By Caleb Shack and Jackson Foster
Web3 and blockchain technologies represent some of the most relevant and rapidly evolving spaces for innovation today. Web3 brings mechanisms for decentralization to finance, voting, and digital ownership. Additionally, companies are starting to examine ways of incorporating this technology into their businesses. While there are likely thousands of new and interesting use cases for Web3, we will be exploring one in particular: Non-Fungible Tokens, NFTs for short.
NFTs have drawn a lot of attention in recent months for their new possible value in a more digital-centric future where everything from art to collectables to the items we use and own online will be digitally represented by NFTs. In this article, we will explore what NFTs are and the networks they exist on. We will also explore how NFTs might be most useful for business, and, at a high level, how to get started incorporating NFTs into your business in ways that can bring value to stakeholders with very different relationships to the business.
What Are NFTs?
An NFT is a digital file stored on a blockchain network that is linked to and owned by an individual user who can sell or transfer file ownership to another user. Decentralized and open source blockchain networks like Ethereum act as a public database that everyone has access to and that can only be changed by executing transactions on the network. This means that you have transparent, verifiable ownership over your NFTs.
NFTs can come in many forms. The most notable are one-of-ones, semi-fungibles, and collections.
One-of-Ones give ownership of a single file that has only one owned copy of that file, such as a piece of digital art or an mp3 file. This is like the Mona Lisa; there is only one true Mona Lisa that was painted by Da Vinci.
Semi-fungibles are like one-of-ones that can be fractionalized into a distinct number of tokens that represent or link to the same file. This is similar to how some artists will make multiple copies of their physical works, like a photographer selling several copies of the same printed photograph.
Collections are images that are generated using a set number of variable traits and assigning probabilities to each of those traits. Then, a one-of-one NFT is randomly created based on those traits at the time of purchase. Computer-generated collections are like a build-a-bear, where individual components are similar across individual units and can be assembled to make a whole. For NFTs, some of these components are rarer than others.
At the moment, NFT technology is still young and the most notable use case is to attribute ownership over digital art. However, the future has a lot in store for NFTs. We recommend checking out opensea.io to browse some NFTs for yourself!
Know Your Network
While Ethereum has been in the headlines for NFTs lately, it is not the only blockchain network that supports this type of technology. Other networks differentiate themselves by offering solutions to some of Ethereum’s biggest problems -- notably the gas fees.
Gas fees are the monetary cost of running transactions on a network, and Ethereum’s gas fees are off the charts. If you have interacted on the network before, you wouldn’t be shocked to see that it may cost $200 to buy an NFT on top of its list price. This is due to high traffic on the network, low levels of scalability (only around 14 transactions/second), and an energy-intensive consensus mechanism.
The other networks mentioned fix this by offering solutions to scalability. However, there is an infamous trilemma for blockchain architecture that says it is difficult to achieve decentralization, scalability, and security on the same network. Ethereum focuses on decentralization and security but struggles with scaling. Solana, on the other hand, focuses on security and scalability but struggles with decentralization. This article will not go into detail about network tradeoffs, but be sure to conduct some due diligence on this topic before picking your network!
How NFTs play into Business
By making Web3 easier to use via contemporary payment systems to hold NFTs and web-accessible interfaces to interact with them, more users will participate in these networks. As diverse Individuals with different preferences think about what digital ownership really means, people will discover new purposes for NFTs. We believe they will eventually become stamps of interest, ownership, empowerment, and personality for people online. For example, a creator-economy business like YouTube could reward its users with NFTs that mark their contribution to the application. NFT technology could also be an avenue for creators to own their work with more transparency and certainty after they publish it on these platforms. This would make it so creators would never lose certain rights to their creations (e.g. collecting a royalty on each sale).
Blockchain will make public the status and history of owned items and users in a radically transparent way. Therefore, because NFT ownership is verifiable, NFTs can allow for exclusive online or real life privileges, acting as a digital key for their account instead of storing login information on centralized servers.
For businesses specifically, NFTs have several stakeholder-specific use-cases that our team has been excited about:
Investors and Partners
For investors, NFTs offer new ways to demonstrate their early commitments to companies by receiving an NFT that timestamps their investment. This way, one can verifiably see that an investor made their play at a specific time, creating a decentralized resume of investments and showing which investors truly make the best bets the earliest. While investors typically get access to all swag and parties anyway, entrepreneurs may find creative ways to make sure investors get VIP treatment in all extracurricular/social touchpoints with their NFT as a digital key.
- Public Demonstration of Early Commitment
- Decentralized Investment Resume
- Enhanced artistic experience to showing off early investments to LPs
- VIP treatment for parties, giveaways, digital events, etc.
NFTs can give content ownership to creators by minting their digital content on a blockchain. Centralized organizations such as YouTube and Facebook have ownership rights over any content posted on their servers. NFT technology allows for creators to have ownership over their content no matter what UI a company might choose to display it on.
NFTs can also be used as rewards for contributing to a platform. For example, our team at Edily is planning an NFT tier system. If creators fulfill a certain criterion, they will receive a matching NFT which will give the creator access to rewards that may include token airdrops, access to our Discord channels, live events, and other exclusive online content made just for Edily’s Creator Community! While we’re exploring use cases, as an education-focused company, tokens could be used to vote for our curriculum structure or put more weight behind a feature request. These governance-type actions will be crucial points of building a better and more creator-friendly platform.
- Rewards for contributing to the App
- Access to airdrops, Discord channels, live events, and swag
- Exclusive online content for the creator community
- Ability to affect change on the platform through governance tokens
Users can receive NFTs as badges for taking certain actions with respect to a business. On Edily specifically, we are building the ability for learners to receive badges in the form of NFTs once they complete courses. These badges act as credentials showing what knowledge or mastery these students have on our platform, and could transfer progress to other platforms. Badges or tokens could also be the underpinnings of a Learn-to-Earn model, where earning points could be spent on digital customizations (avatar outfits, journal art, etc.) or potentially lead to cash prizes for meeting certain milestones.
- NFTs tied to actions or accomplishments, e.g. completion badges
- Transferrable credentials representing knowledge, skills, and dedication
- Facilitates Learn-to-Earn or other action-to-earn models
For employees, NFTs can act as a resume, indicating the start date in which they joined the company and what positions they held. One could also keep track of all recommendation letters and non-private deliverables they worked on during their time at the company. Finally, accomplishments and milestones can be recognized digitally through an NFT, which could be displayed as an item of pride online or perhaps even redeemable for gifts or rewards. The immutable nature of the blockchain makes it so all of these files can be stored in a place viewable by future employers or business partners
- NFTs as a decentralized resume, showing company history
- Recognition for accomplishments and milestones, potentially redeemable
How to Get Started
You’ve got a great idea for how to bring value to someone near and dear to the company with an NFT. So where do you start? We’ll give a high-level overview of the steps.
Choose Your NFT
Pick what form you want your NFTs to take. Will they be a generative collection? a fractionalized file? Or a series of unique assets? And what form of media, from video to audio to image, will you use?
Pick Your Network
Pick a network you wish to release your NFTs on. As we stated previously, different networks come with different tradeoffs, so be sure to do some due diligence before choosing. Check out this post for one example overview of the tradeoffs for Ethereum, Polygon, BSC, and FLOW.
Choose Perks and Benefits
Establish the perks and benefits of your NFT. Is your web development going to add exclusive features to those owning certain NFTs? Will owners get exclusive access to raffles and events? Maybe you could even set up a system that allows owners of NFTs to get referral bonuses if they helped recruit someone to your team. Is this controlled by a smart contract, or does the perk require that the NFT holder trusts you to honor the NFTs perks?
Mint your NFT, and hold or transfer
To purchase an NFT, you will need a wallet that matches the network you wish to use. With this wallet, you can choose to hold or transfer your NFTs. By holding your NFT, you are announcing to the metaverse that this represents a part of your identity and you appreciate the perks of owning it. You can also choose to transfer your NFT to another wallet either directly or through a marketplace.
NFTs, without a doubt, present a new legal gray-area that may leave some companies hesitant to enter the space. After consulting with lawyers and conducting our own due diligence, we do not recommend using NFTs as a security -- meaning that it cannot be used to raise capital or represent ownership of the company like a stock would. The suggestions we make in this article have no implications for this technology to be used as a security. In general, for cases where there is no expected profit to be made by either party from distributing your NFTs, both parties should be in the clear. *Disclaimer - consult an attorney for legal advice regarding questions about NFT and Web3 legal issues; Edily’s law firm Fenwick and West is well versed in this area.
Build a Web3.0 Strategy
While we have focused on NFTs in this article, for business builders it’s important to start thinking about the possibilities that the entire breadth of Web3 applications may offer.
NFTs play into a much larger, decentralized environment and can act as a key to your decentralized door. While we won’t dive into the details here (see a16z’s NFT Canon, Crypto Cannon, or DAO Canon for many, many more links on these Web 3.0 subjects) we encourage business leaders to proactively understand what areas of Web3.0 will be most applicable to their work. Other areas to explore include implementing a DAO and establishing governance coins that can be obtained by owning one of your NFTs.
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