Blockchain: NFTs and exclusivity

Blockchain and Non-Fungible Tokens

Several years have passed since the “birth” of blockchain technology in 2008 by Satoshi Nakamoto, and although blockchain is being talked about more and more frequently, it is still not clear what this technology represents. Simplifying, we can consider blockchain a technology that facilitates the process of registering and validating transactions through a shared and immutable registry present on the network. In fact, through this technology, any tangible asset (such as houses, cars, etc.) or intangible asset (such as intellectual property, copyright, etc.) can be exchanged without a central entity acting as an intermediary.

In summary, blockchain can be understood as a structure composed of a chain of blocks containing all transactions or information, and whose validation is entrusted to a mechanism of legitimization of the participants in the network itself; this mechanism guarantees the reliability and immutability of validated transactions.

In this context, which is a disruptive scenario for managing transactions related to the exchange of goods or information, the so-called Tokens are developed. This term identifies a unique token that represents a digital property on blockchain. Currently, the most famous ones are Non-Fungible Tokens (NFTs), created to certify the unique ownership of a single material or immaterial asset (songs, projects, games, memes, works of art, etc.).

Essentially, NFTs serve as a receipt or certificate of authenticity that shows ownership of a digital item. This information, being inserted within the blockchain, is not modifiable or falsifiable, and therefore attests to its absolute exclusivity.

The first use cases date back to 2017 with CryptoKitties, limited edition virtual cats purchasable through NFTs, some of which have been sold for a sum of $150,000. In 2021, a non-fungible token by the artist Beeple was sold by Christie’s for over $60 million, becoming the most expensive NFT ever sold at auction. These opportunities have created the right opportunity to accelerate the use of NFTs: for example, Juventus with the 3D version of the jersey, Tim Berners-Lee, co-inventor of the World Wide Web, with the sale of source code dated 1989. Works of art: for example, the auction house Christie’s presented a digital and three-dimensional reproduction of Leonardo Da Vinci’s drawing “Bear Head” on the occasion of Classic Week 2021.

To date, the use of these tokens is increasingly linked to the continuous evolution of the IoT world and the proliferation of social trends. In fact, the latest NFT Yearly Report estimates that from 2018 to 2020, the market capitalization of NFTs has increased eightfold, from $40.9 million to over $338 million.

NFT Use Cases

Cinema

Non-Fungible Tokens have also found an interesting use in the world of cinema, revolutionizing the classic idea of distribution and incentivizing those who seek to introduce innovative ideas in this sector. Thanks to NFTs, it has been possible to create a new mode of relationship with users, based on the ability to make scenes or objects of a film into virtual works that are absolutely unique for the user.

This is demonstrated by the work carried out by an Italian startup, which transformed a film into NFTs, segmenting it into 62 scenes that serve as tokens and which were subsequently sold at auction on some of the most famous digital platforms. The project was carried out by E&Y, a multinational consulting firm, with its team of blockchain experts, and an Italian startup, CinTech, active in the blockchain sector.

The biggest challenge was to develop a scalable strategy and a sales process suitable for a sector, such as cinema, that is new to this type of technology. The project has allowed us to leverage blockchain technology to create Non-Fungible Tokens and create a digital copy of the different frames of the film. The actors who took part in the project explained how this was definitely an innovative idea, which could constitute a new way of creating value for the film industry.

It can therefore be seen how this is only the beginning of a trend that appears to be rapidly rising. For example, the series “Stoner Cats” raised $8.4 million in an NFT sale (which guarantees holders the exclusive right to watch the episodes), which sold out in just 35 minutes.

Today, several industry operators claim that an increasing number of film and television studios are beginning to examine NFTs with particular attention, in order to stimulate fan engagement. In fact, they are thinking about how NFTs could be used to grant the right to vote on how the next season of a TV series will be conducted, or to provide exclusive access to special content that can only be viewed by owners of this type of token.

Art and Music.

The world of art is perhaps one of the sectors that is most suited and adapted to this new trend of Non-Fungible Tokens, as it is possible to buy and sell art through NFTs. Just think of the sensational tokenization of a “Nyan Cat” gif sold at auction for $545,000, or the creation of an artwork composed of 5,000 images (each image is an artwork by the artist) allocated on the blockchain and sold at auction for $69.3 million.

If we talk about art, we must also mention the world of music, and in this context too, NFTs play their role. In Italy, the “Music is Art” project was born from the collaboration between musician Davide Dileo (aka Boosta) and the innovative start-up Genuino.

It is a project that involves a unique collection of NFTs made up of musical compositions and visual art that for the first time combine digital and analog dimensions. The artist has also involved another figure, specifically an illustrator, and together they have created 5 videos with music and illustrations, a masterpiece with a minute of music, the manifesto with the project’s writing, and five visuals. In addition, the audio-visual content created by the two artists will be combined with the possibility of later attending a live performance between music and illustrative art, thus integrating online and offline dimensions.

Thanks to the collaboration with Genuino, it was possible to create the tokens and insert the entire collection on the Marketplace platform, and thus leverage blockchain technology to release artists from third parties, amplifying the relationship between fans and artists. The CEO of Genuino expressed how this project also wanted to emphasize the physical experience that the fan wants to have with their artist. In fact, all those who purchase NFT videos have the opportunity to access an exclusive concert of their artist. This is why the CEO states that this is the first “live” NFT ever created.

Gaming.

The gaming industry is one of the most successful businesses of recent decades, which has experienced years of strong expansion until it reached a valuation of over $175 billion in 2021. Today, NFTs, thanks to their peculiarities and their gamification element, can be used to enhance the gaming experience for players and further increase the volume of business around this world.

Non-Fungible Tokens (NFTs) are creating new market segments, including collectible card games. French startup Sorare is an example of this, as it operates a platform specializing in digital collectible cards and a fantasy football game that uses blockchain technology and NFTs. Sorare’s mission is to become “the game within the game,” and it has attracted over 600,000 users worldwide since its inception in Paris in 2018.

Sorare is based on Ethereum, a blockchain platform that allows for the certification of the ownership of every digital file (NFT) and makes every transaction secure and traceable. The platform’s cryptocurrency, ETH, is the official currency of the game and is second only to Bitcoin in terms of capitalization.

In addition to its fantasy football game, Sorare has also attracted users for its managerial and entrepreneurial aspects. Through its marketplace (a large football transfer market between users), it is possible to buy and sell cards in an attempt to improve one’s scores in various tournaments. The goal is also to earn ETH/Euros with “capital gains,” as the price of cards, determined by users, is based on the principle of supply and demand. Furthermore, the rarer the card, the higher its price, unless it is a football player whose usefulness in the game (as a reserve player with limited playing time in real life) is limited.

Sorare has raised $680 million in funding.

In this type of game, the advantage of NFTs is that, unlike their physical counterparts, NFT cards cannot be copied, counterfeited, or destroyed in a credible manner, creating a market for a new generation of trading card enthusiasts. This leads the user to enter a dimension in which the uniqueness and exclusivity of a card are the goals of their “playing.”

What could we see in the future of NFTs?

Creating digital twins of images of Italy’s artistic heritage and making them unique with blockchain could be an opportunity for museums to raise funds and create a market for these unique digital copies. For example, the Uffizi Galleries have made the digital version of Michelangelo’s “Tondo Doni” unique through an NFT that certifies its ownership, resulting in 70,000 euros from the sale of the first unique digital serigraph (reportedly sold to a Roman collector), authenticated by blockchain and protected by patent.

We can also expect a strong influence on e-commerce by transitioning to NFT-Commerce platforms, which would allow brands to autonomously create and sell their intangible assets through NFTs without intermediaries. These assets could range from artworks to videogames, luxury goods, and patterns (such as Dolce&Gabbana’s Genesis collection, which sold 9 pieces for $5.65 million).

However, we should not forget the potential uncertainties associated with the world of NFTs, as innovations often bring disorder. The hype surrounding these Non-Fungible Tokens has been so rapid and widespread that it has set aside any possible reflection on what could be the other side of the coin. In fact, some criticisms of the auction houses’ approach to selling NFTs and the lack of consolidated regulation of these new assets are only now beginning to emerge. All of this makes the world of NFTs a rather murky sea, where navigating requires a good understanding of the different aspects that characterize them and the right propensity to avoid irrationality.