Eye on AI - March 18th, 2022
Welcome to Aigora's "Eye on AI" series, where we round up exciting news at the intersection of consumer science and artificial intelligence!
With all the recent news surrounding NFTs, we decided to keep things simple this week by breaking down how NFTs work (it’s now how you think) then looking into all their potential use cases to date.
NFTs Don’t Work The Way You Think They Do
To begin, let’s look into the WIRED article “NFTs Don’t Work the Way You Might Think They Do,” which addresses a number of common misconceptions about NFT uses and functionality. Among them, the most common misconception seems to be that NFTs denote ownership of a piece of art. Spoiler alert: they don’t.
“NFTs can only convey ownership (or rather, possession, but we’ll come back to that) of the token itself,” writes WIRED contributor Eric Ravenscraft. “As software engineer Molly White explained to WIRED, ‘With NFTs, the thing you've bought does not tend to give you ownership of the underlying item (image, game asset, etc.) in any way you would normally transfer physical or digital art.’”
In other words, NFTs do not typically denote copyright ownership at all. Instead, they contain links to digital assets hosted elsewhere. So when someone buys an NFT, what they’re really purchasing isn’t necessarily the item itself, but the etching of their wallet address into a database that points to some digital asset; think of NFTs as you would a secret key, the holder of which has the ability to access its corresponding digital asset.
While NFTs are, so far as we know, hack-proof, they are not steal proof. NFT tokens denote possession, not ownership. If someone were to gain possession of a token you own, whether legally or illegally, there would be no way to distinguish who actually owns the token, and who rightfully should gain access to the digital asset in question.
“If someone steals your bicycle, it’s generally understood that the bike is still yours,” continues White. “With an NFT, the ‘owner’ is whoever has the token in their wallet. So, if someone’s ape NFT gets stolen via a phishing scam, the blockchain treats the thief as the new owner.”
Marketplaces have already acted to freeze sales due to stolen NFTs, which seems to undermine the point of blockchain technology in general, which is to provide a platformless marketplace where users are given control over how assets are exchanged. To compound the issue further, each NFT platform has its own rules and regulations. Just because you mint an NFT on one platform doesn’t mean someone can’t mint that same NFT on another.
“NFT marketplace Rarible… offers the choice of three different blockchains when minting a token, but what happens when two different people mint the same digital item on different blockchains?” continues White. “An artist could decide to mint their art on multiple blockchains and thus have an ‘original’ on each, but deciding which of these blockchains is the ‘authoritative’ or ‘real’ one is still a social and platform problem.”
That’s all to say there are still a number of questions surrounding NFT usage, functionality, and governance. It's the NFT wild west at the moment. Given the issues we’ve already seen with social media trust issues and web2’s platform economy, my hope is that NFTs will continue to move more toward the ownership economy as web3 emerges and platform control decreases.
Understanding NFT Use Cases
Moving on from NFT misnomers, let’s look at what NFTs actually can do, which is quite a lot. According to block.co’s article “The Ultimate List of NFT (Non-Fungible Token) Real Use Cases,” the most complete NFT use case list I’ve seen to date, there are roughly eighteen general NFT use cases and growing. Gaming, art ownership, event ticketing, and other common uses are all listed alongside the less obvious ones, things like real estate ownership, trade finance, and even supply logistics.
“The transparency of the supply chain through the use of blockchain benefits end consumers, by giving them the ability to know that the products are safe, fresh, free of GMOs and unwanted additives,” writes block.co contributor George Agathangelou. “For example, in order to ensure that the purchased tuna was not poached, British startup Provenance began to use blockchain in order to protect itself from such accusations. The company uses blockchain technology to track the movement of tuna, controlling its capture and delivery.”
NFTs may solve a supply chain logistics issue that has no other obvious solution. Think of how difficult it has been in the past to verify with any degree of certainty that product materials were created in sustainable, conservationally-minded ways. An NFT could denote which diamonds came from non-conflict areas, or which animal products were not the direct result of poaching.
Another less obvious use case is using NFTs to reward brand loyalty. This use has crossover with things like political causes, early brand adoption, and charitable donations because in each case, the NFT is all about status.
“NFTs are evidence of your cultural bona fides and take Proof of Passion to the next level,” continues Agathangelou. “They provide the infrastructure, tools and economic incentives to turn every art form, media consumption and cultural behavior into a more transparent and verifiable status game.”
Donate to a political or environmental cause? Here’s a graphic to prove it. Early brand adopter? People know because of that unique NFT you’re flashing. Against the war in Ukraine? There’s your proof –– not words or a social media post, but action in the form of a unique NFT you purchased with your donation. The value of NFTs transcends art. It rewards action, much in the same way metals do on an army officer’s dress uniform. NFT users can and should display their tokens proudly.
For those looking for more ideas on how NFTs can be utilized, I highly recommend giving the complete list a look via the link above. Other fascinating use cases to check out: identity management, governance, restaurant chains, and much more.
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