To level the playing field, everyone needs to understand that the plain English definition of NFT is not “a JPEG worth millions” but rather something more generic.
NFT stands for “non-fungible token”, and it just means “a piece of code on the blockchain that represents a unique item“. What that item is is a completely different question – and that’s what we unpack on this page.
“NFT” is a blank canvas. What’s actually interesting is what NFTs are used for. Here’s a list (roughly sorted from more popular to more emerging) of how NFTs are used today.
Art, music and collectibles
This is how you first learned of the word NFT: ownership of a particular piece of visual art, photograph, music track, etc. Artists are constantly on the move to experiment, including new ways to generate the work and whether or not that work stays the same at all. Meanwhile, the wave of interest in this category unlocks a new level of mainstream interest in collecting culturally significant items.
- iDreamers – Enter in some text, and the tool will use AI to generate an image based on that text.
- OG:Crystals – Visual art of coral reef-like crystals that change/grow depending on the wallet that holds it. Any transfer of the NFT will add new growth using information from the new wallet.
- Async Art – An art/music platform with pieces that change. An image might change every hour of the day. A music track could sound different every time it gets played.
- Sound Mint – Generative music paired with visual art.
- Royal – Buy partial ownership (including the rights) of music tracks.
- NBA Top Shot – Officially licensed NFTs of the NBA’s top moments.
Avatars and digital fashion
What’s driving this category: our online representations – pictures of our physical form, digital avatars that we configure, simply online profile pages – are important to us and we care about dressing them up. Younger generations are spending more time online, which makes these representations even more socially valuable.
Though popularized by Gen Z, this trend has been going on since the mid-2000s. You’d be a part of this trend if you’ve ever bought cosmetic items on Maplestory, weapons skins on Valorant or outfits on Fortnite. But games aren’t the stopping point. Customizing your Myspace profile, LinkedIn page or email signature all point in the same direction.
- Generative profile pictures (CryptoPunks, Bored Ape Yacht Club, World of Women, etc.) – A series of traits that compose an avatar, then mashed through a randomizer to produce limited-quantity combinations.
- DressX – Virtual clothing that can be overlayed over your photo, like a digital try-on (demo)
- Genies – 3D avatars with customized clothing and accessories
- Ready Player Me Punks – 3D renditions of CryptoPunks in the Ready Player Me network, which serves as a platform for games/apps to build on when they want to support NFTs.
The exciting “metaverse” opportunity is similar to what Ready Player Me enables. Because any app can know if you have an NFT or not, a world could emerge where every web3 app allows you to use your avatar and its digital clothing, even if they all come from different collections.
Games store characters, inventory, valuable assets, etc. as NFTs.
For a live example, check out the Axie Infinity marketplace. To play, you need Axie NFTs in your wallet. You might buy or earn item NFTs that enhance the behavior of those Axies in gameplay.
Recently, “metaverse land” has become a trendy topic. In case you’re wondering, there’s nothing special about this land. The land itself is a block of property in a game and is only valuable in games that make sense of the NFT. The purchases are either brands looking to engage a new audience via an alternative form of advertising or players looking to make a return, either denominated in dollars or in status.
Web3 and communities go hand-in-hand. One way community builders like to foster a sense of closeness is through issuing badges for certain actions, early membership, etc.
Similar to badges is using NFTs to represent membership itself. This allows membership to be bought and sold and to have a market clearing price. This is a clear deviation from normal club memberships, which can’t be sold (only let expired) and aren’t really “valued” as rigorously.
DAOS like Poolsuite.FM, CityDAO and LinksDAO require you to hold the NFT to gain access. Creators of all types can also use NFTs to reward their loyal fanbase with additional content or access to events.
Communities like Friends With Benefits and Krause Hause don’t use NFTs for membership but rather tokens. It’s all the same idea – to get in, own an NFT or 10 of a certain token. Technically speaking, their memberships are limited but not unique.
Decentralized identity is a tough and complex problem. How do we identify people without using names or emails? How do we verify that they are who they say they are?
NFTs can be part of the solution. For example, pfpid wants to verify your identity and then issue you an NFT that is tied to your wallet address. You could then imagine apps that require you to have such an NFT for access.
Bringing carbon offsets onto the blockchain could help ensure that they aren’t double-counted. This is an important problem as institutions refine their methodology for holding organizations accountable for climate impact.
A last, less visible use case of NFTs comes through DeFi itself.
Positions that have unique configurations can be represented as NFTs. For example, issuing a bond that has a particular maturity date could be an NFT – this is what BarnBridge does.
Speculative use cases
Some use cases have been theorized to be possible with NFTs, but they haven’t emerged in any significant way, largely due to immense legal and regulatory complications, let alone usability compared to existing solutions. We might see them emerge over the medium-to-long term as these factors develop.
- Real estate ownership
- Medical records
- Credentials (degrees, certificates)
- Supply chain / tracking inventory