3 minute read 19 Feb 2019
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How non-fungible tokens can create value for enterprises

3 minute read 19 Feb 2019
Related topics Blockchain Innovation
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As more firms adopt blockchain technology, NFTs will play an increasingly important role in ushering in the next era of the digital economy.

Today, the majority of tokens that exist on blockchains are fungible — each unit is interchangeable with any other unit (e.g., cryptocurrency or US Dollars). However, as more real-world assets are tokenized, an increasing percentage of tokens on blockchain networks will be non-fungible. Non-fungible tokens (NFTs) are the opposite of fungible tokens in that they are used to represent unique assets and items.

Representing unique things turns out to be critical functionality for blockchains because most of the world’s assets are unique. Your car has a unique VIN number, a box of cereal has a unique serial number, social security numbers are a unique set of nine digits and real estate has unique addresses. As more enterprises and industries adopt and integrate blockchain technology, NFTs will play an increasingly important role in ushering in the next era of the digital economy.

So how can enterprises leverage NFTs?

Some of the earliest examples of NFTs represented physical products on a blockchain as they moved through the supply chain from manufacturer to buyer. Bottles of wine, vaccines and pharmaceuticals have all been tokenized and tracked on blockchains to identify and reduce fraud, for example.

Attributes represented by NFTs can also be quite complex, incorporating not only unique serial numbers, but also more dynamic information like location, temperature and size. For purposes of inventory management, tokens can also be combined with other tokens to represent an assembled product with multiple component parts.

Software licensing is another area NFTs are likely to have an impact. Historically, software licenses were represented by keys — usually unique strings of letters and numbers. Possessing the key allowed you to access the software program and served as verification that you were a legitimate user. In the future, NFTs will be held in wallets (either in the browser or on a mobile device) and serve as the key granting the user access to a product or service. In this instance, the tokens would be nontransferable and subject to a licensing period.

How EY can help

Real estate is the quintessential example of a unique asset — no two parcels are the same. Despite the established regulatory environment around title, it is likely that direct ownership in land is represented (and eventually fractionalized) as NFTs.

Identity management has great potential for organizations to leverage nontransferable NFTs. Occupation-specific credentials like medical licenses, law degrees and other certifications are unique to an individual and can be issued, maintained and tracked as NFTs on blockchain networks.

Summary

NFTs have provided us with a tool to represent physical assets on a blockchain. This ability is critical if blockchain technology is ever going to support scalable enterprise applications that can manage products and payments side-by-side. When most “things” are tokenized on a blockchain, and ownership can be transferred anywhere in the world, what do our financial systems, insurance markets, and social and media networks look like?

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Related topics Blockchain Innovation
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