- Non-fungible tokens are the latest craze among collectors, but the business uses are still emerging.
- Experts say NFTs present an opportunity for entrepreneurs in industries from gaming to real estate.
- The best way to learn how it works is to simply get started with something small.
- See more stories on Insider’s business page.
When Mark Cuban wanted to understand how non-fungible tokens work, he did what he often does: a simple experiment.
He made GIFs out of a few video clips of himself and listed them for $25 each on a website that sells NFTs, unsure if anyone would be interested.
To Cuban, it was worth a shot because the digital tokens can be programmed to have one thing that’s irresistible to any good “Shark Tank” judge: passive income in the form of royalty payments.
Whenever the GIF is sold, Cuban expects to get a cut.
“That, in my opinion, is the ultimate game changer and why every seller of anything digital needs to look at NFTs,” he said.
But recurring revenue streams are only one facet of NFTs’ appeal to entrepreneurs. For all the hype surrounding the technology right now, it barely scratches the surface of what is coming in the next few months and years.
NFTs derive their value from being unique
Consider a dollar bill. In all important respects each is interchangeable with another, and is therefore a “fungible token” of value backed by the US Treasury.
But look closer and you’ll see a unique serial number. Maybe it was once used by Mark Cuban, or maybe it was the first dollar your business ever received. If the value of a bill depended on those properties, it would be non-fungible.
NFTs could be used in many industries — from real estate to gaming to finance
“NFTs can be anything,” said Craig Russo, the director of innovation at the virtual-economy investment group Polyient.
The main thing to remember is that the real value in an NFT is its ability to encode certain features in the original token, such as earning its creator recurring royalties every time it’s sold to someone else, or unlocking new perks as the token gets traded.
NFTs are dominating headlines because collectors are bidding astronomical sums on digital artwork, but Russo’s firm is banking on a major adoption of NFTs in the gaming and esports industry.
What makes gaming NFTs different from art ones is that a player can use the NFT in a more interactive way than the collector who can only hope someone will buy their $69 million crypto art.
Russo expects the technology could eventually penetrate into real estate and beyond, as our physical and virtual worlds continue to merge.
Cuban said he could see the Dallas Mavericks using NFTs for ticketing in order to capture a portion of ticket resales, or even use the tokens’ “smart contracts” features to offer additional perks.
NFTs are expensive right now, but costs are coming down
The biggest challenge to the development of NFTs right now is cost. Cryptocurrency generation notoriously consumes more energy than Argentina, and NFTs are not only more complicated but also have to compete against other forms of decentralized finance.
Think about how much mental energy it takes to notice what makes one dollar bill unique from all others.
Another critical challenge for businesses is a customer base. User-friendly apps and support systems could lower the barriers to entry for new users.
How to get started
As with any technology that is emerging in real time, the best way to learn is through participation.
“I recommend you roll up your sleeves and just try out the process,” Russo said. “Once you try it, a lot more things click in your head.”
The gold standard right now is Ethereum, but that can require more time, money, and knowledge than a crypto novice would be willing to commit. Fortunately, Russo said there are dozens of services that save money and hassle by using a kind of side chain that is validated against the primary blockchain.
All you really need is something digital to sell, such as a photo or video you made, Cuban said.
“I invested in a company called Mintable.app specifically because you can mint an NFT for sale in their store, and it is zero cost. No Ethereum transaction fees or anything until it’s sold,” he said.
Another way to familiarize yourself with tokens is to simply play a video game such as ‘Fortnite,’ which Russo said is a great primer for understanding how the next generation of the digital economy could work.
Lastly, be on the lookout for communities springing up around shared interests or industries on platforms such as Discord and Reddit, as people work together to incorporate the technology into their business models.
What works for artists now would likely be different from how entrepreneurs might use this in the future, but the possibilities are practically limitless.
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