Part 2: Mapping NFTs to Real-World Assets
March 29, 2023
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At its core, an NFT is a pointer from an entry in a ledger to a wallet address. It denotes ownership at a specific time, with metadata and value extrapolated from external sources. I could try to make it more dull than that but I’m not sure I could.
While blockchain technology has its limitations (and NFTs have their fair share of haters), it's just good enough to open the door to exciting possibilities.
Just to level-set; I do not believe that crypto, blockchain or NFTs are going to disrupt global banking systems or create a layer of trustless decentralized finance infrastructure across the globe. Nothing is ever absolute. Instead, I see the technologies around blockchain as aiding in new ways to bank the unbanked and represent assets in the real-world. I firmly believe that this will manifest itself much like open source software did at the turn of the century; we still pay for software today, we just do it in a different fashion and many of the tools, methodologies and business models have been shaped by that open collaborative process.
During the NFT bubble, billions were invested in infrastructure and services that could be layered on top of digital assets. Although the bubble has burst, the groundwork laid by this technology boom has created new opportunities.
If I can validate a physical asset and map that to an NFT that is relatively portable, I can open up a whole new range of interesting services for the digital version of that physical asset. I can also track important things like its provenance (who owned it when) and trace its history (where did it live, were there any insurance claims against it, etc). Streamlining an inefficient system for engaging with interesting physical assets - it just makes better sense in the long run to make this all portable and transferrable.
Going back to the eBay example from our previous post, I can easily create a listing there, connect with a buyer and sell my item. However, I don’t have any means of tracking that specific physical item to that specific sale. When the transaction is over, *poof*, that relationship is now lost and the opportunity for provenance is gone with it. Mapping your listing to a physical asset tied to an NFT opens up the ability to solve for the *poof* problem.
The concept of an NFT mapped to a physical asset has been around for quite some time. A lot of people have raised a lot of money to prepare for this new world order. They throw up their marketplaces, tell a really fancy story and hire teams of people to drum up interest in their New World Order. All to crickets and poorly aged Super Bowl commercials.
Physical assets, whether it be collectibles like trading cards, vintage cars or fine art, are currently relationship businesses. There are communities who know these asset classes, who understand their value and their intricacies. The communities also thrive on trust and authentication which require centralized bodies of understanding. “Trustless” is not in their vocabularies. Trying to build something without them is a fool's errand.
My personal take on NFTs as they relate to real-world assets (RWAs) is that they should be additive. Technology like this should have small, immediate impacts on your business in the near term and be transformative over the long haul. This isn’t about replacing or usurping these communities. It should be about empowering them and enabling them far beyond the siloed marketplaces of the aughts and teens.
One reason NFTs are poised to succeed in the realm of real-world assets is the often-misunderstood mechanism of royalties. Royalties and their enforcement could drive a revolution in the digitization of physical assets, creating a new ecosystem in which businesses thrive. We’ll discuss that in part 3 of our series.
