What are the Roles of NFT in Tokenizing Assets?

Accessibility, increased liquidity, transparency, and fractional ownership are some of the more general roles that NFT plays in tokenizing assets. 

However, these benefits play out differently in different industries like real estate, gaming, fashion, and art. Before the emergence of NFTs, value exchange in these industries had a slightly different reality. However, NFTs, through the help of blockchain technology, are creating new possibilities for creators, gamers, buyers, and businesses. 

In this article, we examine the different ways asset tokenization is improving these industries. First, we provide some background information about NFT and tokenization before examining the different roles of NFT in tokenizing assets. Finally, we conclude with answers to some frequently asked questions about NFT and tokenization. 

Let’s get straight into it! 

What are NFTs?

Non-fungible tokens (NFTs) are cryptographic assets on a blockchain representing the ownership and proof of authenticity of specific physical items. The idea here is that while the asset exists normally in the physical world, the NFT is used to symbolize such an asset on a blockchain’s digital ledger. These tokens are simply unique digital identifiers or strings of data referencing another asset. 

NFTs can be used to represent a wide number of things, such as the following examples: 

• Artwork
• Music
• Videos
• Images 
• Real estate asset

The fact that NFTs are tokens puts them in a similar category as other types of tokens like cryptocurrencies. However, their characteristic of being “non-fungible” separates them distinctly. Being non-fungible means being unique and unable to replace it with something else at all. In contrast, fungible tokens like cryptocurrencies can be replaced with each other, i.e., 1 BTC is the same and can be replaced with another BTC. 

NFTs, on the other hand, cannot be replaced by another NFT because each NFT is unique and is represented on the blockchain by a unique identifier. 

Wondering how these awesome entities are created? 

Jump to the next section, as we describe the concept of tokenization. 

What is Tokenization? 

Tokenization is the literal process of creating any kind of token as a digital representation of a real thing and registering it on the blockchain’s digital ledger. It is a digitization process that issues a unique, anonymous representation of a real asset on a blockchain. This process makes the tokens created useful within specific protocols. 

Tokenization can be used to represent different types of assets, such as: 

• Real estate assets
• Financial assets like equities or bonds
• Intellectual properties
• Individual identities
• Stablecoins
• Non-fungible tokens
• Art pieces
• Collectibles 
• Company shares 
• In-game assets such as skins, weapons, etc. 

The term simply refers to the process of converting something of value, such as those listed above, into a useful digital token on the blockchain or other forms of distributed ledgers. Additionally, the process leverages smart contracts and a blockchain’s distributed ledger technology to fractionate whole assets into smaller units, thus promoting fractional ownership. Consequently, investing in these assets becomes more accessible to a wider population regardless of their capital sizes. 

These digital assets represent ownership rights or digital certificates of ownership in the actual assets they represent. For example, owning a tokenized asset represents your ownership stake in the real-world assets that a digital token represents. 

With so many Real World Asset tokenization platforms already live and offering tokenized products to consumers in the financial services industry, it has become clear that tokenization is one of the most popular use cases of blockchain. More so, its applications are apparently more rampant in the financial services sector, where fungible tokens are more popular.

However, in this piece, we focus on the intersection between NFTs and tokenization. The following section discusses some common applications of NFTs in tokenization projects. 

These are the roles of NFT in tokenizing assets.

Applications of NFTs in Asset Tokenization

Combining NFT and tokenization can create awesome possibilities in different industries. The following are some of the most prominent examples reflecting the role of NFT in tokenizing assets: 

1. Real Estate Tokenization

Real estate tokenization is the process of converting real estate properties or their cash flows into digital tokens represented on a blockchain. Using an NFT in this asset tokenization project increases the asset’s liquidity and streamlines the often cumbersome investment process surrounding real estate assets. 

Basically, this means treating a property or group of properties as a single entity and representing them as an NFT. This makes sense because each token will be unique and different, just as every real estate property is unique. 

There are several applications of NFT in real estate asset tokenization. Some of them are: 

• Simple Tokenized Real Estate: These are tokenization projects in which ownership of the NFT guarantees equivalent ownership of the property. Thus, property rights can be transferred with the sale of the NFT. 
• Tokenized Real Estate Cashflows: This means creating NFTs that represent the rights to a real estate property’s cash flows. This application separates property ownership from cash proceeds so that the NFT’s owner only has access to the cash generated by the property, not the property itself. 
• Tokenized Real Estate Baskets: These are NFTs representing a group of real estate properties and their cash flows. 

Regardless of your preferred strategy, you can always use real estate tokenization platforms like Debut Infotech to tokenize your real estate properties and attract investments to your projects. 

2. Collectibles 

Collectibles are highly valued items sought after by collectors, usually due to their sentimental value, rarity, and popularity. They could include anything from antiques and fine art to toys, coins, and comic books. Other examples include football jerseys, sports cards, and other game collectibles. 

By now, you may have gotten the idea. Collectibles are largely physical items, and their worth is often determined by their physical condition, i.e., how pristine they are. This often creates major barriers for collectors in terms of trading and collecting them. 

However, the intersection of NFT and tokenization has helped address some of these challenges. 

For example, NFTs have helped improve the accessibility and security of digital collectibles because collectors don’t have to worry about wear and tear or border restrictions when acquiring their favorite collectibles. Furthermore, it is also generally easier to ascertain the authenticity of digital collectibles with the help of the certificate of ownership that comes with all NFTs. Likewise, you can easily verify the history of the digital asset on the blockchain. 

The same benefits apply to in-game collectibles, such as rare skins and weapons in the emerging world of web3 gaming. With the emergence of NFT and tokenization, these rare items can be easily acquired digitally and traded in NFT marketplaces, thus creating an alternative economy around the gaming community. 

Awesome stuff! 

3. Digital Art Tokenization

Art collecting and ownership are other interesting and popular practices that NFTs and tokenization are transforming. Before NFTs and blockchain technology became mainstream, artists monetized their artworks via face-to-face interactions and online sales. However, NFTs and tokenization are offering artists new ways to monetize their work and buyers new ways to own artistic creations. 

For starters, NFTs allow visual artists to sell digital art pieces as original pieces, just like physical masterpieces like the Mona Lisa, by solving the big problem of proving ownership. Previously, it was difficult to prove the ownership of these art pieces because anyone could just take pictures or screenshots of them and pose them as the “real thing.” However, with the help of certificates of ownership, authenticity can be established because the rightful owners can always prove their claims. 

Consequently, NFTs facilitate the direct sale of artworks to interested buyers regardless of physical constraints. Additionally, the artist earns royalties on future sales if the initial buyer decides to resell, thus opening up new revenue streams for the artist. 

On the other hand, buyers enjoy easier market access, clearer proof of ownership, and the ability to accumulate their digital collectibles. These are the roles of NFT and tokenization in art ownership. 

Related Read: Explore how art tokenization is redefining digital ownership.

4. Intellectual Property Rights 

Intellectual property rights refer to the rights given to a person over the intangible creations of their human intellect — their intellectual property. We’re talking about trademarks, patents, and copyrights, which enable people to earn either recognition or financial benefit from anything they create with their minds and intellect. These rights extend to authors of literary and artistic work, performers such as actors, singers, or musicians, and producers of sound recordings. Basically, anyone who does any form of original creative or intellectual work. 

Although regulations protecting creators’ rights existed long before the emergence of NFTs, many creators still encounter difficulties when trying to gain recognition or financial benefits for their intellectual property. NFTs present vital opportunities for creators to monetize their intellectual property rights. 

NFTs, by their nature, are representations of either a digital or physical asset and nothing more than that. As such, ownership of the NFT doesn’t equal ownership of the underlying asset itself unless otherwise explicitly stated in the smart contracts or any other associated terms of sale. And this reality presents an earning opportunity for the owner of the intellectual property right. 

An NFT seller who owns the intellectual property rights to an underlying asset has the opportunity to transfer those rights to a buyer for a decided fee if they please. However, they must explicitly state this in writing in the smart contract or elsewhere. They can also sell both the NFT and the intellectual property rights. 

Licensing is another common way in which NFTs help creators profit from their intellectual property. This means permitting the purchaser to use the intellectual property of the underlying asset either openly or with some restrictions, depending on the agreements stated in the smart contracts. Lastly, creators can also earn royalties on the subsequent resale of an NFT, even after selling it the first time. 

So, you see how NFTs provide countless opportunities for original creators by protecting their intellectual property rights and helping them earn value for their creative work. 

5. Gaming

NFTs are playing the vital role of bringing gaming experiences super close to reality. From facilitating true ownership of in-game items and characters to supporting a gaming economy for trading such items, NFTs are changing gaming from the traditional closed-loop system to a more player-centric community. 

For a long time, game creators have had a monopoly in the gaming economy. They control the ownership of assets, currencies, and characters as all forms of ownership assumed by the players remain just within the game and, therefore, in the control of the creators. However, the emergence of NFT technology has led to the creation of unique in-game assets that can be bought, used, and traded by players among each other. 

This unprecedented sense of ownership by players has made in-game collectibles highly coveted, thus introducing a player-driven market in the gaming world. Developers also benefit from this emerging economy as they earn percentages on all resales of these NFT items, as we highlighted earlier when discussing intellectual property rights. 

6. Fashion

The fashion industry is no exception to the transformative effects of NFTs. They’re bringing the same quality of rarity, uniqueness, and authenticity to the fashion world by helping fashion brands create identical digital versions of fashion pieces. Imagine yourself wearing a virtual version of your favorite exclusive sneakers. That’s a peek at what NFTs offer both luxury fashion brands and customers. 

Top brands like Gucci are already using NFT in tokenizing assets by launching their Gucci Grail NFT project in partnership with NFT project 10KTF. This project involved Picture-for-Profile (PFP) NFTs, where participants paid to dress their avatars in Gucci pieces. To incentivize others’ participation and NFT adoption, Gucci is giving participants an opportunity to trade in their material NFTs for physical Gucci pieces. 

Related Read: Explore how NFT Fashion Marketplace are transforming digital fashion.

A major benefit of this application of NFTs in fashion is that it allows creators like Gucci to authenticate their pieces on the blockchain. This checks the mass production of dupes and pirated goods. Consequently, collectors can acquire authentic goods and even get better resale value due to their proven authenticity.  

In addition, NFTs open up an alternative stream of income by allowing users to create virtual fashion pieces that can be worn in the metaverse. Take the PFP NFTs launched by Gucci, for instance. Such pieces can be worn in gaming metaverses or even virtual events. 

Conclusion: Leveraging NFTs for Asset Tokenization With Debut Infotech

Clearly, you can now see there are many ways of using NFT in tokenizing assets, whether digital or physical. They’re changing our previous perceptions and possibilities of investments and opportunities in real estate, collectibles, digital art, gaming, and fashion. And there’s more! Industries like finance and events management also have real use cases for NFTs in the emerging virtual world. 

By providing immutable proof of ownership, enhancing transparency, and enabling fractional ownership, NFTs have redefined how we perceive and trade value in these sectors. And there’s something in it for every entity. 

As businesses and organizations, this new reality creates an unprecedented opportunity for innovation and growth. At Debut Infotech, we tailor our token development services to help businesses like yours tokenize their assets properly and harness the power of NFTs. 

Partner with us today to reap the rewards! 

Frequently Asked Questions (FAQs)