What the hell is it about pudgy penguins?
These NFTs of vibrantly dressed penguins sporting different facial expressions have been created with the aim of being a beacon of joy and good vibes. Lately, they’ve been in the news for their “soaring prices” and for having survived the crypto crash, partially due to the imminent release of their stuffed toy counterparts.
I’m all for “embodying love, empathy and compassion,” but how exactly do dressed up cartoon penguins do that, and more importantly, why would I spend a little over $1500USD (current floor price is 2.998 ETH) on one?
NFTs have been making headlines (again), as the top five NFT marketplaces have recently exceeded a total of $40 billion USD in all time sales. And yet there are, understandably, many who don’t see the utility in them or see them instead as just an extremely risky investment or a ponzi scheme. Some of the arguments we usually hear against NFTs are, “I can just take a picture of the NFT, and then it’s mine too.”
We published a report “The Future of NFTs” which sets the stage, and explores what is hype and what could be real use cases. In my opinion, Pudgy Penguins in its current form is the former.
Let me run through what NFTs really do at their core and 3 opportunities their underlying technologies present.
To set the stage, NFT = non fungible token. It is a non duplicable digital asset that proves ownership through a public and transparent data ledger called a blockchain (which could be Bitcoin, Ethereum, etc). Refer to our other report “Web 3 – the inevitable next step” for more definitions. Here are 3 use cases that might validate NFTs existence:
Use case #1: Real Estate
Recently, a house sold on (the block)chain as an NFT, in an apparently completely legally compliant manner. However, the $175,000 USD sale raised many eyebrows amongst the real estate community, and continues to be the subject of many debates. Questions such as, “what happens if someone manages to steal your NFT; could they just knock on your door and claim ownership of your house?” have flooded comment sections. Of course, the answer is no. There is a certain amount of off chain metadata, assumed to be stored on a traditional server, that accompanies the NFT. Roofstock onChain, the company behind the sale, also employs a vetting process to ensure trust between buyers and sellers, and has worked with many partners to ensure compliance in their transactions.
Use case #2: Vaccine Passports and Identity
In mid-2021, San Marino, a country in Europe, introduced vaccine passports in the form of NFTs.
It developed the NFTs with VeChain, a “public blockchain that derives its value from activities created by members within the ecosystem solving real world economic problems”, and has deployed them to its inhabitants. The digital vaccine certificate contains two QR codes; one that is EU compliant and can be used anywhere within the European Union, and a second that directs the scanner to a web-app where the NFT certificate can be verified.
For context, San Marino is a microstate of a little over 30,000 people that wants to position itself as a global blockchain tech and DeFi industry hub. It is ambitious for the state to take on this approach for Covid-19 tracking, and I am sure the world is watching this real life test in action, and seeing if its potential success can be duplicated for other use cases.
Use case #3: Logistics
Several logistics companies such as Ownest are testing NFTs as a form of streamlining delivery tracking on the blockchain.
Supply chains are highly complex with limited visibility of the product end to end. Most transactions and documentation are still paper based which limits transparency of data sharing within an organisation as well as with customers. With NFTs, organisations can automate tracking of their goods in real time with reduced need for human interference in the loop. The transparency of NFTs also allows consumers to track goods across different freight providers, authenticate products, and find provenance of goods.
The Future of NFTs
The cofounder of Origin Protocol, Matthew Liu, made the important point of defining the future role of NFTs in online purchase records.
He explained that the way we don’t refer to websites hosting e-commerce, social networking, and several other platforms as “HTML web pages” anymore (though that is what they are), we won’t always refer to NFTs as NFTs. The implication there is that with wider adoption and mainstreaming, the concept of an NFT will ingrain itself into society enough that we will internally simplify the concept to adopt its many potential use cases without referring to its technical name.
Now, to be clear, I’m not hating on Pudgy Penguins. They are also a use case. To me, they are akin to trading cards; their value is in their rarity and collectibility, not in their utility. This is similar to someone paying premium price for a 1952 Topps Mickey Mantle card, where we all know the price we are willing to pay is much higher than the cost of good itself. However, Pudgy penguins, as adorable as they are, will need to have a valid business model if they are to be sustainable in the longer run.
As we’ve mentioned, while the NFT boom of 2021 brought the concept into the mainstream, many view NFTs as purely (digital) art and collectibles. Only 1% of the world’s population regularly interacts with Web3 through a wallet; wide acceptance and adoption of NFTs will take time.When the dust settles and the hype dies down, entrepreneurs and industries will gradually adopt some of the use cases, until we reach a tipping point to wide adoption. We do not know whether that will take 5 years or a decade, but we believe that this is the cusp we are on right now.