NFT, Would It Be Used for Anything Other than Collecting?

The number of NFT users increased nearly five times from 500,000 in June of last year to 2,460,000 in June of this year, even though the price of virtual assets plummeted and the NFT market shrunk recently¹⁾, and approximately 27 billion dollars (35 trillion won) were invested in businesses based on cryptocurrencies or blockchain in 2021.²⁾ I thought the cryptocurrencies that started from the blockchain shook the market big time in 2018 then disappeared, so why the sudden attentions on blockchain-related technology companies?

This must be because the development of NFTs, DeFi, DAO, DAPP, metaverse, and Web3, which all use blockchain technology, leads to various uses for blockchain. Recent blockchain technology is used for logistics, medical treatments, finance, consumer packaged goods (CPG), HR, etc., unlike cryptocurrencies five years ago, which were all about getting rich quickly with no clear usage except for mere investment. More specific use cases brought attention to blockchain again, among which NFTs are the most rapidly growing sector.³⁾

An NFT is a non-fungible token that can’t be copied, so you might see a lot of news articles saying that NFT artwork was sold for hundreds of thousands of dollars. If you thought NFTs were sort of a collection hobby for rich people, this article might show you how useful NFTs can be.

If you think you know what NFTs are, but you're not quite able to answer related questions, you don’t know what they are yet. In particular, NFTs have caused many misunderstandings. Let’s understand NFTs by resolving those misunderstandings one by one.

Misunderstandings about NFTs

1. Does having a non-fungible token (NFT) mean owning the copyright of the one and only genuine artwork in the world?
NFTs are one and only in the world, but you can’t say you own the genuine artwork. Let me explain this with example prints by Andy Warhol. The prints, like Andy Warhol's silkscreens, usually have a specific number made, such as 100 or 300 prints, with edition marks, such as 1/100 or 2/100. The original woodblock is normally destroyed, but even if you don’t destroy it and make a 101th edition, it would not be regarded as an original.

Metaphorically, NFTs use the original copy to make a specific number of prints with edition numbers. The copyright belongs to the original copy, whereas the ownership belongs to the 100 of them, like the prints. As you can see, NFT is not the copyright of an artwork, but the digital ownership to it. Sometimes, this causes a person who does not have the copyright to issue NFTs or works whose protection period is over to be made into NFTs and arouses criticism.

2. The 100 NFTs are all the same, does that means they’re fungible?
NFT is a digital registration certificate stored in the blockchain. Just like the registration certificate that indicates the address of the goods, name and resident registration number of the owner, and the gross area, NFTs also have the internet address where the original is stored, the identification information of the owner, and smart contract information. Bitcoin allows one-on-one exchanges with another person’s bitcoins, but NFTs act like a registration certificate and can’t be exchanged.

Image source: Professor Seungju Kim’s YouTube lecture

100 NFTs can be issued in the same appearance, but NFTs in artwork form are differentiated as “generative arts” from time to time. Generative art, also called the “coding art” is an art genre that predates NFTs, and it is a form of digital art generated randomly based on a computer algorithm.⁴⁾ Each piece of image is drawn and combined by coding to make a mass of new images.

Campbell’s Soup Cans by Andy Warhol (image source: MoMA)

Back to the example of prints by Andy Warhol. The silkscreen prints of Andy Warhol might seem repetitive, but each of them is different. This is the philosophy of Andy Warhol. “Repeating doesn’t mean they're the same. You can do the same work, live in the same type of housing, and drive the same car, but all individuals are different.”⁵⁾

Image source: Jaybyg’s blog for all sorts of information, such as economy, investment techniques, and issues

Cryptopunks or Bored Ape Yacht Club (BAYC), NFTs that caused a huge sensation in 2020, were works in the form of a profile pictures generated by combining a few elements, such as background colors, hair styles, caps, or costumes to make each of them different. Cryptopunks made 10,000 pieces and AirDropped 9,000 of them for free in 2017 as an experiment, and this is considered the first NFT. The Cryptopunk in an alien shape with a mask on was sold for 12 million dollars (14 billion won) in 2021.⁶⁾

3. Are NFTs the same type of coin as Bitcoin or Ethereum?
No. An NFT is a token. Then, you should know what is different between a coin and a token, right?

Image source: Arch Daily, MoMA

It’s a coin if it has its own network and a token if it doesn’t. Let’s compare with the “gallery” and “artwork.” There is the Louvre Museum, where paintings and artifacts of the past are exhibited, and the Museum of Modern Arts (MoMA) in New York, which deals with modern art. Galleries use their own networks to select works that fit their concepts and plan exhibitions. You can say the gallery is a coin, whereas the artwork is a token.⁷⁾ The coin has a node (network) that records transaction ledgers in the blockchain and registers NFT tokens and ownership changes. You can’t invest in NFT coins just because NFTs are hot. You can invest in NFT artwork, though.

4. Can I use the avatar NFT and Gucci outfit NFT I purchased in Zepeto or Roblox?

Image source: The Metaverse Standards Forum

There is a concept of ownership in the metaverse, so it comes with the game items, properties, avatars, fashion items, etc., but they’re not compatible among the metaverse, so it’s burdensome and inconvenient, but you need to invest in Zepeto, Roblox, Decentraland, and Epic Games respectively. The International Metaverse Standards Forum was started to resolve this⁸⁾, but it doesn’t include Apple, Roblox, Tencent, and Niantic (Pokemon GO), which aroused suspicions over its usefulness.

Interoperable NFTs are expected to suggest solutions to this situation. Let’s take an example of a game item. It requires huge resources to let users exchange game items among other games since the game companies need to agree and set up technological standards. Moreover, the game companies have controls over the system, which means if the game companies go bankrupt or change their policies, the value of related items will decrease. However, if you make NFTs out of game items, you don’t need to care about the game companies to make item transactions, and the exchange value goes up. You can’t use avatar NFTs in the metaverse, yet, but the platforms are issuing avatar NFTs and making attempts to graft NFT onto the metaverse. For example, Genis, a start-up invested by the former CEO at Disney, Bob Iger is getting transaction fees for providing a platform where users can make avatars and items worn and used by the avatars into NFTs.⁹⁾

5. Even if you get a free NFT via AirDrop, you still need to pay a public charge and tax called the gas fee, is that correct?
Some of you may have gotten lost with the question itself. Let me clarify some terms first. “AirDrop” in the NFT industry is not the wireless file share system of Apple. It’s an event that gives out certain NFTs for free. It’s mostly done for promotion and marketing purposes, and some actions, such as app installations or sharing on social media may be required.

• Cheolsoo -> 1ETH -> Yeonghui

• Pay gas fees - Miner - Store information in blockchain and pay 1ETH

Gas fee payment process for an individual to individual transaction (Image source: Woman & Economy News)

A “gas fee” is commission for transactions that occur when registering or selling NFTs. Blockchain basically requires cryptological operation of making the content of the contract, such as “A transfers 1 coin to B” into data, and registering the data in the blockchain instead of selling or transferring physically. Miners do these works on behalf of you for commission. NFT registration is to record data that says the digital content you made are yours in the blockchain. This process is called minting.¹⁰⁾ Even if you get an NFT free of charge, you need minting to clarify that you’re the owner of the NFT, which requires a gas fee.

Last December, Pepsi threw an event of AirDropping NFTs with a gas fee of 0.1 ETH, which was about 470,000 won. Sales became available right after the NFT was sold at about 1 ETH (4.7 million won), so if you sold it then, you would have had 10 times the profit with an investment of 470,000 won for a gas fee. Of course, it only applies when paying the gas fee in Ethereum (95% of NFTs are Ethereum-based). Occasionally, the gas fee is free, but in this case, there might be malicious code planted to take your wallet address and password, so you need to be very careful.

6. How do you set the conditions to get NFTs and how does the NFTs know if those conditions are met?
Previously, we learned that the AirDrop is conducted as a marketing event and requires actions, such as app installation, sharing on social media, etc. This is possible thanks to the smart contract feature of 2nd generation blockchain, represented by Ethereum. It’s a system that records the contract conditions in blockchain and concludes the contract automatically once the conditions are met. You can describe the conditions either by simply using the features of the marketplace, or by directly coding in a programming language, such as Solidity (original Ethereum programming language).¹¹⁾

Man

• Pay cryptocurrencies

Smart contract based on blockchain (checks conditions and fulfillment and proceeds with approval and contract without a broker)

• Provide products or services

Woman

Image source : Upbit Investor Protection Center

The most representative condition would be “to pay certain proportion of the transaction amount as a royalty” to the original artist for every NFT transaction. You can also make conditions like “if there is a car accident,” or “if Heung-min Son becomes the top scorer.” The problem is how NFTs would perceive fulfillment of the conditions and execute automatically. This is called the “Oracle problem.” In reality, if there’s a car accident, the policy holders and the insurance companies can discuss when and where the accident occurred, who is to be held responsible for, or who the victim is and deal with the accident, but in blockchain, there is no center with authority and all nodes discuss equally, so there are problems in deciding who has right to enter the data in the blockchain, and who guarantees the reliability of that data. Various options, such as voting and mediator, are offered to solve these problems, but they can’t resolve all the problems, so the good crypto economy should be built for each case.¹²⁾

7. Why do you pay for such expensive, intangible, useless NFT digital pieces?
This could be a question for the use of NFTs. NFTs are not just for collecting digital artwork. Here are various use cases, you can see for yourself.

1) Collections, such as NFT arts, cards, etc.: People buy artwork, Pokemon cards, or stamps as investments, despite the fact that they have no use in daily life, right? Actually, “Everydays: The first 5000 days” of Beeple were sold at approximately 70 million dollars (about 83 billion won) to a bidder.¹³⁾

Image source : Daily Economy

2) Profile picture (PFP) : Using NFTs as their profile pictures on SNS. If you register your NFT as a profile on twitter, the rim turns into a hexagon from a circle, and turns back to a circle when you sell the NFT.¹⁴⁾ It fulfills the needs to show off using expensive NFTs as profiles, just like buying luxurious items in real life.

3) Ticket (pass) : It includes a ticket (pass) to a project, community, or performance. The Moonbirds is an NFT ticket of Proof which is called the community of big NFT investors. The community is used to show off richness and secretly share high-quality information. Also, Coachella, the biggest music festival in America issued “lifetime passes” in NFT form, which can be used as a community pass to watch the Coachella performance and talk about it for your entire life.¹⁵⁾

4) Linked with physical things, phygital (physical + digital) : Being active on NFTs, Nike took over an NFT goods company called RTFKT (pronounced as “artifact”). A pair of sneakers bought at Nike comes with a digital sneakers NFT. It can be used to verify if the sneakers are genuine when reselling them. Louis Vuitton and Prada are going to apply NFTs in their authentication systems.¹⁶⁾

Image source : RTFKT Twitter

Artist Guen-sang Yoo digitalized the physical artwork Renaissance NFT into many NFTs and sold them. He also designed it to have NFT owners return their NFTs for a share of the profit if the physical artwork is sold at an auction.¹⁷⁾ Damien Hirst made his work "The Currency" into NFTs, let the owners choose between the NFT or the physical work after a certain period of time, and had the unchosen option destroyed.¹⁸⁾

5) Rights : NFTs that are used as rights, such as copyrights, ownerships, or intellectual property rights. Hip-hop artist Nas released a new single Rare on NFT music platform Royal. He split 50% of the royalties into 1,110 NFTs and earned 369,000 dollars out of them.¹⁹⁾ Profits from streaming Rare are allocated to NFT buyers. There is also Real Estate Investment Trusts (REIT), which splits properties worth millions of dollars into NFTs.

6) In-game NFT : It is used for in-game items, characters, lands, etc. You can buy items like avatars, costumes, cars, or properties in P2E (play to earn, issuing NFTs of acquired items in game and making revenue via transactions in real life) games or metaverse in NFTs. It can bring bigger value when it becomes compatible with other games or metaverse.

7) Co-author rewards : In Web 2.0 era, authoring content is not for a few people, anyone can be an author in this era. But the price for authoring content went to only a few big tech platform companies as advertising fees. In a Web3 era where builders and users own all data and content together by managing them in P2P distributed networks without certain platform builders, users who made content or contributed in authoring content will be rewarded with NFT tokens. Kakao Universe announced that they would build Kakao P2C (play to create) ecosystem where users can create and communicate while making money.²⁰⁾ SM and YG entertainment are planning to have fans make re-creatable content themselves out of games, dances, or goods, while also making them into NFTs for profit.²¹⁾

Image Source : SM Brand Marketing

Of course, there shouldn’t have to be NFTs to implement these things. Then, why do they make applications with NFTs? Because of the following three characteristics.

First, digital content can be copied without limits, are they worth it as assets? → NFTs are non-fungible and can’t be copied
As mentioned above, NFT may look the same, but each of them has individual uniqueness. The 2/100 edition of Andy Warhol's Campbell’s Soup Cans I have is different from the 85/100 edition my friend has. I can’t change my NFT with the one my friend has, either. That is, you can “own” “intrinsic assets” that is one and only in the digital world like metaverse as well.

Second, you can’t use PFP (profile picture) you bought on Meta (former Facebook) on Instagram → Interoperability of NFTs can resolve the problem
As mentioned above, to make Meta, Instagram, and other numerous platforms interoperable, each platform needs to discuss, make standards, and supplement systems in accordance with the standards. Moreover, you can’t punish them for canceling the agreement. NFTs are mostly issued with a standard technology called ERC-721 and processed via P2P way without a central organization, so it is independent of interests among platforms. This interoperability can lead to various use cases including content distribution, decentralized finance, and decentralized identity.

Third, how do I trust that I get rewards after installing an app? → Using smart contract feature of NFT ensures automatic implementation of the contract upon fulfillment of the conditions
Say a small, never-heard-of game development company throws a promotional app installation event for marketing. Previously, such company would request famous promotional marketing platforms like Google, who would add some profit, implement the promotion, and give rewards to people who installed the app. Users have faith in the promotional marketing platforms like Google, not the game development company, so they install the app and perform the test. In return, part of the rewards provided by the game development company were taken by the platform companies for their profits. However, if you use the smart contract feature of NFTs, you can program the conditions and the event that starts once the conditions are met, so that the event would be automatically executed, without having to share profits with the platform companies. Given that you resolve the Oracle problems of how to verify app installation and test performance and notifying the blockchain program of the verification. In such case, it can check if the app is installed, time the game is played, and the amount of feedback to perceive fulfillment of the conditions. Rewards are provided automatically upon fulfillment of the conditions.

If a game development company makes game avatars or items with such conditions programmed into NFTs and AirDrops (distributes for free), users who get the NFTs would work hard on game test, feedback, and promotion to increase the value of the NFTs for investment purposes, which could turn out to be killing two birds with one stone.

Also, we talked about use cases where the royalties are paid to the artist for every NFT transaction or a commission is paid to the avatar-making platforms. There are tens of NFT exchanges, how would the transaction be perceived and commissions be paid? Smart contract feature can be useful in this case as well.

These characteristics introduce NFTs into overall distribution, manufacture, and service industries.

Samsung Electronics TV “Smart Hub” (Image source: Samsung Electronics)

Samsung Electronics has started a service where you can watch NFT artworks or make transactions on TV, ²²⁾ while Hyundai Motor Company issued limited 10,000 Shooting Star NFTs that will be used in its own metaverse, “Mobility Universe”, to use NFTs as a means to a fandom.²³⁾ SK is enhancing ChainZ service where NFTs are made and transacted with simple controls,²⁴⁾ whereas Lotte Data Communication established the NFT Lab. Organization last April and is currently developing an NFT transaction platform with Caliverse, a metaverse company it took over in July, 2021.²⁵⁾

Melon, the music streaming platform of Kakao Entertainment, recently made a “Top 100” music recommendation certificate into an NFT,²⁶⁾ while issuing limited Melon Music Award (MMA) NFTs, which can be exchanged with the company’s year-end award tickets.²⁷⁾ Security company Raon White Hat is collaborating with Chunag-Ang University to make NFT degrees for 8,000 undergraduates.²⁸⁾ Shinsegae International came out with wearable NFTs for your profile image²⁹⁾, and Hyundai Department Store made an NFT wallet and gives out gifts or discount coupons.³⁰⁾

A movie about virtual reality directed by Steven Spielberg, Ready Player One

There is no success story of using NFT that could be called destructive innovation, yet. Partially because system development using blockchain is not easy, and on top of that, there is the Oracle problem of recording the data of reality in the blockchain, but mostly I think it’s because we’re not digitized enough. At least the life in metaverse should as important as our real lives to digitize our lives. Longer time spent in metaverse means increased values of PFP, avatar, avatar costumes, enjoyable performance, etc., and the increased values of such means more rewards for copyrights or co-authoring, which would attract participants.

Nevertheless, many projects are being tried out, creating uses for NFTs. I think NFTs are a key to Web3. In the existing Web 2.0, more people participated and contributed to sharing information and communication, but on the other hand, centralization solidified winner-takes-all platforms. Web3 is a movement to reduce the negative effects of monopolies and enlarge pies for the participants by dispersing authorities and distributing them to participants. If a project requires participation of customers or employees, why don’t you actively review the NFTs?



References
1) NFTgo, How are Blue-Chip NFTs Performing in the Bear Market?, Jun 16, 2022
2) The Coindesk, Global VC investment in Cryptocurrency and Blockchain, Feb 1, 2022
3) IOOJOO, The Hot Potato in Silicon Valley, Web3, Apr 29, 2022
4) parkj, What is generative art?_1, Oct 14, 2021
5) Art or Aesthetic, Why did Andy Warhol Use Silkscreen to Paint?, Mar 21, 2021
6) ZdNet, How Did Cryptopunks Become an NFT Hit, Sep 21, 2021
7) All That Art, Is NFT a Token, or a Coin?, Jul 12, 2021
8) Aju News, Global Companies United for Metaverse Standards... Come and Go to Multiple Metaverses with One Avatar, Jun 24, 2022
9) Yonhap News Agency, Former Disney CEO, Bob Iger, Invested in the Metaverse Company, Genies, Mar 15, 2022
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12) HashNet, Oracle Problem
13) Daily Economy, An NFT Work on Instagram Sold at 70 Million Dollars to a Bidder “It’s on fire,” Feb 26, 2022
14) ZdNet, Twitter Profile Is now the "Real NFT," Jun 29, 2022
15) Bloter.net, The Biggest “Music Festival” in America, Coachella, Sells “NFT Lifetime Pass,” Feb 2, 2022
16) Hankyoreh, Unwearable 5-million-won Nike NFT sneakers are hot, why?, May 18, 2022
17) Coin Readers, Renaissance NFT, President Yoo, Geun-sang Starts PFP NFT Minting on Febrary 3, Jan 27, 2022
18) Korea Economic Daily, NFT Transactions for "Blockchain Artwork," Damien Hirst Is in Too, Mar 16, 2021
19) WikiDocs, Basic NFT Guide for 5 Minutes a Day
20) Newsis, Will There Be Kakao P2C... Making money while doing “Kakao Talk”?
21) Daily Economy Star Today, SM Brand Marketing, Concluded MOU with Binance, the World’s Largest Virtual Asset Exchange, Feb 23, 2022
22) Financial News, Samsung Electronics Releasing the World’s First TV with NFT Transaction Features, Jan 4, 2022
23) Hyundai Motor Company Newsroom, Hyundai Motor Company Starts Sales of the Shooting Star NFT, Whose Vision Is Metamobility, May 3, 2022
24) IT Daily, SK (Inc.) C&C Opens “ChainZ for NFT Platform,” May 3, 2022
25) IT Chosun, Lotte Data Communication Growing the Metaverse, Changes the Name of Its Subsidiary to Caliverse, Oct 28, 2021
26) Korea Economic Daily, Melon, Keep “All the TOP 100 in the World” as an NFT, Jun 21, 2022
27) TechM, Kakao Entertainment Empowers NFT, Issues Melon Music Award ticket in NFTs, Jun 21, 2022
28) CoinDesk Korea, Raon White Hat - Chung Ang University Issue NFT Degrees, Jun 20, 2022
29) Shinsegae Group Newsroom, Shinsegae International Collaborates with MetaKongz and Releases 10 Man on the Boon Outfit NFTs, Jun 20, 2022
30) Chosunbiz, Hyundai Department Store Introduces NFT Electronic Wallet for the First Time in the Industry, May 31, 2022



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