Stepping into a Sustainable Future with Non-Fungible Tokens by Istiaque D

Introduction

In the modern world, we have digitized almost everything.

Depending on how comfortable we are with sharing data, digital recordings and data streams of various aspects of our lives exist online.

Some examples of these may be online transactions depicting our financial histories, social interactions, communications, and data generated by internet-connected devices at our homes and while we are outside.

Digital assets may include anything recorded or stored in a single computer, a portable device, or a decentralized server. In the latter case, the information is distributed amongst two or more computers using DLT (Decentralized Ledger Technology).

Because these digital assets only exist as bits and bytes, ergo, they have no physical form and do not qualify as real-world items, it can sometimes become challenging to keep them protected or prove ownership of said items.

Enter NFTs (Non-Fungible Tokens)

Although I addressed the question of "what is an NFT" in a previous article (The Future of NFTs: Minting NEW Tokens for a SUSTAINABLE Planet) in this series, for your convenience, I will recap it as briefly as possible. I will do this to ensure that another average person like myself can make sense of the technology and the reasons behind its meteoric rise.

An NFT, also known as a Non-Fungible Token, by definition, represents a unique digital asset.

Physical examples of objects that meet the criteria for being called a non-fungible token would be original paintings such as the Mona Lisa by Leonardo Da Vinci.

In the digital space, there exist different types of NFTs, but the most commonly associated with blockchain-based technology are crypto-collectibles such as digital art, digital tickets, audio and video files, etcetera.

The idea behind NFTs is that they represent something unique in their quantity and composition, unlike fungible tokens or products with no fixed value or property restrictions.

NFT creators create these NFTs and trade them for cryptocurrencies or FIAT on popular NFT marketplaces such as Opensea and Rarible.

While most NFTs would be lucky to fetch buyers willing to pay more than $100 for any digital file, digital objects, digital asset - owning NFTs, particularly those that have a large community supporting the vision and the team and behind the projects have led to NFTs worth in the millions of dollars.

For example, an NFT called "The Merge," designed by Pak, sold for $91.8 million via NIfty Gateways, another popular NFT marketplace, in December of 2021. The artwork was broken up into 312,686 smaller pieces and distributed amongst 28,983 owners who traded them across various platforms.

At the time of the writing of this article, The Merge stands as the most valuable NFTs ever sold.

Of course, while there exists many NFTs (a little north of six million by today's count), not all are worth anywhere near The Merge.

The average sales price of NFTs varies between different marketplaces - what is $900 on Mintable may sell for $500 in OpenSea.

The time of day or week is also a factor as the busier the blockchain network, the more gas fee one might incur - and the more or less one may need to pay to mint and trade the non-fungible token.

The concept of NFTs is appealing because they have many potential use cases, especially for their applications for representing physical assets such as real estate and other assets.

Unlike fungible assets like dollar bills that have interchangeable counterparts with the same value, NFTs are unique because of their connection with blockchain technology - the underlying technology behind famous cryptocurrencies such as Bitcoin, Ethereum, Litecoins, Cardano, and Solana.

The fact that NFTs are decentralized, transparent, and owners of NFTs can keep them secure in their digital wallets only adds to their appeal.

How are NFTs valued?

As explained previously, NFTs can represent collectibles like artwork only available in the digital space, event tickets, music & media such as songs or albums from bands and artists, online in-game items such as in-video game skins, and trading cards.

In each case, unique properties that make up the NFT treasured by specific communities make them worth more than their counterparts on the market.

Most NFT creators rely on their community to help set the price of their creation/which gives collectors something extra when they purchase one item instead of another.

Getting started with NFTs?

As you decide to educate yourself about NFTs, it is essential to start with a basic understanding of the different types of tokens.

We may group tokens into three different categories:

1. Exchange Tokens (ETS),
2. Security Tokens (STs),
3. Utility Tokens (UTs).

Exchange tokens represent physical assets such as gold, silver, and land.

The purpose is to make it easier for investors to diversify their portfolios by holding multiple assets in a single token. It's also a way to help fund small to large-scale projects requiring numerous parties to make an initial investment in exchange for a stake in the organization's future.

NFTs, as per this author's understanding, do not usually qualify as exchange tokens as they would defeat the purpose of being called a non-fungible token.

Security tokes, as mentioned above, are tokens that represent shares within companies or organizations and generate dividends for supporters such as those who either make financial commitments or offer sweat equity to get the organization up and running.

An NFT in the form of a security token, for example, can be used to finance Sustainable Development Goals by issuing security tokens against development projects intended to address issues with our environments like climate change or resources scarcity.

Utility Tokens, on the other hand, are similar to cryptocurrencies. Still, they lack real-world value or backing - just like cryptocurrencies, UTs are only worth whatever the market determines at the moment.

One may use utility tokens to finance a project's early phases if the initiator of a more long-term project issues them to supporters. The token might begin as a utility token and convert into a security token after certain conditions are met, benefiting the contributors.

Moving Forward with NFTs

Let's look at the various types of non-fungible tokens that have recently captured the attention of the masses.

The different types of non-fungible tokens out there as of today are:

1. Collectibles.
2. Artwork.
3. Digital Event Tickets.
4. Music and Media.
5. Gaming.
6. Virtual Items.
7. Physical Assets.
8. Identity.

Let's look at a few of these NFTs mentioned above and speculate how we may use them in projects aiming to achieve long-term sustainable development on a global scale.

Collectibles

Collectibles are items that are unique in some way.

Some of the most valuable collectibles include rare physical artwork (such as the Mona Lisa), limited-edition postage stamps, baseball cards, and antiques.

We can use NFTs to tokenize any physical or even digital good whose uniqueness increases its value.

As for how we may employ collectible NFTs to encourage and engage people globally in starting and taking part in sustainability-related projects, we may use them to represent our carbon footprints.

We can tokenize our carbon emissions and trade them with people and institutions who emit less than us - the NFTs would be worth different amounts depending on how many tonnes of CO2 we regrettably generate while creating them.

Digital Artwork

One type of NFT that has dominated the news is digital artwork.

Finally, it has become possible for digital artists to protect their creations by tokenizing them into NFTs, which makes it difficult to copy and use elsewhere without giving them their just due.

American Digital Artist Beeple sold his artwork, Everydays: The First 5,000 Days., a combination of his art collection, at $69 Million.

Of course, we have already mentioned The Merge by Pac.

NFTs, when combined with smart contracts, allow digital artists to sell their one-of-a-kind digital artwork while ensuring the royalties keep coming back to them and their estate with each subsequent sale that takes place, generating what can only be considered generational wealth.

For example, Michael Joseph Winkelmann, AKA the Beeple as mentioned earlier, famously stated that he could never get more than $100 for a print version of his artwork. Only once he could ensure that his artwork could not be copied or duplicated could he sell his art at $69 million - making him one of the most well-paid living artists of our generation.

As for how we may combine digital artwork in the form of non-fungible tokens and projects driving sustainability, here is one example:

The smart contract that governs the trade of Beeple's digital art ensures that he receives a 10% royalty for each subsequent sale of the art. He could have alternatively have decided to charge a 20% royalty but dedicated the intelligent contract in such a way that 10% of said royalties would go towards financing an impact-based investment initiative geared at driving sustainable development goals.

While I will never blame Beeple for ensuring that his own needs and personal finance were satisfied first, he may yet decide to go the latter route with his future artwork.

Digital Event Tickets

Due to artists now being able to sell tickets to events such as concerts and special appearances to fans directly via a blockchain protocol in exchange for cryptocurrencies, an eco-conscious artist may decide to sell tickets to an upcoming show in the form of an NFT to his followers while ensuring that some of the proceeds from the sale of the tickets will go towards financing sustainable development projects.

All someone would need to do is audit the smart contract that governs the event tickets to ensure the proceeds will go towards impact-based projects as advertised and not end up in the artists' pockets alone.

Music and Media

The music industry is another sector where blockchain technology has already started significantly impacting.

However, looking at music and media without addressing their environmental impact isn't easy.

With the rise of streaming giants such as Netflix and Spotify comes the rise of big data centers, which are a massive drain on electricity and adversely affect our environment.

That said, perhaps the solution here is to place all the data onto a decentralized file storage system. This would allow artists to create and store content with a near-zero carbon footprint on our environment, and what they create can still be accessed in a decentralized manner.

Besides the above, artists may also declare that they will contribute a particular percentage of revenue generated via the sale of their creations in support of eco-friendly initiatives or causes that they believe in, which will attract audiences who care and want to support such initiatives.

Gaming

The gaming industry is the world's most extensive entertainment industry.

It was estimated in 2020 that the 3.24 billion gamers active worldwide generate around $180 billion for the sector alone.

The sad truth is that most of this money goes to publishers rather than developers since they control what gets developed and published.

There are numerous reports of game studios being shut down if their projects don't meet sales projections, making many wonder whether it makes sense to prioritize sales above developing innovative ideas that push human creativity to the maximum.

Regardless, when one looks at the role NFTs may play in the gaming world, we can see examples of their employment in various ways.

For example, the game developer may design an NFT representing a usable asset that players may procure either with FIAT, cryptocurrencies or by completing a task or level in an online game. The players may use the tokens to buy other one or two NFTs in the open marketplace, to purchase real-world objects, etc.

One such game is Splinterlands, a blockchain-based RPG game that allows players within the game's ecosystem to buy and sell trading cards in exchange for other cards and cryptocurrencies and FIAT.

These trading cards unlock powers and abilities that allow players to advance through the levels and collect better and rarer trading cards treated as non-fungible assets that players may trade or lease. That said, while owning these entities may create a lot of value for the developer of the NFTs and the players themselves, from a sustainability point of view, the verdict at present does not favor NFTs in the gaming space.

One of the main issues with NFTs is that most of them are minted on the ethereum blockchain. According to all sustainability indicators, ethereum's blockchain is one of the worst blockchains in terms of long-term sustainability.

As previously mentioned multiple times, the biggest hindrance to making NFTs work is that it is nearly impossible to avoid the gas fees associated with minting and trading in nfts.

Although specific blockchain protocols such as the polygon network have stepped forward to allow for minting and trading of non-fungible tokens to take place with little to no gas fee, recently, the polygon network, some may claim as a result of this particular feature has seen an influx in traffic and this again has bogged down the speed of transactions within the network.

It is generally agreed that whether one wants to buy NFTs or sell NFTs, to increase the sector's sustainability, creators of nfts will need to look at other blockchains that may offer the same benefits but at a lesser cost to the environment.

There are environmentally conscious game developers developing projects to benefit gamers while mitigating the effects of climate change. Still, nothing substantial has occurred that deserves mention.

Conclusion

In conclusion, NFTs and sustainability may not go hand in hand at present due to the enormous amount of energy needed to run the blockchain networks on which NFTs are minted. 

However, if one looks at the prospects of NFTs, there is hope that they might be able to deliver what they promise so long as the sustainability issue is addressed urgently and promptly.

A lot of blockchain solution enthusiasts like the author of this article, after taking into account the economic benefits NFTs offer to not just the creators of the NFTs but also their future generations, it is essential to realize that given the potential, it would benefit everyone if the sector was scaled up with sustainability as an utmost priority.

Such a reality would reward not only those involved with NFTs but also help nurture talent and the future of Blockchain technology and human creativity.

About the Author:

I am the Marketing Director for the Government Blockchain Association and a member of the organization's Environmental Sustainability Stewardship working group.

A specialist in marketing with no technical background to speak of, I am a relative newcomer to the blockchain space and learning on the fly.

However, what I lack in technical expertise about the industry, I believe makes up for it in enthusiasm and an unquenchable desire to learn more than I knew yesterday in order to contribute towards a better, humane, and impartial future for all - something I learned from one of my idols, Neil DeGrasse Tyson.

I want to take this opportunity to thank the few members of the Government Blockchain Association's Sustainable Environmental Stewardship working group - namely Priya Guliani, Noleen Mariappen, Armeen Gould, Dylan Nunn, Jasmine Gould, Silvio Pupo-Casco, Ross Myers, for contributing to my education that led to the writing of this article.

I'd like to thank you for taking the time out of your busy schedule to read this article, and I hope you found it interesting and thought-provoking as always. I'd like you to spread this essay and also connect with me on LinkedIn as I delve further into this fascinating new industry.

Disclaimers:

All opinions and views expressed in this article are my own and do not necessarily express the opinions and viewpoints of any person mentioned or organization I currently represent.

This post includes affiliate links to products and services that I support. I may get a commission if you click on one of these links and purchase an item or two. Your purchase price will not be changed in any way, shape, or form but, the revenue generated for me will help keep the lights on at my end and encourage meto keep bringing you more quality content.

Finally, non-fungible tokens are a new and speculative financial instrument that should be thoroughly researched before investing. Don't put yourself in a position of risk by putting more money than you can afford to lose into it.