The types of NFTs, based on use cases
Why NFTs are everywhere, and what are the current most popular utilities
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I believe in mental maps to help people understand complex subjects. This is the reason why I previously wrote about the types of cryptocurrencies.
Now, I’ll attempt to do the same with NFTs. There is so much noise around it, good and bad, and however you feel about it, NFTs seem to be everywhere today, and are definitely here to stay, and grow.
So, before we start, I do highly suggest reading my article about NFTs 101
to build some foundation before you continue reading here.
Done?
Awesome!
In a nutshell, NFTs are a type of token that represents a unique asset, be it part of the physical or digital world. Thanks to the usage of blockchain technology, NFTs can provide verifiable proof of authenticity and ownership.
If it can represent an asset, then by definition
it can expand itself into pretty much any field really
, which is why you see NFTs being mentioned in so many industries.
So what does all this mean, “representing a unique asset, physical or digital”?
Let me explan this by breaking down a series of qualities that NFTs possess
that make them so valuable:
NFTs are Immutable, which means they are permanent, no one can go back and alter the history of transactions.
Unique: NFT stands for non-fungible token, meaning they are non interchangeable with one another, it’s one of a kind.
Provably scarce: everything is coded into the blockchain, which contains defining proof of the specific and unique digital scarcity of that particular NFT.
Counterfeit-resistant: in today’s Internet, any file or image can be duplicated any amount of time, which is not fun for its creator, and not valuable to hold. But with NFT, because the origin can be verified on the blockchain, it has verifiable proof of authenticity.
Proof of ownership: following the last point, every NFT has a smart contract that verifies and declares ownership of the digital token.
Therefore, like I said, NFTs are made up by these defining qualities that determine what it can do, which is applicable to many different fields and can perform a wide variety of functions.
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The Types of NFTs.
Disclaimer first: there is no one universal categorization, below is just my own view, basing it on existing types of NFTs by use case. This list will only grow in the future.
1. Digital Art
Let’s start with the origin…
The history of NFT is somehow intertwined with the origins of crypto art (earliest examples of non fungibility came from tokenized artistic illustrations), which is why there is an innate historical value and cultural appeal to digital art.
No surprises here, Art has always been a space where authenticity has been critical. Today, it remains one of the most common and definitely most expensive forms of NFTs in the market, including the likes of CryptoPunks and SuperRare.
2. Collectibles
Another obvious expansion of NFTs.
People have always loved collecting things… it’s a mix of aesthetics, status, and identity.
Collectibles gain value for being unique and irreplicable within a group of a specific category, be it a set of collectible cards, a fine wine, or a funny-looking kittie.
3. Music
Technical advancement has alwasy shaped how music is produced, consumed and preserved, so now, NFTs really has the potential to disrupt the entire space.
In a world almost entirely dominated by major streaming services like Spotify, it’s much harder for artists and musicians to have a fair deal in this highly saturated market. To give you a sense of how disproportional is the music industry’s structure, data shows that 90% of streaming revenue goes to only 1% of top artists.
In short, currently musicians get paid very little.
NFTs allow a more direct artists to fans interaction, as well as financial benefits from the tokenization from their work. All these, while preserving their ownership.
No wonder that not only famous artists such as Rolling Stones, Snoop Dog, Katie Perry, etc, are getting into NFTs, but more importantly, independent musicians are fully embracing it, leveraging on platforms like Sound.xyz, royal.io.
4. Access
NFTs make tickets low friction and widely interoperable. It can be tickets to particular events, to membership access to exclusive groups. A classic example of this latter is the famous Bored Ape Yacht Club.
It can also be used as access to specific DAOs.
This exclusivity is a kind of scarcity, right in the NFT valley.
5. Game objects
Web2 gamers spend about $40B per year on virtual goods, but users don’t really own those objects, the gaming company does. Additionally, these objects cannot interoperate across games.
This is up until now.
With the creation of NFTs, users can now truly own digital objects for the first time in games like CryptoKitties and Axie Infinity.
Think about it. People were already passionate enough about games, but now there is even a solid economic usecase: game objects and collectibles are no longer limited by the centralized architecture. Now they have the ability to exchange these items for real world value such as cryptocurrencies or fiat.
No wonder why this is one of the hottest commodities in NFTs.
6. Redeemables
A token could be redeemed for a physical good. This mechanism can be applied to lots of offline goods, such as The Rebirth NFT which allowed holders to redeem a bottle of exclusiveWhisky. Upon redemption, the NFT will transform into an evolved image, allowing for continued ownership or retrade.
It’s a smart way for brands to connect with their costumers or followers in a more dynamic way. This is a mechanism that we are likely to see more.
7. Identity
Think about how much of our socialization, work, and any other form of interactions are already happening online. Do you think our future will be more or less digital? We all know the answer.
In this context, our digital identity will also become an increasingly more relevant part of ourselves.
This is the reason why PFP (Profile Pictures) NFTs are so trendy and valuable in the eyes of their buyers. It’s a personal statement.
8. Moments, like sports memorabiblia
A rising number of top tier sporting institutions, teams, and athletes embrace NFTs to create unique in-game moments and immortalize gameplay on-chain.
Examples of this are NBA Top Shot, UFC “Strike”.
This type of memorabiblia might not be limited to just sport moments, it could really be applicable to movies, concerts, or any other type of memories that people value.
9. Domain names
During the .com era, domain names have not only been critical to translate computer binary system into language people can read and easily remember, but they’ve also been a highly valuable asset.
Now, this is the same for blockchain based domain names such as “.eth”. It also allow long cryptographic chain of numbers to be translated into human-memorable wallet address. At the same time, it has other kind of benefits, like increase security measures, access to secondary marketplaces, simplify domain transferability, and others.
10. Metaverse Land
Like a virtual monopoly game, where there are a limited number of parcels. Pioneers are investing in Metaverse Land, with NFTs as proof of ownership.
Examples of some early investors are Republic Realm purchasing a city like space in The Sandbox for a value of $4.3M, as well as Tokens.com paying $2.5M to own the fashion district in Decentraland.
11. Fashion
Gucci, Adidas, Nike, LV, Ralph Lauren are all making bold moves in the NFT space. You can certainly argue that it’s opportunistic, but it does help with raising awarness around NFTs and crypto space overall.
Closely related to our digital identity gaining more relevance, Fashion brands will play a central role in helping we develop our avatars to make our own statements.
12. Real World Assets
Such as physical Real Estate deeds, physical art, can all convert the ownership proof into an NFT for a much more secure, verifiable and fraud-proved on chain ownership proof.
Final Thoughts
If there is one thing I’d like you to takeaway from this article, is that the intrinsic value of NFTs lay in their unique qualities that help expand the underlying principles of scarcity, and ownership:
If you think about it, scarcity has always been in the center of our economy: basic supply and demand.
NFTs help solve for the problem of proving and verifing authenticity and ownership by leveraging blockchain technology attributes.
These challenges affect some players more than others. This is the case of creators, including the likes of musicians and artists, who face very unfair structures in the existing system which is why you see them embracing and adopting NFTs faster than others.
Not just because it helps them break the unfair power structure, but also because it provides the possibility of retaining ownership right and claiming resale royalty.
This paradigm shifting economy opening up a new spectrum of financial opportunities.
As more people see through the layer of speculation and hype, understanding the real value add of NFTs, the usecases will only expand.
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