will move onto the blockchain and be linked to an NFT.
Incentive
There is a clear incentive for companies to push towards NFTs as it will create an additional revenue stream. Every transfer will result in a % of the sale going to the issuer of the NFT.
Trust and when a Blockchain isn’t required
It is important to recognise when it will be appropriate to migrate the asset onto a blockchain, or if it would be better served with a database.
NFTs solve the issues for trust, verifiability and immutability.
For centralised services, e.g. land title, car registration etc, where the government or another central authority that wants to maintain control, NFTs will likely not be the answer. (You may end up having some sort of Non-Fungible Digital Certificate for these services, but this is different to an NFT as NFTs sit on a blockchain. More details around this for another day).
Let’s step through some low hanging fruit examples for NFTs:
Diamonds
For anyone who has purchased a diamond will know two things;
Diamonds are not interchangeable, they are unique and vary in many ways (cut, clarity, colour and carat weighting etc);
You receive a certification/report document which includes verification of the originality of your diamond, the characteristics and some provenance data. If you lose it, it is gone and cannot be replaced. It also proves the diamond you have is that one and has a matching code.
The most obvious move is for this certificate to become digital NFT, and just like the paper report, your dimond will have a matching number to the NFT and include all the necessary data.
Ticketing for events
Ticketing companies around the world have issues with selling tickets on the second hand market because they do not profit from it and it is ripe with fraud. Enter NFTs where the following is now possible:
the issuer of the tickets can now make a profit and take a large % on the resale of the tickets, creating an additional revenue line for them and the performers;
the person purchasing the ticket is ensured that it is a legitimate ticket and they are the holder of the ticket. No more double selling or fake tickets being resold.
Artwork - physical
Different from digital art, physical art ownership can also be recognised through an NFT. It simplifies who owns the original and transfers with the physical art and provides artists with ongoing revenue from producing the art.
There are some problems to be solved here as far as trusting the artwork matches the NFT. However there are multiple companies looking into this and I see this being solved in the near future.
Rare and high end wine
If anyone who has watched Sour Grapes on Netflix you will be able to connect the dots here. In short, Sour Grapes is a documentary about the fine and rare wine auction market and the counterfeiting that goes on in the space. Millions of dollars of fraudulent wine go through the top auction houses each year.
It is a very clear fit for these to have a matching number and to transfer the NFT along with the wine.
Conclusion
There is a lot of capital flowing into this area right now, it will not be long before we start seeing NFTs become part of our everyday life and are moved around similar to how we move money around. Keep an eye out for the companies who will be providing the on-ramping and NFT generation services as these could grow exponentially.
Benno out
This newsletter is for educational purposes only and should not be considered or relied upon for investment advice. These opinions are my own and not shared by anyone else.