London auction house Christie’s is always good to cause a stir. This was also the case when the artist Beeple (real name: Mike Winkelmann) repurchased more than 69 million USD with his work The First 5000 Days in March this year. It received its historical dimension above all from the fact that it is one of the first of its kind to be truly unique. NFT technology makes this possible. The term denotes a special application of the blockchain, with which digital entities can be designed in a unique and tamper-proof way.
To understand how NFT works, it’s worth looking at the topic of tokenization as a whole. Tokenization has been considered one of the most important trends in the use of blockchain technology for years. The focus is on the ability to digitally trade and manage illiquid assets. These entities, internationally referred to as non-bankable assets (nbA), such as real estate, works of art, valuables and collectibles, are not only attractive investment opportunities in times of interest rates. low interest. allows the ownership of these assets – even in part – to be exchanged. They will be made fungible and thus accessible to new groups of investors, among others. The basis of tokenization in the Ethereum ecosystem is the ERC 20 standard.
As the name suggests, non-fungible (non-replaceable/exchangeable) tokens under the ERC 721 standard differ significantly from the basic idea of tokenization. Because it is about defining something irreplaceable and irreplaceable in the digital world as such. The artist Beeple provided a particularly popular example of this with his work mentioned at the start.
Uniqueness has until now been a property of things in the real world that could not be mapped in the digital world. Because whether it is an image, a sound document or a text, the digital image means that any object can be copied at will. Among other things, this repeatedly leads to copyright disputes in the world of art, music and media. In addition, e-commerce is also booming in the area of pirated copies of physical goods – often backed by counterfeit digital “certificates” whose authenticity hardly any retailer and certainly no end customer can verify with reasonable effort. .
NFTs differ from other blockchain tokens – which include cryptocurrencies – mainly 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. Moreover, they are – at least in their previous form defined in the ERC 721 standard – not divisible. The combination of these two properties makes it easier for NFT to provide transparency of ownership of an NFT and deter counterfeiting or fraud attempts compared to other tokens on the blockchain. In addition to the ERC 721 standard, there are already a number of other standards that add functions for mapping special business models.
The principle and advantages of NFTs can be demonstrated by taking the example of luxury watches. (see figure above). The uniqueness of NFT can help prevent product piracy or at least make it much more difficult. To this end, a token is automatically generated at the end of each watch, which contains all the information necessary for the unique identification of the watch. This includes serial numbers, components, and production data that uniquely identifies them.
The process of creating an NFT is called minting, derived from the English verb “mint” for minting coins. The impetus for this comes from the production system. Upon minting, an event token is issued alongside the NFT, which is technically inextricably linked to the NFT – like the two sides of a coin. For this purpose, the NFT contains a link to the associated event token. The event token contains a list of all transactions made with the NFT.
They are traceable at all times, from the minting during manufacture of the watch, to the recording of delivery and delivery to a retailer and the buyer, as well as to services for the watch and resale. . Unlike a serial number, the NFT, by linking it to its event token, contains all the information not only about the authenticity of the product, but also about the authorization of the owner to sell it. In addition to protecting buyers, this also protects sellers, who can prove the value of their property at any time and without any doubt. Manufacturers also benefit because the exclusivity of their products is guaranteed as an essential component of the brand.
A well-received example of the use of NFT was provided by Zoë Roth, who as a child became a popular motif for disaster memes and thus caused a stir around the world: “Disaster Girl” Zoë Roth sold a photo her father had taken of her when NFT for 180 ether, the equivalent of well over 350,000 euros. The New York Times reported it in late April. The highlight: The copyright remains with the Roths and they receive ten percent of each additional sale proceeds.
The android robot Sophia made headlines in March when the NFT of a self-portrait he made went under the hammer for the equivalent of almost 600,000 euros. Among other things, experts see great potential in the online trade in luxury goods. According to findings from Bain & Company, almost 50 billion euros were returned here in 2020. In order to protect both manufacturers and brands as well as customers from fraud, the industry has long relied on blockchain platforms such as EverLedger or auraluxuryblockchain.com.
With NFT, companies now have a technology that is far more efficient 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 the field of mechanical engineering and installations, in particular in connection with their supply by specialist service partners using 3D printing.
In the pharmaceutical industry, recipes for the licensed production of drugs could be issued tamper-proof via NFT.
Identity cards, such as the digital vaccination card, can also be secured against manipulation and theft using 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 or control solutions for critical infrastructures or medical implants such as pacemakers, hearing aids or blood glucose sensors.
Sourceforge provides an overview of currently available NFT platforms, primarily in the context of the art market and collectors.
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 practice. In concrete terms, this means for companies: identifying potential use cases in their own business environment, finding partners, forming alliances and founding consortia. Because the development of blockchain so far has shown: the greatest benefit comes where there is cooperation between businesses and industries.
After all, other technological developments such as the IoT, Industrial Internet, machine-to-machine communication, machine learning, big data and AI do not stop at corporate borders. On the contrary: your profit increases when you share it. NFT as a key technology for simple and secure management of device identities, secure data packages or certified compliant AI algorithms should be on the radar of any company that, as an innovation leader, wants to guarantee the individual character of its brands, products and processes over the long term. (pc)