Decentralization And NFTs: Bridging The Universe With The Metaverse.
Current state of affairs, potential, future.
Back in 2017, the Ethereum community accepted an Ethereum Improvement Proposal (EIP), i.e. the Ethereum Request for Comment 721 (ERC-721), which was simply a proposal for a protocol motivated by the need for a fungibility-based distinction of tokens.
By means of this protocol, a standard interface for non-fungible tokens got established. That is, unlike ERC-20 tokens which are all fungible with each other, ERC-721 tokens are unique, and thus, each asset they represent is distinct respectively.
The deal is that a non-fungible token is usually a unique single edition or limited edition token, that holds additional data and/or media, and is able to interact with the Ethereum blockchain and various other decentralized applications.
In simple terms, the non-fungibility of a token stands for the exclusive blockchain-stamped uniqueness of a token. For example, two $10 bills are fungible in a way that they are indistinguishable from each other in terms of value, appearance, and utility. On the contrary, two different movie theatre tickets will grant you access to two separate movies in different rooms perhaps on different time slots; thus, they are non-fungible. To sum up, the Ethereum dev and user community gave birth to non-fungible tokens or NFTs.
The Nifty uprise
Over the past three years, the DLT-scene has experienced impressive fluctuations with regard to market capitalization, user acquisition, available products, and services, etc. 2018 was the downturn of the previous year that was followed by an explosive upsurge from 2019 until today.
However, throughout this tumultuous situation, the NFT scene was in a continuous uptrend, with the total market capitalization of the industry being less than $50 million in 2017, while more than $220 million is currently circulating in the Ethereum sub-industry. In fact, the NFT economy is evolving at such a rate that taking the leading role in DeFi is the most likely scenario; and, with good reasons.
It would go beyond the scope of the present narrative to undertake a detailed overview of the numerous current NFT use-cases, yet it is important to realize how many traditional industries have been transformed and prospered in unprecedented ways.
Presumably, the most popular NFT use-case, that the majority of users may have stumbled upon, is crypto-art, coming in a variety of forms, such as GIF-art, animations, 3D sculptures, and more. We all have heard of the infamous CryptoKitties, those 2D cats that can be bred and sold among users, even for rather large crypto-amounts in the likes of several hundred dollars worth of ETH.
There are even newly emerging digital art sub-genres, such as programmable art or unlockable music and audiovisual files. Yet, the array of traditional fields that are growing thanks to NFTs’ capacities is infinite.
For example, you can verify the authenticity of your new NIKE shoes, trade your in-game items across multiple games, e.g. exchange an avatar skin for a custom sword for a different game, attend a fashion show hosted in your favorite VR world, and even tokenize your working time and monetize it.
It is very unlikely that NFTs are being unjustly regarded as the next central player in the realm of decentralized finance, and their ubiquity lies in the potential of the underlying architecture. More specifically, the integrity of non-fungible tokens is pegged to the realization of the decentralization paradigm.
Firstly, being based on token technology, NFTs are positively disrupting several industries at an exponential rate for they are tossing aside any transaction-mediating third parties and replacing them with smart contract-powered trustless mechanisms.
Secondly, the NFT-based tokenization process is adding liquidity to illiquid assets/markets, such as the real estate industry, where fragmentation of a real estate asset allows for greater accessibility, thus greater capitalization potential.
Thirdly, for most users, especially those unfamiliar with programming languages and blockchain architectures, it’s easier to interact with ERC-721 and crypto-collectibles, than ERC-20 tokens that are directly pegged to monetary value and require financial practices. Therefore, the world of NFTs is realizing the principle of accessibility, as it requires a lesser technical understanding of expert terminology and practices.
Lastly, what makes NFTs special is the fact that they simulate the scarce conditions of a physical asset while being part of the digital realm, where anything from the date of creation of each respective NFT, its creator address, as well as its initial value are archived and transparent to the public.
Expanding Decentralization
Despite the indisputable success of NFTs to interact with and lay the cornerstone of decentralization to all these different industries of the traditional world, it would not be unfair to regard the current era as the first and foundational layer of decentralization in its broadest sense.
If we would take all blockchain-based initiatives, including but not limited to protocols, services, and products, and denominate them by the perceptual domain(s) they pertain to, we would end up with projects almost exclusively existent in the digital realm.
This trend applies to the non-fungible scene as well, as it is reasonably self-evident how NFTs have already been vastly explored and utilized by projects pertaining exclusively to the digital domain. Consider, for example, your favorite CryptoKittie or that single-edition 3D sculpture your friend gifted you from SuperRare on your birthday; these are all NFTs, aka assets made up of a virtual-only substance.
What about those goods that are decentralizeable by nature (namely, require an intermediary) and exist in the physical world? For example, instead of my newly acquired NFT that equips my avatar in Somnium Space VR with a custom pair of shoes, what about this limited edition puffer jacket I want to buy for myself from that new NFT-wearables marketplace I just discovered?
The next step towards expanding our endeavors of decentralization would be to link the physical with the digital representations in our perceptual as well as virtual ecosystems by raising the degree of interconnectivity and interoperability between the two domains. We shall transcend from domain dualism to domain connectionism. The current decentralization paradigm should not be limited by digitization; it shall be backed by it.
The Next Page
Currently experiencing the embryonic stage of decentralization, only reflects our chronologically early position in the spiral that DLT unleashed. In fact, this should be a realization of the potential that both blockchain technology and NFTs are offering towards bridging the universe with the metaverse.
Indeed, it is not unimaginable to realize the scenario of two strangers’ avatars meeting in a VR realm and performing a transaction that involves assets in the physical world, with the only intermediary being an automated protocol. In that sense, time will tell whether both domains would merge into a new one, the physical would accommodate the digital or vice versa.
Hence, physical asset tokenization should be the next logical step. What would, then, be needed to decentralize the physical and interconnect it with the virtual? NFTs.
Essentially, NFTs can be thought of as a standardized interface that would act as the commitment bridge between two digital entities engaging in a transaction that is executed in the physical world. Transforming the decentralization mantra of “eliminating all intermediaries”, NFTs allow for establishing an automated, trustless “intermediary” that would underlie and coordinate such a transaction.
An alternative interpretation of the same reality could conceive NFTs’ function as expanding to decentralize more abstract processes that exist in the physical world, such as the notary’s role of acting as a bridge between two parties willing to transact. NFT-focused users, enthusiasts, and entrepreneurs would all benefit from the realization of physical asset tokenization, while at the same time this attempt would accelerate the decentralization journey towards a globally established automated approach to NFT-based trust.
So, what about that puffer jacket I wanted to buy?
Various blockchain-based projects have attempted to realize the scenario of a digital agreement involving a physical asset, yet none made globally accepted progress. Some projects, such as the popular minting platform, Mintbase, are offering their solution, which entails a redeemability form to be filled by the buyer of a physical NFT asset, and a required KYC procedure for the seller for verification purposes.
However, trust is not guaranteed as the commitment of both parties’ ends is not standardized, plus more arbitration is added for that transaction to be executed.
Nevertheless, other projects have come up with more genuine alternatives that solve this trust issue. For example, Boson protocol has envisioned a more unifying and truly decentralized solution. Reducing extra friction and costs, the team devised a protocol, which operates as the underlying infrastructure for other projects to build on.
By virtue of NFTs, their conception is automatizing trust by utilizing NFT vouchers. As two digital parties are both committing to the transaction after depositing a symbolic amount, the buyer’s funds are locked on the voucher, and when the asset gets redeemed by the buyer, the seller gets access to the unlocked funds.
At the same time, both consumer and buyer data is righteously owned by the respective parties, who can participate with a free hand in secondary value-based data marketplaces.
Solutions such as the aforementioned are powerful due to their simplicity and straightforward mentality that is challenging the boundaries we have set to our decentralization vision. This is what is needed from the DLT community to pave the way towards decentralizing more core mechanisms of our human network. First in the chain of reactions comes the advancement of technology itself (e.g. ERCs), then finance-related sectors are transformed (e.g. DeFi), and then commerce follows (dCommerce).
If we consider these fields as “foundational” for the new paradigm, then there is a long promising path unfolding ahead, allowing us to imagine more sophisticated fields of our realities evolving, such as decentralized politics and education.
And all this, thanks to Ethereum and NFTs.
