A guide to NFTs in the metaverse

Non-fungible tokens (NFTs) are unique digital assets that prove ownership or authenticity for specific items or pieces of content, such as art, music, in-game items, videos, and more. Stored on a blockchain, each NFT is distinct and verifiable, making them ideal for representing unique, one-of-a-kind items. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and can be exchanged on a one-to-one basis, NFTs are not interchangeable, ensuring the security and transparency of ownership.

 The metaverse is an expansive virtual space or 3D internet that leverages NFTs to shape its digital economies and creative landscapes. In this virtual environment, NFTs enable digital goods' creation, ownership, and trade, from virtual real estate to unique avatar accessories. This integration of NFTs enhances the metaverse by facilitating new forms of economic activity and creative expression, making it a dynamic hub for innovation and community engagement. This blog will explore how NFTs can create utility in the 3D internet by presenting use cases for virtual experiences, gaming, digital identification, and education.

Understanding NFTs

NFTs have distinct characteristics that set them apart from fungible cryptocurrencies like Bitcoin and Ethereum. Here are some key features that define NFTs:

• Non-fungible: In the case of fungible cryptocurrencies, one Bitcoin can be exchanged for another Bitcoin, as they're always equal in value. In the case of NFTs, each asset has a digital signature that makes exchanging one for another impossible.

  
  

• Indivisible: NFTs cannot be divided into smaller units. Unlike cryptocurrencies, where you can send a fraction of a Bitcoin or Ethereum, an NFT must be bought, sold, and owned as a whole. This characteristic is crucial for maintaining the integrity of digital assets, ensuring that a unique item remains whole and its value is preserved.

  
  

• Unique: Every NFT has unique properties that distinguish it from other tokens. These properties are often encoded into the token's metadata, which contains detailed information about the asset's attributes, history, and provenance. This uniqueness is critical for the digital collectibles market, as it ensures that each item can be distinctly identified and valued based on its specific traits and rarity.

  
  

• Ownership verification: NFTs use blockchain technology to publicly and immutably record ownership. This feature makes verifying who owns an item and tracing its ownership history easy. The blockchain acts as a decentralized ledger that is accessible to everyone. Still, it cannot be altered fraudulently, providing secure proof of ownership that is particularly valuable in the digital realm, where duplication and piracy are common concerns.

 To better explain the characteristics of NFTs, it is worth understanding 'CryptoKitties,' a blockchain-based game developed by Canadian studio Dapper Labs, where users can collect, breed, and trade digital cats as non-fungible tokens (NFTs). Each CryptoKitty is unique and has its own distinct genome, which determines its physical traits. The unique genome of each CryptoKitty, determining its particular characteristics, mirrors the features of NFTs that ensure the singularity and rarity of each digital asset. The game allows players to buy, sell, and breed these digital cats, with the value of each cat appreciating or depreciating based on market demand. CryptoKitties operates on Ethereum's underlying blockchain network, ensuring the ownership and authenticity of each digital cat through smart contracts and the ERC-721 token standard. The value of CryptoKitties NFTs varies, with the average price being around $73.9 according to data from nft-stats.com; however, due to its demand, one CryptoKitty sold for more than $100,000 in Ethereum. These figures reflect the fluctuating market value of NFTs based on factors such as rarity, demand, and specific traits of each digital cat.

Use cases of NFTs in the metaverse

Beyond their novelty, NFTs have found practical use cases in the 3D internet across industries by revolutionizing the approach to digital ownership and monetization.

 Here are several key areas where NFTs are making a significant impact:

Virtual events and experiences

NFTs are transforming virtual events and experiences by allowing organizers to tokenize access and sell them as unique digital assets. These NFTs include tickets to virtual concerts, conferences, and exhibitions, where each NFT can also include perks like exclusive content or merchandise. Platforms like Nifty Gateway and Rarible facilitate the sale of digital tokens that artists and brands can use for virtual or physical events and concerts. For instance, The rock band Kings of Leon released their latest album as an NFT on Rarible, offering fans a unique opportunity to own a digital copy of the album alongside exclusive perks for live shows, like front-row seats for life. This innovative release strategy generated excitement and engagement within the music industry. This approach creates new revenue streams and enhances audience engagement by offering collectible, limited-edition experiences.

Gaming and virtual assets

 Blockchain-based video games use NFTs to represent tradable in-game items, allowing players to own, sell, and trade virtual assets such as skins and collectibles. In traditional video games, a centralized authority controls the distribution, ownership, and aspects of in-game assets. However, in the case of NFTs in the metaverse, users have complete control over their virtual items and can potentially use or trade them on another platform.

 Games like Axie Infinity and Cryptovoxels illustrate the transformative impact of blockchain technology in gaming and virtual worlds. Axie Infinity, inspired by Pokémon, allows players to collect, breed, and battle creatures called Axies, which are represented as NFTs. This setup enables actual ownership of in-game assets, fostering a player-driven economy where participants can earn cryptocurrency by engaging with the game's ecosystem. The ability to trade Axies and earn tokens exemplifies a decentralized virtual economy, granting players significant control and ownership over their digital assets.

 Another excellent gaming metaverse, Cryptovoxels, operates as a decentralized virtual world on the Ethereum blockchain, where users can buy and develop virtual land parcels as NFTs. This platform supports user creativity in building, customizing, and monetizing virtual properties, thus pioneering a decentralized real estate market. 

Digital identity and personalization

Identify verification in a conventional case relies on centralized databases prone to hacking. On the other hand, NFTs offer a unique and secure way to manage and monetize digital identities and personal brands within the 3D internet. NFTs create a unique, verifiable digital proof of identity on the blockchain and can be used for authentication in various scenarios, like while transacting online or accessing digital services. ENS (Ethereum Name Service) and Unstoppable Domains are reshaping digital identity in the metaverse market by offering NFT-based domains that read as human names. ENS provides a decentralized registry on the Ethereum blockchain, allowing users to register and trade programmable domains that can integrate with decentralized applications. These domains also function as digital identities that store crucial data across the Web3 ecosystem. Conversely, Unstoppable Domains offers easy-to-purchase domains with extensions like ".crypto" and ".wallet," which are owned for life. Both platforms enhance domain usability and ownership, marking significant advancements in decentralized identity in the Web3 landscape.

Education and knowledge sharing

In the education sector, NFTs are being used to tokenize educational content, allowing educators to create, distribute, and monetize their courses and materials in a decentralized and secure manner. This tokenization of educational assets means that educators can turn their expertise and educational resources into NFTs, making them exclusive and tradable items on digital platforms. NFTs can also create secure and tamper-proof certificates for learners to showcase their credentials authentically. For instance, the Massachusetts Institute of Technology (MIT) used blockchain technology to develop digital diplomas so that students have an immutable record of their educational achievements. It gives them ownership of their records and the ability to share it with anyone securely.

Future outlook

NFTs are deeply integrated into the metaverse, enabling new forms of digital ownership, monetization, and immersive experiences. As technology and adoption continue to evolve, we expect to see the 3D internet and NFTs transforming various industries and redefining how we interact with the digital world. Here are some predictions on the future outlook of NFTs and potential developments in the metaverse:

• Integration of NFTs into virtual reality (VR) experiences: As VR technology advances, integrating NFTs into virtual experiences opens doors to a new frontier of immersion. NFTs can represent a variety of digital assets within VR environments, including virtual real estate, customizable avatars, digital art pieces, and in-game items. This integration allows users to own and trade unique digital assets and creates opportunities for developers to build vibrant virtual economies and communities. This convergence offers a glimpse into a world where virtual experiences are enriched by unique, scarce, and tradable assets, shaping how we engage with virtual environments and redefining ownership in the digital age.

  
  

• Mainstream adoption of NFTs in various industries: The scope of the metaverse NFT market is vast, with applications extending beyond gaming and entertainment. As the 3D internet evolves, NFTs are set to go mainstream in industries like art, sports, retail, and fashion. Brands like Gucci already offer exclusive NFT wearables, from virtual sneakers to digital handbags, attracting fashion enthusiasts. With the total market valuation of NFTs projected to reach $231 billion by 2030 as per a VMR (Verified Market Research) report, it is evident that businesses across sectors are leveraging NFTs to create unique digital assets, opening up new revenue streams and enhancing customer engagement. A report by Bain found that the global adoption of NFTs was constant from June 2022 until October 2022 and is expected to grow steadily toward mass adoption.

  
  

• Evolution of NFT standards and technologies: NFTs today have limited cross-chain and cross-app compatibility that restrict their usage. As the metaverse and NFT ecosystems mature, we can anticipate the development of more robust and standardized NFT technologies and protocols. This evolution could include the emergence of interoperable NFT standards, improved scalability, transaction speeds, and the integration of advanced features like programmable smart contracts and cross-chain compatibility. Interoperability in NFTs will increase liquidity and create new use cases across industries like gaming, art decentralized finance (DeFi), and virtual real estate.