London auction house Christie’s is always good for a sensation. That was also the case when artist Beeple (real name: Mike Winkelmann) redeemed more than $ 69 million with his artwork The First 5000 Days in March this year. It got its historical dimension first and foremost from the fact that it is one of the first of its kind that is truly unique. NFT technology makes this possible. The concept stands for a special application of blockchain, with which digital devices can be designed in a unique and counterfeit-proof way.
To understand how NFT works, it is worth looking at the topic of tokenization as a whole. Tokenization has been considered one of the main trends in the use of blockchain technology for years. The main focus is on the ability to trade and manage illiquid assets digitally. These units, which are internationally referred to as non-bankable assets (nbA), such as real estate, works of art, valuables and collectibles, are not only interesting investment opportunities in times of low interest rates Digital tokenization of units in these goods allows ownership of these assets – even in parts – exchange. Among other things, they will be made fungibilizable and thus accessible to new groups of investors. The basis for tokenization in the Ethereum ecosystem is the ERC standard 20.
As the name suggests, non-fungible tokens (non-replaceable / interchangeable) according to ERC Standard 721 differ significantly from the basic idea of tokenization. For this is about defining something that is irreplaceable and irreplaceable in the digital world as such. The artist Beeple gave a particularly popular example of this with his work mentioned at the beginning.
Uniqueness has so far been a feature of things in the real world that could not be mapped in the digital world. Because whether it is an image, audio document or text – the digital image means that any object can be copied at will. Among other things, it leads several times to copyright disputes in the art, music and media world. In addition, online commerce is also booming in the business of pirated physical goods – often backed by fake digital “certificates” whose authenticity hardly any retailer and certainly no end customer can check with reasonable effort.
NFTs differ from other blockchain tokens – which include cryptocurrencies – primarily in that they cannot be exchanged or replaced with identical tokens. They consist of one or more special smart contracts that ensure their uniqueness and irreplaceability through their implementation and interaction. In addition, they are – at least in their previous form defined in ERC Standard 721 – not divisible. The combination of these two features makes it easier for NFT to ensure transparency in the ownership of an NFT and to deter counterfeiting or fraudulent attempts compared to other blockchain tokens. In addition to the ERC 721 standard, there are already a number of other standards that add features to map specific business models.
The principle and benefits of NFTs can be demonstrated by using luxury watches as an example. (see figure above). The uniqueness of NFT can help prevent product piracy or at least make it significantly more difficult. For this purpose, a token is automatically generated when each clock is completed, which contains all the information needed to uniquely identify the clock. This includes serial numbers, components, and production data that help identify them uniquely.
The process of creating an NFT is called minting, derived from the English verb “mint” for minting coins. The driving force for this comes from the production system. During minting, an event token is issued next to the NFT, which is technically inextricably linked to the NFT – just like the two sides of a coin. For this purpose, NFT contains a link to the associated event token. The event token contains a list of all transactions completed with NFT.
They can be traced at any time from the embossing during the production of the watch to the registration of the delivery and the delivery to a dealer and buyer, as well as to services for the watch and resale. Unlike a serial number, NFT, by linking it to its event token, contains all the information not only about the authenticity of the product but also about the owner’s permission to sell it. In addition to protecting buyers, this also protects sellers who can no doubt prove the value of their property at any time. Manufacturers also benefit from it because the exclusivity of their products is ensured as an essential brand component.
A well-received example of the use of NFT was provided by Zoë Roth, who as a child became a popular motive for disaster memes and thus caused a sensation around the world: “Disaster Girl” Zoë Roth sold a picture taken by her father her when NFT for 180 ether, the equivalent of well over 350,000 euros. It was reported by the New York Times in late April. The highlight: the copyright remains with Roths, and they receive ten percent of each additional sales revenue.
The Android robot Sophia made headlines back in March when the NFT of a self-portrait made by him went under the hammer for the equivalent of almost 600,000 euros. Experts see great potential in online trading in, among other things, luxury goods. According to the results of Bain & Company, turnover of almost 50 billion euros here in 2020. To protect both manufacturers and brands as well as customers from fraud, the industry has long relied on blockchain platforms like EverLedger or auraluxuryblockchain.com.
With NFT, companies now have a far more efficient technology at their disposal than conventional blockchain implementations. However, the potential of NFT is not limited to niche markets. Other application scenarios are:
Digital certificates of authenticity for high-quality spare parts in mechanical engineering, especially in connection with their provision of specialized service partners using 3D printing.
In the pharmaceutical industry, prescriptions for the licensed production of medicines could be issued in a counterfeit-proof manner via NFT.
ID cards, such as the digital vaccination card, can also be secured against tampering and theft using the NFT.
In the software industry, for example, NFT could ensure that AI modules trained for specific use cases can only be used in the intended context. For example, when it comes to security solutions or managing critical infrastructures or medical implants such as pacemakers, hearing aids or blood glucose sensors.
Sourceforge provides an overview of the currently available NFT platforms, mainly in the art and collector market.
NFT is – like cryptocurrencies – an application of blockchain technology. And as with Bitcoin, Ether and other cryptocurrencies, the great potential of the technology must be exploited in practical use. Specifically, it means for companies: to identify potential use cases in their own business environment, find partners, form alliances and form consortia. Because the development of the blockchain so far has shown so much: The biggest advantage arises where there is collaboration across companies and industries.
After all, other technological developments such as IoT, industrial internet, machine-to-machine communication, machine learning, big data and AI do not stop at corporate boundaries. On the contrary: Your advantage increases when you share it. NFT as a key technology for simple and secure management of device identities, secure data packages or compliance-certified AI algorithms should be on the radar of any company that as an innovation leader wants to ensure the individual character of its brands, products and processes in the long run. (bw)