NFTs are one of the most powerful developments in the crypto world. The main use case for these tokens right now is to certify digital art as authentic, providing artists with new opportunities to earn money with their work in a more controlled and transparent way than traditional art. Because the blockchain is a product of the digital age, the assets you will find on most NFT marketplaces are almost exclusively digital.
In this article I will explain the reasons why NFTs are suited for digital art and if they can be used to sign physical assets.
What is an NFT?
First things first: What even is an NFT? A non-fungible token, short NFT, acts as a certificate to sign digital goods as original and/or unique. NFTs are stored on the blockchain making them forgery-proof. The process to get the NFT on the blockchain is called “minting”. Minting an artwork can make it unique even if there exist millions of digital copies of it. When minting an NFT you connect a token and your asset (art, music, collectibles, etc.). The asset is now bound to that token and whoever has the token in their wallet, is now the owner of the NFT. As every token is unique, all NFTs are also unique, even when multiple NFTs are minted from the same asset.
Usually a token acts like a serial number on a bank note - it's useful to identify particular notes, but in the end the bank note is fungible, meaning it is interchangeable to any other bank note with the same value.
The term non-fungible means the asset is not interchangeable. You can easily trade 1 ETH for any other ETH, but NFTs represent an asset instead of a value, even though they are traded on the same blockchain. Even the same looking assets can have different values because of the difference in the token. The platform NBA Top Shot for example sells the same video clip multiple times. The clip is exactly the same, only the serial number differs, making some clips worth a couple of dollars while others sell for hundreds or thousands of dollars.
Why Digital Art?
So why are NFTs focused on the digital world? The way non-fungible tokens work right now is that the asset is bound to the token in the minting process. In the digital world this connection can easily be made by programming a URL into the NFT that points to the digital asset. This way the owner of an NFT can be sure to own an original asset as an NFT can not be edited in any way after the minting process. So as long as the link is active, the NFT will always point to the correct asset, making scams and forgery almost impossible. Many marketplaces use a decentralized file hoster to ensure the link to the NFT can not be attacked by hackers or removed in any way.
NFTs and physical goods
The problem with using NFTs to sign physical or analog goods is that the link between the token and the asset is not as tightly bound as in the digital world. Shifting assets away from the blockchain is a security risk and manipulation on the assets can not be excluded. Nevertheless there are ideas to how the authenticity of an asset might still be ensured.
Ideas for creating physical NFTs
One way to ensure the uniqueness of a physical asset is to include a custom-programmed NFC tag into the item. In the chip is an encoded link to a decentralized file system, signed by the company. The owner can then just swipe their phone over the asset to determine its authenticity. This method is for example used by the company Flipkick and was used to digitally sign the physical painting F.or Y.our R.eal E.ntertainment by artist Tripp Derrick Barnes.
This concept proves that NFTs can in fact also be used for physical assets. However transferring the technology of NFTs into the physical world comes at the expense of security. While the chip itself might be a secure link to the digital world, it can't guarantee that the asset around it is original and the chip hasn't been transferred into a forgery or duplicate. Because of these security issues I don’t see valuable physical assets being signed with NFTs in the near future.
In theory it is possible to create physical NFTs, however so far the link between physical assets and digital NFTs is just not strong enough to guarantee authenticity. The weak point is just simply the physical work itself. NFTs are spreading rapidly because they can ensure security and authenticity of an asset due to decentralization in marketplaces, file hosting systems and the blockchains they are minted on. The fact that NFTs can’t be changed after they have been minted is the key point to why they are so secure. Everyone can see what happens on the blockchain.
With physical items no one can guarantee that the asset has not been manipulated. Even implanted chips can not rule that out.
So in my opinion a wide adoption of NFTs into the physical world will not happen in the near future. While physical NFTs are definitely possible - the shift of assets away from the blockchain is too big a security risk.