NFTs - Common Use Cases and Legal Considerations (Japan)

Editor's Notes

1. CENTRALIZED SYSTEMS today‘s infrastructure – google, facebook, amazon sitting in the middle in a finance context the entity in the middle is usually a highly regulated and therefore trusted party DISTRIBUTED SYSTEMS anyone can participate – anyone can set up a node (public blockchains) information in the system is shared between the nodes P2P data is structured in the form of a blockchain (= chronologically ordered list of blocks) each block in the blockchain references to the previous block >> information of all previous blocks become information of the latest block consensus mechanism secures the network and ensures that all nodes share the same set of information (generally PoW or PoS) example: bitcoin mining because of the P2P blockchain infrastructure there is no need for centralized parties anymore
2. 1ST GENERATION PLATFORMS originally blockchains were only used to track transactions no additional functionality example: bitcoin 2ND GENERATION PLATFORMS programmable blockchains with smart contract functionality smart contracts = small computer programs that are run independently by all nodes in the network – also used for the issuance of tokens 3RD GENERATION PLATFORMS due to decentralization and consensus mechanims blockchain infrastructure highly inefficient compare Ethereum vs VISA VISA 40,000 tps Ethereum 10-15 tps 3rd generation platforms increase transaction throughput and make more scalable THAT‘S IT WITH THE BACKGROUND INFORMATION ON DLT AND BLOCKCHAINS Questions?
3. FUNGIBLE TOKENS tokens are freely interchangeable as economic value is identical 1 BTC = 1 BTC NON-FUNGIBLE TOKENS (NFTS) NFTs are unique - economic value of each token is different, and the tokens are therefore not interchangeable example: CryptoKitties – NFT representing Dragon sold for ~USD 172,000 / NFT representing Tally the Purrocious for sale on OpenSea (NFT marketplace) for ~USD 44.45 ATTENTION NFT is unique but not necessarily the content represented by it
4. TODAY there is abundance in the digital space files can easily be copied ownership cannot be verified TOMORROW NFTs introduce the concept of scarcity in the digital space they are unique and cannot be copied the file represented by the token can still be copied proof: many of the pictures shown here are represented by NFTs – in some cases I even used the same files that are represented by the NFT in any case digital ownership – to the extent it exists – can be easily tracked
5. COMMON USE CASES cryptoart collectibles games IP management more use cases develop in the future maybe you can see more use cases after the presentation
6. TECHNICAL IMPLEMENTATION blockchain is a highly inefficient database storing large pieces of data on the blockchain is extremely expensive media file (jpg, mpeg, AR, VR file etc.) is typically stored off-chain NFT points to the offchain file in its metadata PROBLEM even if metadata in the NFT becomes immutable it is still possible to change the data whcih is stored under a link you can delete data you can modify data user is left with a valueless NFT which does not reference to anything anymore example: artist changed pictures during auction and replaced them by rugs (similar to Banksy who shred the artwork during an auction) SOLUTION storing data on the InterPlanetary File System (IPFS) data stored on the IPFS receives a unique identifier (exchanging data not possible without changing identifier) BENEFITS NFT introduces the concept of digital scarcity in the digital art space artists get more exposure online – but there is a lot of noise (Sven can probably tell you more about this) depending on technical implementation artist participates on all primary and secondary sales for buyers easy to verify autheticity of the artwork and track provenance PICTURE ON THE RIGHT artwork of Hajime Kinoko a Japanese Shibari rope artist NFT representing VR file + ticket for exclusive Shibari private session sold for ETH 6.25 (~ USD 18,000) BEAR MARKET – CORRECTION STARTED SHORTLY BEFORE THE AUCTION
7. crypto art has been good business over the last few months hype around February with sales surpassing USD 200M according to this data now going down usually a sign of hype being over and the industry maturing
8. Beeple (b. 1981) EVERYDAYS: THE FIRST 5000 DAYS Price Realized on Christies $ 69,346,250 Closed: 12 Mar 2021
9. Larva Labs (est. 1981) 9 Cryptopunks Price Realized on Christies $ 16,962,500 Closed: 11 May 2021
10. NBA Topshots one example (other examples: CryptoKitties, SoRare) comparable with Panini stickers not sure whether you know them – many kids collect panini stickers during world cups or european championships Panini stickers gone digital NBA Topshot developed by Dapper Labs (Crypto Kitties) and licensed by NBA according to the CEO of Dapper Labs trading card business USD 5-6 billion industry with NBA top shots he wants to gross USD 1 billion data suggests that he could be right cite data large parts of revenue generated by sales on secondary market LeBron James highlight sold for $200,000 on secondary market
11. CROSSOVER FASHION AND GAMING some of the projects pure marketing others generate revenue for the fashion brands Burberry partnership with Honor of Kings with more than 100 million daily players one of the most successful multiplayer online battle arena games worldwide skin was removed from store after critical statement about cotton production in China Louis Vuitton League of Legends collection skins available in the game + „fan merchandise“ from Louis Vuitton Gucci Island in Animal Crossing (nintendo switch) partnership with popular gamers Final Fantasy character wearing Prada – no official partnership but there are other partnerships in the game other examples Gucci the Virtual 25s sneakers in offical app – sold for USD 11.99 AR Nike partnership with Fortnite
12. don‘t want to bore you with different gaming business models IMPORTANT free-to-play games very popular – usually combined with paid in-game items and in-game currency (data from statista) right share of gamers who buy downloadable content (incl. skins etc) 85 percent of all games in fortnite Fortnite is a F2P battle royale game with an estimated revenue of USD 3.5 billion in 2019
13. Problem of existing gaming business models from a users point of view – we are having a look at an example on the next slide (1) all assets in the game belong to the developer of the game – even if you ‘own’ it as a player (only a license) (2) player uses real money to purchase in-game currency / items – but it is ONE WAY funds of players forever locked and no way to sell items games generally do not allow sale on secondary markets if you stop playing, there is no way to get your money back
14. Blockchain games work a bit differently and give user more control over game assets and funds example: The Sandbox (one of our clients) company developing The Sandbox sells empty parcels of land buyer of land can do whatever he wants with the land develop land implement gaming logic and monetization models and sell it creators can generate revenue by creating assets that can be deployed in the games players can buy and sell in-game currencies on exchanges game assets can be sold on NFT markets – creator participates in all sales on the secondary market example: some art galleries in other games / exhibit and sell art directly to users improve shopping experience in the metaverse digital shopping malls / shops Shibari artist streamed one session in decentraland live we are still at the very beginning but if you want to experiment, this might be the right time interest by fashion brands might be there as well – afterall crypto folks have a lot of money and they are digital natives
15. assets in the game are generally owned by the token holder anyone can create assets and sell them on the marketplace creators generally give The Sandbox a non-exclusive license to use items for marketing purposes etc.
16. players can buy and sell in-game currencies on exchanges game assets can be sold on NFT markets – creator participates in all sales on the secondary market
17. NFTs can be used for IP management IBM working on a service already list benefits – IP becoming a liquid asset easier securitization and automation of cash-flow https://newsroom.ibm.com/2021-04-20-IPwe-and-IBM-Seek-to-Transform-Corporate-Patents-With-Next-Generation-NFTs-Using-IBM-Blockchain