2022 International conference on E-business technologies (EBT) 103

Analysis of potential NFT applications

Vukašin Despotović Daniel Bjelica Dušan Barać

University of Belgrade University of Belgrade University of Belgrade

Faculty of Organizationsl Sciences, Faculty of Organizationsl Sciences, Faculty of Organizationsl Sciences,
Belgrade, Serbia Belgrade, Serbia Belgrade, Serbia
despotovic@ooxcit.com daniel.bjelica@gmail.com dusan@elab.rs

Abstract— The Non-Fungible Token (NFT) market has of media globally, which resulted in influx of millions of
seen a huge leap in popularity in previous year (2021). Sales new investors. Arts and collectibles have pushed NFTs
of nonfungible tokens have increased from $82 million in into the mainstream, and other categories such as gaming
2020 to $17.6 billion in 2021 reflecting a huge spike of interest have soon followed the lead. Projects like Crypto Kitties
in the new technology. Over 2.4 million new crypto wallets
and Axie Infinity have spearheaded the growth of gaming
started trading NFTs in 2021, as compared to only 89,000 in
2020. This sudden increase in popularity has attracted huge NFT’s [5][6]. Slowly but surely, the technology is making
attention from industrial and scientific communities. It was its way into other industries as well. In the continuation of
widely debated whether NFT ecosystems are the next step in the paper, we will be looking at the technological innova-
the internet evolution, or they will never find their place in the tions which were used as a foundation for NFTs, and we
real world. The non-fungible token technology is in its early will be discussing possible future application of NFTs in
stage, and currently it is mostly used in collectibles, arts, and ticketing, medical, entertainment, business, real estate, and
gaming industry. In this paper, we will explore other possible finance industry.
applications of NFT technology in the future.

Keywords - NFT, Ethereum, Blockchain, Smart Con-

II. TECHNOLOGICAL FOUNDATIONS OF NFT
tracts, dApps

I. INTRODUCTION A. Blockchain
Non-Fungible Token (NFT) is a type of unique and in- The blockchain can be described as a distributed da-
divisible blockchain-based crypto token, introduced with tabase that maintains a list of all records in blocks of data
EIP-721 (Ethereum Improvement Proposals) [1]. As op- which are protected and linked to each other using cryp-
posed to other, classical cryptocurrencies which are de- tographic protocols. Each transaction is validated by con-
fined by value, NFT’s cannot be interchangeable for other sensus of majority of participants before being grouped
tokens as they are defined by their own unique properties into a block and added to the chain. Each block is cryp-
[2]. They give us the ability to assign or identify owner- tographically linked to the previous one and replicated
ship of any unique piece of digital data, trackable by us- across copies of the entire ledger within the network.
ing Ethereum’s blockchain as public ledger. Historically, There is a set of rules established to automatically resolve
NFTs were mostly used to represent ownership of digital any possible conflicts. This concept, combined with sev-
art and collectibles, but they can also be used to represent eral other technologies was used by Satoshi Nakamoto in
physical and real-world items such as deeds to a car, tick- 2008 to propose an idea of peer-to-peer electronic cash,
ets to an event, legal documents, signatures etc. One of the effectively creating Bitcoin [7]. The first of many mod-
earliest examples of a commercial NFT would be a project ern cryptocurrencies. The most widely used blockchain in
called Crypto Punks, created by LarvaLabs in 2017. It was NFT schemes is Ethereum, while Solana, Binance Smart
a collection of 10,000 uniquely generated 8-bit collectible Chain, Cardano, Algorand and many other blockchains are
characters on the blockchain [3]. Even though they are just becoming increasingly popular as well.
digital images, they are deemed as an important piece of
internet history, and the cheapest Crypto Punk costs over
$100,000 today. It is worth mentioning that depending on B. Ethereum
their properties and rarity, the prices of Crypto Punks dif-
fer, most expensive one in the collection (#5822) was sold The idea for Ethereum was first published by Vitalik
for roughly $24 million. Another example showing the Buterin in 2014, setting the foundation for its launch in
mind-blowing value of NFTs is the work of a famous dig- 2015 [8]. Just like bitcoin, it is using blockchain technol-
ital artist, Beeple, whose art piece called “Everydays-The ogy, with Ether (ETH) being its main cryptocurrency. As
First 5,000 Days” was sold for $69.5 million in form of an opposed to bitcoin, Ethereum can execute and run pro-
NFT in March 2021 [4]. This craze has attracted attention grammable code on its network. To put it simply, it is be-
104 Blockchain

having like a global and decentralized virtual computer, A blockchain based address is consisting of a fixed
whose state every participant in the network agrees on. number of alphanumeric characters. It is used as a unique
This innovation has made Ethereum the foundation for identifier for users to send and receive assets. In order to
many emerging technologies, such as DeFi (Decentralized transfer any assets on the blockchain, including NFTs,
Finance), DAOs (Decentralized Autonomous Organiza- the transactor must prove he is in possession of the corre-
tions) and NFTs. Some of the benefits of Ethereum are: sponding private key and sign the transaction with a cor-
Zero Downtime, Privacy, Resistance to Censorship, Com- rect digital signature. Nowadays, this operation is simpli-
plete data integrity, Trustless Computation [9]. fied with the rise of popularity of cryptocurrency wallets
such as MetaMask, TrustWallet, Trezor, Ledger Nano and
others.
1) DeFi (Decentralized Finance)
DeFi is an umbrella term for all financial products and III. NFT APPLICATIONS
services accessible through Ethereum. With DeFi, there is
no centralized authority who can block payments or deny Figure 1 shows a taxonomy of possible NFT applica-
access to anyone. Services like lending, borrowing, token tions, dividing it into physical and digital assets.
trading and crowdfunding that were previously prone to
human errors are now automatic and handled by open-
source code that can be inspected and verified by anyone
[10].

2) DAO (Decentralized Autonomous Organiza-

tions)
DAOs are an effective and safe work to create organ-
izations with unknown parties around the world. Simply
put, it is an organization collectively owned and managed
by its own members. All decisions and proposals are gov-
erned by voting, ensuring every member has a voice. There
is no central authority, everything is controlled by a public-
ly available code [11].

C. Smart Contracts
Fig. 1 – Taxonomy of NFT applications
The concept of smart contracts was first introduced by
Nick Szabo in 1996 [12]. Ethereum further developed his The possibility of identifying ownership of anything
idea, applying it onto the blockchain. Essentially, smart on the blockchain is allowing us to trade both digital
contracts are enabling unfamiliar parties to conduct fair and physical goods using the NFT technology. This sec-
exchange and automatically enforce contractual terms of tion will explore and discuss possible future applications
an agreement without need for a third party. In oversimpli- through several examples. Some of the proposed solutions
fied terms, as described by Nick Szabo, they can be com- are already in the works, and some are just theories of what
pared to a vending machine – with the right inputs, a cer- can be done.
tain output is guaranteed. Just like a vending machine can
remove the need for a vendor employee, smart contracts A. Ticketing
can replace third parties in many different industries.

Anyone can create a smart contract and deploy it on Digitalization of tickets has pushed the entire indus-
the blockchain, and anyone can interact with the contract try forward, leaving behind many of the problems which
if the fee is paid to the network [13]. Ethereum’s primary were tied to physical tickets, such as: cost of printing and
programming language, Solidity, is a Turing complete lan- distributing, possibilities of losing or damaging the ticket
guage, giving a lot of flexibility to developers. Most NFT before the event and many others. New, digital tickets in
projects are relying on smart contract-based solutions for form of QR codes got rid of these problems, both for the
implementing sale agreements, verifying ownership, han- event goers and organizers, still, a lot more can be done
dling transferability, limiting the supply and many other to improve the business. Fraud is still very much present
functions. in the ticketing industry, a lot of secondhand ticket buy-
ers are prone to scams, there is no way to know wheth-
er a ticket they are buying is real, or fake. On the other
D. Address and Transaction hand, the organizers do not earn any additional revenue on
secondhand sales, while customers must pay much higher
 2022 International conference on E-business technologies (EBT) 105

prices, which is a loss for both sides. These problems can C. Real Estate
be solved by implementing NFT technology. The transfer
of tickets from the initial sale, all the way to secondhand NFT technology has a huge potential in tokenizing real
sales would be stored on the blockchain immutably, and world assets. Theoretically, owners could issue a token
all parties could prove the tickets authenticity with ease. that represents their property, and this token could be sold
As a programmable digital asset, NFTs can have built in to interested buyers, completing the process of transfer-
rules for royalty splits, which means that everyone partici- ring the ownership with ease. All the information about
pating in organization of an event can receive their part of the property, including when it was built, who was the
the earning directly from the smart contract, removing the first owner, how many times it was sold and for what price
need for unnecessary third parties. Event after the event, would be stored on the blockchain without the possibility
tickets would stay as collectibles in the customers crypto of tampering. Another benefit of NFTs could be the frac-
wallet, possibly being re-sold to other collectors with ease. tional ownership of real estate. A single expensive prop-
erty could be split into several tokens and sold to several
different investors who would receive percentage of rental
B. Metaverse income or capital appreciation upon sale through a DAO.
Doing this would require no interaction between the inves-
Metaverse is the idea of a perpetual and persistent mul- tors, there would be no need for a third party, and it would
tiuser virtual environment unifying physical and digital re- give more people a chance to invest in the real estate mar-
ality. This concept is not necessarily new, in early 2000’s, ket, potentially increasing its overall liquidity. Token being
massive multiplayer games such as “Second Life” and tied to a real-world valuable asset would open more op-
“World of Warcraft” were already textbook examples of portunities for decentralized finance as well. Getting loans
a Metaverse [14][15]. In case of Second Life, users could without ever going to a bank would be possible through
create their own content or services and trade with other various DeFi applications. The property token could be
people. Players could also enjoy many different real-world used as a collateral and locked in a pre-defined smart con-
experiences such as working, partying and even purchas- tract until repaying the pre-set amount. Similar concept of
ing and renting out virtual properties. The game had its decentralized lending already exists through various plat-
own virtual economy, and virtual currency which could forms such as AAVE, with fungible tokens being accepted
be exchanged with real-world currencies. Even though the as collateral [19].
idea itself has been around for over 20 years, recent ad-
vancements in technologies such as VR (Virtual Reality),
AR (Augmented Reality) and MR (Mixed Reality) have D. Authenticity of products
brought it to the forefront of tech industry. Rapid devel-
opment of blockchain technology has created an oppor- According to a report by the Organization for Econom-
tunity to create a new, more appealing type of Metaverse, ic Cooperation and Development (OECD), trade of fake
in which all assets are owned by the players instead of merchandise accounts for 3.3% of global trade. Major-
centralized companies. By utilizing NFT technology, own- ity of the globally counterfeited merchandise consist of
ership of every asset in the virtual world would be easi- wearing apparel, footwear, clothes [20]. These goods are
ly trackable, and tradable. One of the pioneers a project usually much lower-quality products, and their sales hurt
called Decentraland - it is a virtual reality platform pow- the brand identity and company revenue, but they do not
ered by the Ethereum blockchain, in which users can cre- impose as big of a threat as fake pharmaceuticals for exam-
ate, experience, and monetize content in applications [16]. ple. Counterfeit pharmaceuticals and personal care prod-
Every piece of land in Decentraland is permanently owned ucts can jeopardize customers health and safety, and it is
by the community through Non-Fungible Tokens acquired very important to find new solutions to fight this problem.
by spending an ERC20 token called MANA. Unlike pre- As per WHO’s estimates, 1 in 10 medical products in low
viously mentioned Second Life, Decentraland is not con- and middle-income countries is substandard or falsified
trolled by a centralized organization. No single entity has [21]. Various tests have identified drugs containing unhy-
the power to modify the rules, contents, or economics of gienic or dangerous materials like brick dust, sheetrock,
their metaverse. A single piece of virtual land in Decen- and printer ink [22]. Merck KGaA has reported that coun-
traland currently costs several thousand dollars and is one terfeit antimalarial drugs alone could be responsible for the
of the most traded NFTs on OpenSea, with over 185 thou- deaths of up to 155,000 children annually [23]. Pharmaceu-
sand Ethereum in trade volume (currently worth around tical supply chains usually span across multiple different
379 million dollars) [17]. Their native token MANA has countries, making it very difficult to track and authenticate
a market cap of over 2 billion dollars, making it one of genuine product. Implementing NFT technology could
the world’s top cryptocurrencies [18]. Even though De- become a solution for authentication of genuine products.
centraland is still in early phases of development, based Blockchain technology could allow us to trace the product
just on the trading volume, it is evident that the idea of a from its creation to the final destination, without the pos-
decentralized metaverse is very popular among the public. sibility of tampering with the information or adding more
units. Every unit in the starting pharmaceutical factory
can be tokenized on the blockchain, containing necessary
information such as: Serial Number, Ownership, Name,
106 Blockchain

Expiration Date, Active Principle, Company Name, De- and performance are some of them. Most of NFTs are
scription etc. Only the creator of the smart contract could minted on Layer-1 blockchains such as Ethereum, where
change the data, and it would be publicly visible. When high gas fees and high network congestion can be an issue.
the package physically leaves the factory and is distributed During peak times, a simple mint execution can cost up
to the next point in the chain of supply, the ownership of to 300$ per NFT. Recently, during the mad rush to mint
the NFT will be transferred as well, with the transfer being Otherdeed NFTs, investors have spent approximately $157
publicly visible on the ledger. Once the final product is million in gas fees to mint only 55,843 tokens [25]. On
sold to the customer, the NFT ownership will be changed average, around $2800 was spent on fees per each NFT.
to an address which no one has the control of, burning it, In addition, current Proof-Of-Work system employed by
so it cannot be sold again. Applying this method, it would Ethereum is known to leave a very high carbon footprint,
be very easy for the customer to check the authenticity of which is problematic for the environment. A single NFT
the product they are buying. If for example, they check the minting equals to around 100 KgCO2, with every addi-
information, and see that the product was produced at Fac- tional transaction adding up. For example, an NFT which
tory A, sent to warehouse B, which sent it to pharmacy C, was minted and sold several times could equal to 500 +
if they encounter the product in any other pharmacy, they KGCO2 which is comparable to pollution of a 5+ hour
can be sure that it is fake. There would be no way to add long flight [26]. Although it won’t solve this problem com-
additional fake products in the middle of the supply chain, pletely, Ethereum’s upcoming switch to Proof-Of-Stake
as any additionally created product, would not have a valid will substantially lower the carbon footprint, lower the
ID and history dating back to the production factory. Same gas price, and increase transaction speed [27]. Security is
system could also be used with different type of products, also a very important issue – people all over the globe are
such as luxury goods, electronics, vehicle parts etc. getting hacked and scammed daily. Usually, in centralized
systems, money can be refunded, stolen items can be giv-
en back, and passwords can be changed. In a decentral-
E. Medicine ized system, there is no central authority that could help
the aggrieved party. Same people losing their Facebook
Most medical information is digitized and saved in password in phishing email attacks today, could lose their
electronic health records. This data is not used by physi- property deed in the same attack tomorrow if nothing is
cians exclusively, instead, medical researchers and com- done about security. Currently, only 25% of U.S. adults
panies are purchasing it in large, anonymized sets as well. are familiar with NFT, while only 7% are active users, that
While this is very important for the advancements in med- is not a surprise, seeing as how complex participation in
ical industry, it is also posing an ethical question. Large the market is at the moment [28]. To reach mass adoption,
amounts of sensitive, personal health information are be- this space needs to adapt a more user-friendly approach.
ing traded legally, outside of patient’s awareness. While For now, NFTs have revolutionized digital art market, giv-
the data is anonymized, there is no reason to believe that it ing artists around the world a new way to monetize their
cannot be deanonymized using modern computer advance- work without restrictions. Time will show whether this
ments. According to Kristin Kostick-Quenet, a medical technology will mature enough and revolutionize above
ethicist at Baylor University, the current system is favoring mentioned industries as well, or it will burst like a bubble
the companies which control access to health records, in- many are expecting it to be.
stead of being centered around the interests of the patients
whose data is being used. There is no way for patients to
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