When you hear the term NFT, what comes to mind? An astronomically priced GIF? A Silicon Valley trend that may well fade? If so, you could be missing out on a huge opportunity. NFTs (non-fungible tokens), a powerful blockchain-supported technology, can change the way you do business.
The lowdown on blockchain and NFTs
In order to appreciate this technology, it’s useful to have blockchain and its connection to NFTs briefly explained. Broadly speaking, blockchain technology serves as a ledger of transactions that cannot be tampered with. An NFT is a unique capsule of creator-generated content that is locked on the blockchain. This means that not only can an NFT not be replicated, but also its authenticity and ownership can only be verified through the blockchain on which it resides.
Since the blockchain is inherently resistant to duplicitous transactions, it is naturally a powerful tool for verifying and capitalizing on a broad range of activities. For example, NFTs could be used to fight fraud in the ticketing industry, monetize brands in new ways, or develop “super wallets” that let NFT owners keep a verified record of various licenses and rights.
The key questions
Many people and organizations are excited at the prospect of what NFTs and blockchain can do for them. But like any tool, it’s important to consider not only whether the tool is useful, but whether it’s useful for you and your goals. To do that, begin by asking yourself some of the following questions:
- Is there a uniqueness to what we want to create?
- Is there a need for trust in the ownership and authenticity of this digital thing we’ve made?
- What are the tax and accounting implications?
- What are the regulatory implications, and do we need a license?
Additionally, be honest with yourself about your appetite for exploring the possibilities and parameters of new technology. This is a novel space, and regulations and protocols are still being shaped. If you move forward with designing NFTs, it’s worth considering:
- What functionality you want to embed
- What the NFT will represent as an asset
- How you outline the objective for the NFT when developing a monetization scheme
These may sound like elementary questions, but when it comes to NFTs, the answers can be surprisingly complex. For instance, the Commodity Futures Trading Commission (CFTC) has broadly defined cryptocurrencies as commodities and mediums of exchange. NFTs, on the other hand, do not act as money since owners normally don’t use them to purchase or sell goods and services. However, if NFT owners start to use NFTs or a class of NFTs as money, regulators could begin to treat NFTs the same way as money. In a similar vein, fractional NFTs could arguably be viewed as shares of an NFT that are being offered for investment, further blurring the lines between NFTs and cryptocurrencies.
NFTs raise many new questions and exciting possibilities for businesses. This technology is prompting companies across different sectors to rethink the way they leverage and consider digital rights and obligations. With NFTs, leaders can more importantly find fresh revenue streams and engage with new customers and stakeholders—if they’re ready to wrestle with the potential challenges.
By Tim Davis, Wendy Henry & Rob Massey
This article originally appeared at https://www2.deloitte.com/us/en/pages/audit/articles/nft-and-blockchain-technology-companies.html and is republished with permission.