NFT business models, NFT use cases, NFT taxonomies and future trends

Below are some thoughts about NFT business models, use cases, taxonomies, NFT Marketing and future NFT trends. This blog post is by no means complete and is work in progress. 

For a quick recap, check out the article 'What is an NFT' before reading the post below. 

Form of NFTs

Digital NFTs 

Technically speaking, these are essentially static pictures or animated gifs which are digitally signed and certified via a blockchain. 

Examples are digital collectibles and art NFTs 

Physical NFTs 

Any physical good that is signed and certified by blockchain. Examples are original paper signatures from stars, exclusive luxury goods. The main issue here is to have a tamper-proof anti-counterfeit mechanism. 

A very huge part of NFTs will be ticketing. 

Hybrid NFTs  

The combination of a static and physical NFT. The unique good has both phyi  

Static vs. Dynamic NFTs

Static NFTs 

Most NFTs described above are static yet. Once they are minted and sold, they never change. 

Dynamic NFTs 

The next wave of NFTs will be dynamic by integrating oracles into NFT smart contracts such as random numbers through random number generators (RNG) which blockchains cannot supply securely. Other basic examples are weather (e.g. Daniel Arsham NFT), stock price, time zone data, etc. This will become exciting when data such as sports star performance. Examples: NBA Rookie LaMelo will drop NFTs which will reflect real-life events. In case he is selected as Rookie of the Year, this will be reflected in his Evolve Token. Another recent example is the 'Two Degrees NFT' which has a self-destruction mechanism, once global warming increases by 2 degrees. The data source is Nasa. 

Autonomy & Intelligence 

Most NFTs as of today have no intelligence whatsoever. They have been created and then do not change or react to the external environment or any external stimulus. In case of an NFT ticket, they even lose their value. I believe as NFT technology evolves, new NFT classes will emerge such as:  

Multi-Token Standards 

NFTs can also create fungible tokens out of the same ERC-721 token. A new standard that, for example, allows for the creation of ERC-20 tokens linked to ERC-721 tokens is ERC-1155 developed by Enjin. Use cases in games could be: a quiver (non-fungible) in an NFT game item could generate arrows (fungible). Buying and NFT plant (digital) could generate seeds (fungible).  

Meta Data & Provenance 

Meta Data in particular data on provenance of NFTs will be used increasingly in the future to increase storytelling of NFTs. Uploading a picture 

Chatbot NFTs 

In the future we will have chatbots as NFTs. Though chatbots have been around for quite some time, for instance FB Messenger Bots, they have not reached mass market. NFT technology will provide the missing piece: true personal identity of a chatbot. The first project that goes into this direction is called iNFT . It converges NFT, blockchain and AI/ML technology. The most interesting part: it is a self-learning chatbot and becomes smarter the more you interact with her. 

Avatar NFTs 

The difference to chatbots is that avatars are digital representations of one-self as opposed to chatbots which are a third-party personality. The first avatars based on voxel graphics are the Meebits 3d avatars. The idea is to basically use them as digital avatars in metaverses, games and AR/VR simulations. 

Utility & Use Cases & Users of NFTs 

One of the most important and probably unexplored, at least academically, areas in the NFT space is the question of why people buy NFTs. While there might be NFT-specific idiosyncratic reasons, I believe there are some commonalities when it comes to utility and psychology. 

Personal Value (Collectors)

In particular, digital NFT art purchases are grounded in the same personal value as to why people buy art. People value the artist and simply like the artwork they buy. The more known the artist, the higher the value. Storytelling and provenance increase personal value furthermore. 

Financial Value (Traders)

NFTs have become an asset class of their own. Traders will buy NFTs for purely financial reasons. They hope that the NFT they buy will appreciate in value. What is new is that financial ownership does not only occur on an individual basis. NFTs allow for so-called group ownership where several people join forces to buy, own, sell, trade NFTs as a group. This concept is called fractional ownership and has been practiced in real estate economics for hundreds of years. In fractional ownership, each individual shares the same "usage rights, income sharing, priority access, and reduced rates." 

Psychological Value

Owning NFTs increase psychological value in two ways: 

1. individual value. I have something that is of personal value that no one else has. (an NFT of a star, that I follow)

2. group identity. If I meet someone in social media, who also owns a Crypto-Punk, we are part of a special group. This is similar to product communities such as Mini-drivers, Harley Davidson bikers, etc. In the future, we will see more of that in Metaverses where users will connect better in case they share the same NFT community. 

NFTs Ecosystems 

Metaverses and Blockchain Games 

DApps like Sandbox, Decentralland and Axie Infinity cover all of the above. In addition, they introduce decentralized autonomous organizations (DAO) governance and play-to-earn mechanisms via native tokens into their game concepts.

Disruptive Business Models 

NFT experiments like Eulerbeats which Marc Cuban called the most genius idea are here to disrupt entire industries. 

Here is how it goes: 27 AI generated NFT audiotracks can generate 120 prints each. If you buy a print you can return it anytime by burning the token. The great thing is: Buying a print is quite risk free because you get back 90% of the print price. And now it comes: not the one that you spent, but latest one in the chain. So if you spent 1 ETH but the latest print price sold was 10 ETH, you get back 9 ETH and made 8 ETH profit. 8% goes to the original LP holder and 2% goes to the project. What it means for the industry is that you can support your artist directly in the future at a lower risk. All recipients of royalities can be baked into the smart contract itself. The future will even integrate oracles such as Spotify data. This means the exact number of streams will flow back into the NFT so that all royalty recipients will automatically receive their share - straight into their wallet. 

NFT Marketing and NFT Distribution Channels 

These are the main NFT marketing and distribution channels to date. 

Free Airdrops 

Often done prior or with ICO or IDO (inital decentralized exchange offering). Companies just "drop" free NFT's in combination with certain activities recipients have to do prior to the receipt (such as following the twitter account)  

Paid NFT drops 

This is done by companies like DapperLabs, Animoca Brands with games like NBA Top Shot, F1 Delta, and MotoGP. Users subscribe for a one-time NFT Drop and hope to buy a usually limited NFT pack. 

Marketplaces 

Most NFT sellers also run a marketplace either on their NFT Portal or third-party marketplaces to drive secondary sales. In addition, there are agents such as Sotheby's who run live auctions. 

I see tremendous opportunities in running live auctions on marketplaces in combination with strong Twitch and YouTube creators and celebrities. 

what is the best blockchain ?

This is not an easy answer and as usual it depends...on the following factors 

I call it the Blockchain Playbook: 

1. Scalability 
2. Security 
3. Decentralization 
4. Gas Fees
5. Developer Tools & Community 
6. Audience

The first three usually describe a triangular relationship. None of these go w/o sacrificing at least one of the other. Scalability basically means: can your blockchain of choice service millions of users at the same time? Or is it dead-slow like proof-of-work consensus algorithms like Blockchain or Ethereum. Decentralization means: how many independent validators does a blockchain operate ? Is it  100k like BTC or 7000 like ETH, which makes both networks almost impossible to hack, hence provide a higher security. If you want to have highly scalable blockchains that are able to serve 100k TPS, this will come at the expense of lowering security and decentralization. 

The more congested a network and the more nodes needed to validate a transaction the higher the gas fees (transaction fees). High gas fees obviously will have a negative impact on frequent usage and average transactions per user. 

Developer Tools and Community are an important driver as it is necessary to rely on existing developer tools to reduce cycle time and have a community from which you can hire engineers. Since Solidity is the language of Ethereum smart contract it is advisable to rely on languages close to that so that developers can quickly adopt the operating framework in place. If the overall eco-system in terms of vertical overlap is high, it will be easier to collaborate with other companies in the domain, solve difficult problems and exchange knowledge. 

Audience. The higher the existing audience the higher the adoption and conversion rate. Usually, higher audiences indicate that user-facing front-end tools such as wallets already enjoy a high penetration and users do not have to fill their wallets with unknown currencies or tokens previously unknown to them. 

 

What is an NFT and How to define an NFT

What is an NFT ? 

Non-fungible* tokens (NFT's) are tokens that we use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. No one can modify the record of ownership or copy/paste a new NFT into existence.  

Fungibility according to Wikipedia is: 

"In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part."

For example, gold is fungible since a specified amount of pure gold is equivalent to that same amount of pure gold, whether in the form of coins, ingots, or in other states. Other fungible commodities include sweet crude oil, company shares, bonds, other precious metals, and currencies.

Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity with other units of the same commodity, and not to the exchange of one commodity for another."

My own definition of an NFT:

NFT's are unique digital assets that allow creators to obtain royalities & profits on their original and scarce work by monetizing their ownership rights via blockchain technologies.

Characteristics of an NFT 

I came up with my own model which I call the 5-0 Pizza Model of NFTs. Here it is: 

Origin: Who is the creator(s)

Originality: Is it authentic? Meta data about provenance and history of the artwork 

Ownership: Certification of ownership 

Obtain Royalties & Profits: Make money of all transactions, incl. future transactions 

Only One or a few works: Who is the owner ?