Ask someone what an NFT is, and they’ll instinctively think of digital art — the CryptoPunks, Bored Apes and Ether Rocks that have sold for eye-watering sums.
In some circles, nonfungible tokens have been dismissed as a vehicle for speculation, with critics lamenting that demand for such assets is fueled by greed.
But this argument doesn’t give us the full picture. We’re barely scratching the surface of what these one-of-a-kind tokens can achieve — and new use cases are continually emerging.
The music industry is tentatively exploring what NFTs have to offer. Live Nation, one of the world’s biggest entertainment companies, has started offering digital versions of ticket stubs — giving fans a virtual memento of the gigs they’ve attended. Other platforms are allowing consumers to invest in new music and receive a share of the royalties. TV shows and films are being funded through NFTs too — and despite a backlash from players, gaming brands are also dabbling in this technology.
NFTs also have the potential to improve existing crypto services, with DeFi being one of them. What if this technology could be used to unlock access to specific permissioned services… and could we see popular crypto collectibles be widely used as collateral?
While the “NFTification” of the decentralized sector is seen as inevitable in some crypto circles, there are some hurdles that need to be overcome. Let’s explain why.
NFTs cost a mint
Inevitably, any discussion of what’s holding NFTs from playing a bigger role in the DeFi ecosystem needs to begin with the cost of minting such tokens.
Even on a robust Layer 2 network, transaction fees mean it’s often uneconomical to create, distribute and trade NFTs. This particularly explains why these crypto collectibles are so exorbitantly priced — not to mention why new use cases for nonfungible tokens are only being explored at a glacial pace.
As traders impatiently wait for Ethereum’s Proof-of-Stake network to launch, this blockchain has become unaffordable for many everyday users. While…