NFTs can ensure authenticity for every digital asset

As consumers, we want to know if the product of a company we love is made by using products sourced and produced ethically. From toys to food to jewellery, consumers have access to a lot of information on the things they want to buy. But understanding whether a product is ethically sourced is difficult to decipher. This is because products often go through multiple production cycles and trade hands many times. This makes tracking difficult, complex and expensive.  

In the digital world, thanks to deep fakes and a huge amount of misinformation, it is extremely challenging for organizations to find out if a certain video that is shown online of a politician giving his opinion on a controversial topic is genuine or fake. There is also no way to track information as it changes hands over time, unless you have a central registry. NFTs or Non-Fungible Tokens can be used to solve this issue.

Solving the problem of ownership

In 2020, the world was shocked by an explosion that was caused at the Port of Beirut. This explosion was caused by a warehouse full of chemicals with no ownership. The cargo of chemicals had originally been on a ship that was abandoned six years earlier at the port after a diplomatic dispute. As no state or organization claimed the cargo because of the dispute, no one knew what to do with the cargo, and so it sat and then exploded one fine day, catching everyone by surprise.

As we can see, authenticating the chain of custody of an object over a long period of time is a challenging process. It is also an extremely expensive process, which is why not all things are tracked. Works of art are tracked meticulously as they are of immense value.  While tracking technologies have improved dramatically in the past few years, the process is still not transparent, if someone transfers a product to another person. NFTs can solve this issue.

In 2018, CryptoKitties launched as a popular blockchain-based game where you could collect and breed limited-edition digital cats. CryptoKitties are digital but otherwise similar to physical collectables like Beanie Babies or Squishmallows. For any collectible, value is tightly tied to the ability to authenticate its origin.

All CryptoKitties have a unique digital ID (or token). No matter what generation of Kittie you own, its provenance is fully traceable back to two of the 50,000 “Gen 0” Kitties. It’s a unique digital asset that cannot be replicated or broken into smaller pieces (this is the non-fungible part). Once the world realizes that the asset is unique, its value increases. We can see from many examples that non-fungible digital identities have turned out to be extremely valuable. An average price for a Kittie is about $8, though a 9th generation Kittie once sold for $172,000.

Another notable example is the world-famous auction house, Christie’s. In 2021, Christie’s auction house sold an NFT for $69.3 million. The NFT represented a digital file called “Everydays – The First 5000 Days” by artist Beeple. While NFTs had been gaining momentum in the gaming, music, and art world, this was the first time a major auction house had sold what it called a “purely digital artwork.” Previous digital works at auction had been accompanied by certificates of authenticity or hard drives to transfer the files.

How NFTs solve the problem of governance and authenticity

NFTs solve two problems with respect to digital assets: what is the chain of ownership from inception to now; and how to properly price this information. Ownership is highly valued even where access is free. 

For example, anyone can freely view the “Everydays” work on the artist’s website, and yet Metapurse (the collective that won the auction) valued ownership enough to pay tens of millions of dollars for it. We can expect the future of ownership will be one where, at least for high value items, the chronology of the ownership can easily be ascertained or will be embedded as part of the product. NFTs do this today for digitally-native objects. With NFTs, creators (of a product or art) can share and sell freely knowing that they can remain owners of the master copy even as duplicates are shared online, and if they sell their work, they can then be paid a cut each subsequent time it’s sold.

In an era of deep fakes and disinformation and a world where fake videos and fake pictures are often the cause of huge discomfort and in some cases, even lead to situations causing loss of human life, NFTs are a powerful option to help the world ascertain if the information asset that they are seeing is genuine or fabricated.

If we broaden the application of NFTs and imagine use cases beyond the prevalent form of works of art, we can find that NFTs are great for protecting and encrypting and assuring all types of content. If adoption grows, we can succeed in ensuring and guaranteeing the authenticity of every digital asset today.

Alisa DiCaprio

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Alisa DiCaprio is the chief economist at enterprise technology services provider R3