• Utility comes in many forms art is just one of them

• The groundbreaking change brought on by the Ethereum World Computer (EWC)

• How NFT as a unique identifier is important for the EWC

• What projects can do to leverage this in Web3

Introduction

“What’s the utility?” Like me, maybe you cringe every time you hear those words by NFT critics. For me the art and the ability for digital creations to be owned and sold on the blockchain is already an important utility that should be respected and celebrated. It is “the” great achievement of the technology that is Non Fungible Tokens so far. Art on the blockchain is something that is just beginning and promises great rewards for many artists in the future. So we could end the story here, NFTs are not a fad and they are worthy of your attention, but there is more to the story, NFTs can be more than just aesthetic digital creations, they play an important part of the Ethereum World Computer concept by being a unique identifier on the blockchain, an essential element in any information system. This article will explain from our Projects perspective why we think NFTs can be more than JPEGs and how there are opportunities for creators and users to take advantage of this exciting technology that is still in its infancy, yet already poised to revolutionize the way we play and work in the digital world.

The Ethereum World Computer

Back in the day, when the only legitimate game in Crypto was just Bitcoin, the concept of Ethereum and the World Computer was born in the mind of one Vitalik Buterin, circa 2013 [1]. BTC had already made reality to the world that information could be maintained in three revolutionary ways [2]:

• Decentralized; information is stored and processed not by any one central entity that can corrupt the data or the process.

• Immutable; information once verified and recorded can never be changed and manipulated.

• Trustless; by being written in code information is processed without the need for a trusted middle person, this is the promise of disintermediation and the removal of the cost of brokers and agents.

The information on Bitcoin is of course the transaction of money, however we will not be concentrating on the money aspect here, but rather the innovation that was achieved with the creation of blockchain technology. Vitalik saw that there was so much more that could be done with this new technology, with his seminal Ethereum white paper [3], written way back in 2014, that in parts are still relevant for us in 2023. Vitalik envisaged that an actual computer with all the attributes of Bitcoin could be built on a blockchain, the Ethereum Virtual Machine, a World Computer running on the Internet itself that, like Bitcoin, would not be controlled by any one entity and could not be corrupted by a central controlling power.

“A commonly asked question is "where" contract code is executed, in terms of physical hardware. This has a simple answer: the process of executing contract code is part of the definition of the state transition function, which is part of the block validation algorithm, so if a transaction is added into block the code execution spawned by that transaction will be executed… “

https://ethereum.org/en/whitepaper/

Programs running on this computer are identified and accessed by contract accounts or more commonly referred to as addresses on the blockchain, with guaranteed properties of being decentralized, immutable and trustless; these programs, smart contracts have the ability to execute a myriad of features proven out during the recent DeFi summer[4].

• A contract can be written on-chain that fulfills the promise to pay one party without the need of a middle person (aka bank).

• Transactions can be programmed to be made automatically when some stipulated conditions are met, correctly written, the code can be relied upon to be done always, code is law.

• Additionally because digital assets (such as Ethereum and Bitcoin) are stored on-chain and are visible by anyone, counter-party risk is greatly reduced because the holdings of other parties are known [5].

Some of the more famous projects that you may have heard about in DeFi [6]i:

• MakerDAO - decentralized stable coin, like USDC and USDT Maker the creator of Dai enforces its token peg to the US dollar but via smart contracts (TVL $7.03b USD).

• Uniswap - the first decentralized exchange, like Binance and Coinbase users can swap Crypto assets and more (TVL 3.63b USD).

• Aave - a lending protocol where users can lend or borrow similar to a traditional bank but on-chain with smart contracts (TVL 3.58b USD)

NB TVL - Total Value Locked as per https://defillama.com/ on 2023/02/11

Why NFTs are important to the World Computer

Non fungible token provide a means to create a unique identifier within a smart contract, unique identifiers are very important for computing system because of a number of reasons:

• Data Integrity: Unique identifiers ensure that each record, entity, or object within the system is distinguishable and unambiguous, which helps to prevent duplicates, errors, and inconsistencies in the data.

• Data Linkage: Unique identifiers allow records, entities, or objects to be linked or related to one another, which enables complex relationships to be established and maintained within the system.

• Data Retrieval: Unique identifiers make it easier to retrieve specific records, entities, or objects within the system, as they can be easily located and identified by their identifier.

• Data Analytics: Unique identifiers allow for the aggregation and analysis of data from multiple sources, as they provide a common identifier that can be used to merge and compare data from different systems.

• Data Sharing: Unique identifiers make it easier to share information between different systems, as they provide a common identifier that can be used to reference and exchange information between systems.

By using NFTs on the Ethereum World Computer which is a decentralized blockchain environment, unique digital assets can still be distinguished, bought, sold and tracked in a fully transparent and reliable manner without fear of corruption. Well known use cases for unique identifiers are of course the trade of digital art and also gaming. Pushing past these use cases however are applications in logistics, engineering and even medicine.

In summary, unique identifiers are important for an information system because they provide a way to distinguish, identify, and link records, entities, or objects within the system, which is critical for ensuring the accuracy, reliability, and integrity of the information stored in the system. They are useful for a World Computer because they provide a way to distinguish and track digital assets, provide additional complexity and engagement in games, and ensure data privacy, security and verifiability.

Brief aside on how this is done technically Broadly speaking smart contracts on Ethereum are dominated by two standards ERC-20, the basis of most Crypto Tokens, and ERC-721 the basis of a large number of NFTs. The difference between an ERC-20 and a ERC-721, is that on a ECR-20 the smart contract allocates a number of tokens of the smart contract to an user's account, while a ERC-721 smart contract has a number of unique token ids that are allocated to user’s accounts.

Here are excerpts of the implementation of the two standards for mint from Openzeppelin [7], it is just here for illustration purposes, don’t worry if you don’t fully understand it, we will point out the relevant bits below.

ERC-20 Minting (Openzeppelin ERC-20 implementation)

For ERC-20 when the smart contract is first constructed a mapping of addresses to an amount is created called “_balance”, see line 36, on mint, the program inputs a wallet address “account” with a number “amount”, see line 267, thus a ERC-20 token contract just maintains an amount for any wallet address using it of that token, making each token indistinguishable from another (because it is just an amount) and therefore fungible like the US dollar.

ERC-721 Minting (Openzeppelin ERC-721 implementation)

Contrast this to the ERC-721 NFT contract, at construction a mapping of numbers (unique ids) to addresses is created called “_owner”, see line 30, on mint the number (unique id) is assigned to a wallet address “to”, see line 303, thus ERC-721 maintains a list of unique ids to addresses and therefore each token is unique and can be assigned different attributes and is non-fungible like a Van Gogh painting or a Stradivarius violin.

What are the opportunities for NFT creators and users

The NFT market now trades billions of dollars in a single year, according to data from DappRadar, the total value traded across all blockchains amounted to $24.7 billion and $25.1 billion in 2022 and 2021 respectively [8]. However the current use case of NFTs is still largely limited to the sale of digital artwork and collectibles, leaving many creators with few other options for monetizing their work. A report by Non-Fungible indicates that around 74% of USD traded NFT volumes are made up primarily of collectibles and art, with utilities only reaching 13%, but rising [9]. In addition, a minority of creators account for the majority of large sales, and only a select few artists can demand top dollar for their art pieces, while the majority of NFTs sell for on average $150 USD [10].

We believe there is an opportunity for creators to look beyond NFTs just as digital art, and explore the technology of NFTs further and create truly innovative applications.

Secure access to data and services

According to a report by Deloitte, traditional digital identity systems have significant vulnerabilities and inefficiencies, such as data breaches, identity theft, and challenges to streamline processes while needing to ensure customer privacy and regulatory compliance [11]. By using NFTs as unique identifiers on the Ethereum World Computer, users can create digital identities that are more secure, less prone to fraud and more efficient to maintain. An NFT can be used to represent a user's identity, and this NFT can then be used to authenticate the user's identity on various platforms and services on the EWC and beyond. For example, sensitive data, like medical records that should only be accessible by authorized parties can be secured by only allowing access to authenticated users via unique identifiers.

By using smart contracts, the management and transfer of these digital identities can be automated, reducing the need for intermediaries and increasing the security of the system. This use case is still in its early stages, but has the potential to revolutionize the way we think about digital identity and authentication.

Here are a few examples:

• The Unlock protocol uses NFTs to create time-bound membership to access services and data [12]. This platform provides tooling for creators to produce smart contracts that enable a low friction way for Web 3 to create membership based business models.

• One way NFTs as an identity token can be used beyond the digital realm is academic credentials, a prime example is Duke University [13] who issued credentials in the form of NFTs for their courses. Stored on an immutable blockchain the previously manual and hard to verify proof of academic achievement is done on a platform that is public and tamper proof.

• Soulbound NFTs are items designed so that the transfer of ownership is made impossible or at least very hard. An example is Proof-of-Humanity [14], having the nature that once given the NFT cannot be transferred use cases include: voting, credit scores, key recovery, certifications and “fair” air drops.

These are just a few examples of how NFTs are being used for identity and access control. As the technology continues to evolve, we are likely to see even more innovative applications emerge in this area.

Logistics

The delivery of real world items can be tracked on the blockchain with their unique digital identifier counterparts, this will have a significant impact on the logistics industry, especially in supply chain management. The ability of NFTs to create unique digital identities for physical goods means that they can be used to track the movement of products from manufacturer to consumer. This will create a more transparent and efficient supply chain by enabling real-time tracking and verification of product authenticity. The use of NFTs in logistics will help to reduce counterfeiting and fraud by creating a secure and tamper-proof record of a product's history.

Here are two examples of how NFTs are being used in logistics and supply chain management:

• The global professional services giant EY is building a supply chain system on Polygon Nightfall a ZK Sync Ethereum layer 2 solution, utilizing NFTs as part of their solution, EY has ambitious aims to use blockchain technology to streamline the complete supply chain business cycle from contracting, ordering, fulfilling, invoicing, to payments. Excitingly using the cutting edge ZK Sync technology EY is able to have proprietary business logic run privately and securely while not compromising on the decentralization and immutable aspects of Ethereum [15].

• Provenance Proof is a blockchain-based platform that utilizes NFTs to establish a transparent and trustworthy supply chain for gemstones [16]. With each product a NFT is assigned, buyers can then track its journey from its origins to its final destination, and access information on its authenticity and environmental impact - a critical factor for gemstone buyers. Provenance Proof uses private blockchain technology Hyperledger, powered by technology from Everledger, but has also integrated Ethereum-based NFTs on the public blockchain to enhance security and immutability [[17](https://“How does Everledger utilise NFTs?” https://everledger.io/faq/)\].

NFTs have the potential to revolutionize the logistics industry by providing a more secure and transparent way of tracking the movement of goods.

Social Media

Web 3 builders are attempting to right the wrongs of the Web 2 social media platforms, creating platforms that respect user privacy, reduce centralized control, verify information to prevent the proliferation of fake news and address the issue of algorithmic biases. Blockchain technology and NFTs have attributes that are well suited to addressing these problems: a) decentralization: Web3 technologies can create decentralized social media platforms, where users have more control over their data and the content they see; b) privacy: Web3 can enable users to control their personal data and keep it private, while still allowing them to participate in social networks; and c) transparency: Blockchain technology can provide a transparent and auditable record of social media activity.

Some examples of these projects are:

• Lens Protocol aims to be the base layer protocol of the Web 3 social media, using NFTs to represent users profile, follows and the tokenization of their content, they invite developers to build fully decentralized social media applications on their protocol [18].

• While Lens Protocol seeks to be the new highways of Web 3 enabling the movement of information, projects like Spruce (Sign in with Ethereum) [19], Verida [20] and Disco [21] look to the verification and self sovereignty of user data, while not using NFTs per se these technologies are tied to unique identifiers on the block chain.

• Farcaster also aims to be the base layer protocol of Web 3 social media, but also has a focus on creating an engaging client to bring in users to their ecosystem. Their architecture is different from Lens and resembles block chain nodes, where the data of the system is stored on each node, Farcaster utilizes NFTs for a friendly name of their unique identifier [22].

We believe that there are enormous opportunities in social media for builders, where Crypto first created a mechanism for people to regain control of their transactions (money), the next step in the evolution will be taking back sovereignty of individual identities and private data. We will delve more into this in our last essay for our Project.

Finance

The use of NFTs for finance is still at an early stage of exploration, coupled with Defi, there is a poetry in using a decentralized autonomous protocol with an asset that is born in Web 3. We believe in the future the integration between NFT finance and especially decentralized finance will only grow.

Here are two example use cases:

• NFTs can be used as collateral for borrowing and lending in DeFi platforms such as NFTfi [23]. This means that instead of using traditional assets such as ETH or BTC as collateral, users can use their NFTs as collateral. This provides greater flexibility and can unlock liquidity for NFT holders.

• NFTs can be used to represent fractional ownership of an underlying asset, such as artwork or real estate, a platform that provides this service is Fractional.art that fractionalise NFT artwork [24]. This allows investors to buy and sell fractions of the asset, making it more accessible and liquid. Important to note that an area of some debate is in some jurisdictions like the United States, the fractionalization of NFTs may lead them to be considered a security by regulators in the future [25].

The intersection between DeFi and NFT in our opinion has great opportunities and an exciting area of innovation. However the regulatory uncertainty is a concern and greater clarity in the future will be most welcome by builders and users alike. We will explore some more regarding these opportunities in our Project essay.

Gaming

Finally as mentioned, NFTs also offer significant opportunities in the video gaming industry. According to a report by Statista [26], the global video gaming market is projected to reach US$365,6bn in 2023, with a large majority of that being mobile gaming. The play book for NFTs is well known, they can be used to represent in-game items and assets, which can then be traded or sold on decentralized marketplaces. This will enable players to have greater control and flexibility over their in-game items and potentially earn real-world value from them. Even the tiniest slice of this huge pie will be worthwhile for independent creators and builders.

Conclusion

In conclusion, the use of NFTs in smart contracts has the potential to create a new class of assets that are more secure, transparent, and efficient than traditional assets. While the current use of NFTs is primarily focused on the sale and exchange of digital art and collectibles, the future direction of NFTs is likely to expand to other domains, such as gaming, digital identity, and ownership of physical assets.

In our two following essays we will discuss how our Project is excited about NFT use in Finance and finally its application with Social Media and the reclaiming of our digital identities from Web 2.

References:

[1] https://www.abra.com/resources/worlds-computer/ [2] https://www.cryptorecruit.com/news/what-is-cryptocurrency-part-2-trustless-decentralized-immutable/ [3] https://ethereum.org/en/whitepaper/ [4] https://finematics.com/history-of-defi-explained/ [5] https://consensys.net/blog/news/programmable-blockchains-in-context-ethereum-smart-contracts-and-the-world-computer/ [6] https://defillama.com/chain/Ethereum [7] https://www.openzeppelin.com/contracts [8] https://decrypt.co/118438/2022-versus-2021-nft-sales [9] https://nonfungible.com/news/corporate/nft-market-report-q3-2022 [10]https://influencermarketinghub.com/nfts-statistics/#toc-14 [11] https://www.deloitte.com/global/en/services/risk-advisory/perspectives/the-future-of-digital-identity.html [12] https://unlock-protocol.com/ [13] https://today.duke.edu/2022/05/jimmie-lenz-why-nft-makes-more-secure-versatile-diploma [14] https://proofofhumanity.id/ [15] https://www.ey.com/en_us/news/2021/05/continued-ey-investments-in-blockchain-market-to-support-increased-demand [16] https://www.provenanceproof.com/provenance-proof-marketplace [17] “How does Everledger utilise NFTs?” https://everledger.io/faq/ [18] https://docs.lens.xyz/docs/overview [19] https://www.spruceid.com/ [20] https://www.verida.io/ [21] https://www.disco.xyz/ [22] https://github.com/farcasterxyz/protocol [23] https://nftfi.com/how-it-works/ [24] https://fractional.art/ [25] https://www.natlawreview.com/article/sec-targets-nfts [26] https://www.statista.com/outlook/dmo/digital-media/video-games/worldwide

Risk and Disclaimers:

• This essay is for educational and entertainment purposes only, none of this has been financial advice.

• Although great care has been taken to check the veracity of information presented, some mistakes and misinterpretation may have taken place, please do your own research, this essay should be treated as only the considered opinion of the author.

• Crypto continues to develop and the regulatory environment is changing, it is important to carefully consider the up to date legal and regulatory implications.