Bridging Physical to Digital Ownership Through NFTs
June 28, 2023
The vast majority of NFT use cases today revolve around the arts and community – purchase a Loudpunx and join their online community of thousands of like-minded people. Just like art in its physical form, NFT digital collectibles are status symbols that also signal one’s likes and dislikes, values, and tastes. Art fuels communities, and these communities are laying the foundation for the world-wide Metaverse. But, many of us aren’t looking for an online universe – we already have a beautiful physical universe right here. Does that mean NFTs will be looked upon as an obsolete fad down the line? We believe they shouldn’t be; their potential extends far beyond the digital realm. Tokenizing physical assets opens the doors for simple solutions to many existing problems just by leveraging the native qualities of an NFT.
One of the most intuitive reasons for tokenizing physical assets is for authentication purposes. From designer handbags to jewelry, a tokenized version of these assets offered along with the physical version would provide undeniable and non-replicable proof of authenticity. This would eliminate much of the risk associated with purchasing luxury goods from alternative retailers: NFTs can be used to track the lifecycle of a luxury item, including its manufacturing details and maintenance history, as well as verification of ownership, illuminating an item’s life before you purchase it. If you are on the receiving end of a marriage proposal, wouldn’t you appreciate your partner airdropping you an NFT of your diamond as they’re down on one knee? And people say technology is killing traditional romance…
Educational institutions can tokenize physical certificates, degrees, and diplomas as NFTs, ensuring tamper-proof records of academic achievements. This enables easy verification by employers and institutions, eliminates the risk of certificate fraud, and simplifies the process of sharing qualifications with potential employers. Though Suits is a fantastic TV show, it would be better to stop any potential fraudulent lawyers from practicing law, and NFTs certifications are an easy solution.
Additionally, tokenizing physical assets can allow for a host of other functions, such as partial ownership and revenue sharing, and organizing rental or lease agreements. Applications in vehicles and equipment are perfect examples of this. NFTs can represent ownership shares in a vehicle or a piece of machinery, allowing for fractional ownership and investment opportunities. This opens up access to valuable assets that may have been financially out of reach for some individuals. NFTs also enable efficient transfer of ownership and streamline leasing or rental arrangements by providing transparent records of usage and maintenance.
From a designer handbag to a diploma, with NFTs every tangible asset could have a secure, traceable digital footprint, opening the doors to new forms of ownership and trust."
Tokenizing real estate properties is one of the most exciting applications of NFTs. By transforming properties into NFTs, individuals can buy, sell, and trade fractional ownership of real estate assets. This democratizes investment opportunities and increases liquidity in the market, allowing individuals to invest in high-value assets without the need for significant upfront capital. Fractional ownership diversifies investment portfolios, reducing risks associated with single-asset ownership, and NFTs also offer transparent ownership records, simplifying property transfers and reducing the need for intermediaries. Additionally, smart contracts governing NFTs can automate rental agreements and property management, simplifying processes for landlords and tenants.
With these immense benefits, there are a few challenges that come with tokenizing assets, one of the most important being valuation and standardization. Determining the value of tokenized assets can be challenging, especially for unique or illiquid assets. The development of standardized valuation methodologies and marketplaces is crucial for establishing trust and attracting investors. Collaboration between industry stakeholders, appraisers, and financial institutions is essential for creating robust and reliable asset valuation frameworks.a
Tokenizing physical assets with NFTs offers a wide range of applications. From luxury goods to machinery to real estate properties, NFTs provide enhanced security, transparency, and accessibility for a variety of physical assets. While challenges such as fair valuations complicate this use case today, the potential benefits of tokenizing physical assets with NFTs are immense, opening up new opportunities for businesses and individuals in the digital economy.