NFTs are a topic of discussion hard to escape from these days. Either because of multi-million dollar sales or brazen cyber attacks, non-fungible tokens have entered the mainstream world for good. But while the majority of us might think of digital art, music, fashion and the metaverse as the main areas of application of this technology, physical NFTs are also carving out a space of their own in crypto. Here’s a closer look at what they actually stand for and how they are already being used.
What Is An NFT?
Before we get into the nitty gritty of things, let’s break down the concept of ‘fungibility’. An item that is fungible is something that can be exchanged for something else with the same exact value. Money is a great example of fungibility as, for example, a $10 dollar bill can be exchanged for another bill of the same value, or even swapped for smaller bills that would still add up to $10.
A non-fungible item is something that is completely unique and as such can’t be exchanged for anything else of an equal value. Now that you know this, getting to the bottom of NFTs will be easier. A non-fungible token, or NFT, is a type of digital asset that can be proved to be unique and is not interchangeable because no other asset can ever hold the same value. This is why these tokens are called non-fungible. Typically, the record of the uniqueness of the NFT exists on a blockchain and is secured using cryptography.
NFTs can be seen as the digitized information about an asset, digital or physical, or as a digital asset in and of itself. For example, an artist can create copies of their physical artworks, like paintings or sculptures, and sell them as NFTs in a dedicated marketplace. Currently, non-fungible tokens are most popularly used in gaming, digital art, music, sports collectibles and the metaverse, but potential applications are much wider (and yet unexplored).
Some of the core characteristics that define a non-fungible token include:
Uniqueness and rarity
NFTs are by definition unique and sellers can produce a limited number of non-fungible tokens which, in principle, keeps them scarce and raises their value even further. That would be the case with popular NFT collections like CryptoPunks and the Bored Ape Yacht Club, each containing 10,000 unique NFTs.
Proof of ownership
When purchasing an NFT, buyers get some rights to the underlying digital item, including ownership, although that is not always the case. Blockchain technology allows the ownership of a digital asset to be recorded and be made publicly accessible, making it verifiable at all times. This applies to physical NFTs as well.
Immutability
The information embedded into blockchain-tokens by developers is nearly impossible to be tampered with or in any form compromised. This helps NFTs be a transparent and trustworthy technology.
Programmability
NFTs can be in a number of ways with features like royalties or life which are detailed through NFT smart contracts. There are also experimental applications being explored in DeFi.
What Is A Physical NFT?
NFTs are most commonly associated with the artworld, but non-fungible tokens have been issued and sold as a digital representation of off-chain assets like sports collectibles, antiques or even consumer goods. Here, the NFTs can act as a guarantee of ownership over a real life, physical item if the buyer indeed wants to have a physical version of their property. So in short, a physical NFT is a non-fungible token that is linked to a physical asset. A great example worth mentioning is how famed digital artist Beeple has provided physical tokens connected to his artworks as he himself explains, which will typically include a high-resolution screen art display, a signed certificate of authenticity, cleaning materials and a hair sample (allegedly, don’t take our word for it). In the end, physical NFTs can be sold just like any other non-fungible token or be redeemed for the physical item it is connected to.
Examples of physical NFTs
While the focus on physical NFTs is yet to gather the momentum seen elsewhere in the crypto sphere, here are some of the best (and most successful) examples of physical tokens taking off:
Adidas Originals
The German sportswear giant dove head in into the the metaverse in 2021, putting out an NFT collab with Bored Apes Yacht Club, a project whose NFTs have sold for millions of dollars and are the crypto darling of celebrities like Jimmy Fallon, Eminem and Paris Hilton. Buyers of the Adidas Originals were able to claim exclusive physical merchandise including hoodies, tracksuits and beanies.
RTFKT Studios
Virtual sneaker powerhouse RTFKT (recently acquired by Nike) has long made a bet on physical NFTs, allowing owners of non-fungible tokens to easily redeem physical footwear, calling the NFT the “blueprint” to real world creations. RTFKT has frequently collaborated with other crypto creators to design a range of physical items.
WENEW
Co-founded by pioneering digital artist Mike Winkelmann (also known as Beeple), WENEW is an NFT platform aimed at selling “iconic” historical moments and cultural milestones, like Andy Murray’s 2013 Wimbledon win. In addition to the digital tokens, collectors can receive a physical museum-quality screen” that displays their NFT.
GAP
Fashion retailer GAP has recently launched its first NFT collection that unlocks physical hoodies. The non-fungible tokens are the product of a partnership with Frank Ape artist, Brandon Sines. As explained by GAP, in order to claim a Frank Ape collectible hoodie, fans have to collect Common and Rare level tokens.
Mattel
Legendary toy maker Mattel entered the NFT world together with entrepreneur Gary Vaynerchuck, launching a physical UNO deck featuring Gary Vaynerchuk’s VeeFriends NFT signature characters. Mattel has signaled that more drops might be lined up, saying it intends to continue exploring the “intersection between gaming, digital art and collectability”.
How Do You Link An NFT To A Physical Item?
Say that you’re interested in the idea of linking an NFT to a physical item, how do you go about it?
For the sake of simplicity, let’s take a physical painting. You have to start by creating a ‘digital twin’ of it, which can be easily done by taking a photo with your phone - or better yet, with a professional camera. Once you’ve digitized your work, it’s advisable that you make sure that all the information (metadata) related to the painting such as sizing, technique used, author and more, is as precise as possible and properly attached to the virtual file. From here, you’ll choose a trustworthy NFT marketplace like OpenSea to mint your painting (here’s a quick intro). For Ethereum-based tokens, which are the majority, smart contracts assign ownership and manage the transferability of the NFTs. This helps set the boundaries of any transaction and any information pertaining to the digital asset gets stored on the blockchain where the NFT is managed. This coding is how you’re able to link your digitized painting, or NFT, to the real life piece.
Frequently, QR codes and NFC tags serve as the visible link while Nike, for example, has experimented with digital shoes featuring a unique identifier that is to a physical pair.
It’s worth keeping in mind that an NFT can’t be modified after being minted, so you better nail down the details, including coding, before minting and linking digital to physical assets.
Benefits of physical NFTs
The biggest upside of creating physical NFTs comes down to being able to prove authenticity and provenance. In a world where the market for counterfeits is estimated to be worth upwards of $500 billion, physical NFTs can be a valuable tool for buyers and sellers. Thanks to blockchain technology, information attached to virtual assets and their physical counterparts can’t ever be changed, faked or tampered with, providing a data trail that can be trusted.
Another major advantage has to do with cutting the middleman from transactions, giving freedom and monetary rewards to buyers and sellers alike.
Lastly, physical NFTs can be tied to recurring royalties and with that, for example, every time an asset changes hands, the seller can get a cut.
The challenges of linking physical assets to NFTs
As with any emerging technology, physical NFTs can come with disadvantages. To begin with, there might be legal issues to contend with as the buyer of a physical NFT might not have access to the actual copyright of the asset, so they won’t be able to distribute, share or even display it in public in some cases. In addition, it’s possible to create a physical asset like a sculpture and sell the NFT to one buyer and the physical item to another, without it being linked to the non-fungible token. And then there’s of course the problem of fake sales, less than credible sellers and hacks, all of which marketplaces are trying to tackle but there’s clearly a long way to go.
Bottom Line
It’s clear that NFTs can have a wide range of applications to digital assets as well as physical. While most of us will associate non-fungible tokens with big names like CryptoPunks, the Bored Apes or the NBA Topshot collectibles, physical NFTs can extend to real life, mundane areas like the supply chain where blockchain technology can provide traceability, authentication and certification assurances. Some have pointed at linking non-fungible tokens to physical assets as one of the strongest cases for the use of NFTs and blockchain technology.
