Earlier this year, the non-fungible token (NFT) bubble had swollen to colossal proportions. With the likes of musical artists such as Grimes selling $6 million worth of cryptoart in February, and artist Beeple’s ‘Everydays – The First 5000 Days’ piece pulling in $69 million at Christies in March, the NFT goldrush was in full swing. By April, however, the average price of NFTs had slumped by over 60% compared to February – leading many commentators to claim the NFT bubble has – for all intents and purposes – burst.
Yet, as this volatile market continues to self-correct, the NFT format is seeing new and promising use cases beyond the art world. Firms like Porini Foundation are using NFTs to preserve biodiversity in East Africa, and collaborations between Copernic Space , Exodus Orbitals and the Lady Rocket Foundation are deploying the technology to ‘democratise’ space. Indeed, the future of digital tokens is looking green.
But how exactly can NFTs be used to preserve natural capital? What other use cases can we expect to emerge in the coming years? And what are the barriers to further adoption? Finextra spoke with a clutch of thought leaders in the NFT space to find out more.
Use case 1: Tokenisation to preserve biodiversity
With an increasing number of climate change reports emerging that signal a ‘red alert’ for the planet – such as the IPCC’s on 9th August – the need to protect biodiversity and natural capital is intensifying. As the issue grows in complexity, the role that financial technology can play in identifying solutions is being explored more and more. Organisations in the NFT space have not exempted themselves from this challenge.
One such organisation is the Porini Foundation, which partnered with conservationist organisation, Nature Seychelles, and the International Union for Conservation of Nature (IUCN) in July to help protect 59 endangered magpies indigenous to Seychelles islands – an archipelago in the Indian Ocean.
In order to stimulate investment in the preservation of the species, the remaining birds were made ‘collectible’. To do this, the Porini Foundation tokenised the magpies by creating a digital version of each, in NFT format – the world’s first non-fungible token for conservation (NFTC) – before placing them on the market to be bought and sold. The revenues generated from this enterprise are already being used to protect the Seychelles magpie, and remove it from the IUCN’s endangered list.
Once these NFTs are on the marketplace, however, they are always for sale, explained Toni Caradonna, CTO & chief innovation manager, Porini Foundation. “It is just like Herberger Tax: if somebody is willing to pay more than you paid, they can have the NFT,” he said. The money generated from this higher price is then redistributed to the associated conservation organisations, which has enabled them to create steady revenue streams, despite the lull in tourism caused by the pandemic. “The model is like the game of Monopoly, whereby you cannot own things indefinitely – they are always for sale,” claimed Caradonna. “This allows us to create a more distributed wealth situation.”
The reason NFTs have not been used in this way before is due to the fact that most conservation organisations are cautious when it comes to new technology. Indeed, the concept of ‘selling’ nature is highly debated within the community. Despite this, Porini’s Herberger Tax approach stimulated strong interest in the project. Within the first 12 hours, over 50% of all the NFTs were sold.
“Mobile phone optimisation for this project was key,” said Caradonna. “People know web shops, they know apps. So, we onboarded them onto a customer journey that is familiar. We also made sure the money transfer on the blockchain is efficient and fast.”
According to Caradonna, the Seychelles magpie is just the first of a series of protected animals that the Porini Foundation plans to tokenise: “A lot of innovative and disruptive technologies are mainly developed for greed,” he pointed out. “But Porini’s focus is on innovation and technology for nature conservation.”
Use case 2: Taking e-commerce and DeFi to space
There is also a business case for NFTs protecting wildlife against poaching and climate change, through the democratisation of space. “Space is the only economy that is limitless,” Grant Blaisdell, creator and co-founder of Copernic Space, explained to Finextra. “It does not have hundreds of years of incumbent regulation built around it. As such, it is an opportune area within which to build a new economic system, based on blockchain.”
Indeed, in the wake of the negative reaction on social media to the likes of Jeff Bezos and Richard Branson travelling to space, forward-thinking companies like Copernic Space are working to democratise it, in the hope that, eventually, charitable organisations and members of the public can invest in it. “Space is sometimes seen as an intimidating frontier, but it shouldn’t be,” said Blaisdell. “We do not want the public to be financially and economically excluded from space, and the benefits of access to space assets, such as satellite imagery.”
Combatting rhino poaching and detecting change
So, what kind of benefits can be derived from satellite data? In June, Blaisdell’s organisation made headlines when it partnered with ‘satellite-as-a-service’ and ‘mission-as-a-service’ platform, Exodus Orbitals, to map rhino habitats and battle poaching activities across Africa. Once again, non-fungible tokens made this project possible; providing access to satellite data and images of the most concerning areas of land.
With this ‘satellite ride-sharing license’, buyers will be able to ask Exodus Orbitals to take specific images from the satellite, at the preferred times, in order to, for instance, monitor land via change detection capabilities, for conservation purposes. “Multiple applications can be running on the same satellite hardware, each delivering unique, tangible value to NFT buyers,” explained Dennis Silin, CEO, Exodus Orbitals.
One of the most appealing features of the business model is that it runs on a pay-as-you-go basis – meaning users are only charged for what they use. This ensures satellite capabilities become a lot more affordable and therefore available to the wider global market.
The first secondary market for space
What’s more, just like the Porini Foundation’s NFTC, the payload space NFTs purchased through Copernic Space are divisible, and can be re-sold on the world’s first ever secondary market for space. “For example, if you buy 1kg of space, you can take that related NFT and chop off 100g from it as another NFT and sell it,” explained Blaisdell. “Each token is encoded to ensure the original creator – the rover company – automatically gets a percentage of every secondary sale.”
In terms of the front-end experience, Blaisdell added, users do not need to know they are working with NFTs. Clients simply access Copernic Space’s application, submit a satellite ride sharing request for a desired number of images or orbits, and in return they receive a license in NFT format. The client can then access and activate that license directly within Copernic Space and request the desired images.
This is a “breakthrough on the same scale as Bitcoin in the financial industry,” argued Silin. “Before cryptocurrency, you could not be your own bank. Now you can. Before Exodus Orbitals, you could not access your own satellite, as easy as, for instance, getting a smartphone. Now you can. We are turning satellites into application hosting platforms, just like the web and mobile apps. If your business needs space-based capabilities, you can now define your business case as a software app and deploy it on the satellite – which will then operate on your behalf.”
Commercialisation, competition, regulation and growth
Looking to the future, Blaisdell plans to scale up Copernic Space’s onboarding of firms in the space economy in order to help more broadly commercialise their services. “Nike doesn’t sell all or even most of its products through nike.com,” he pointed out. “Most sales come through collective mass marketplaces and platforms. We don’t view the market monopolistically.”
However, if the blockchain-space frontier is to continue growing, Blaisdell stressed more competition will be necessary. Without it, innovation and financing opportunities will be limited, he said. “However, firms launching space coins to simply pull easy money out of the market – as opposed to building a real solution that delivers value to the planet – would also be damaging.”
Exodus Orbitals’ CEO, Silin, meanwhile, argues that some of the biggest barriers to the development of the satellite-as-a-service and mission-as-a-service industry, include the cost, complexity and time associated with setting up a viable business. “On top of that is the regulation,” he added. “If you want to transmit anything from space, you need an ITU Filing and FCC licence. Getting that is a project in its own right.” The way to get around this issue is to allow people to send their software to small satellite, and receive data from it, pointed out Silin. “That makes it much easier for a single-person project, or or small team, to get things done in space.”
Four key barriers to mass adoption
With a promising and sustainable roadmap for future NFT use laid out, the question that remains is, what is preventing mass adoption? Here are four key barriers:
1. Lack of buyers
Ganesh Swami, CEO of Covalent – a fintech with a unified API that delivers visibility over assets across all blockchain networks – explained to Finextra that one of the issues is lack of buyers. “The transaction data tells us there’s a lot of people issuing NFTs, but there’s not a lot of buyers,” he said. “A lot of the data is actually wash trades – it’s inflating transaction volumes. This reduces the trust that people have in NFT marketplaces, since it’s all fake volume.”
Swami went on to reveal that a recent analysis run by Covalent showed that just 2000 wallets are responsible for the hundreds of millions of dollars currently transacting on Rarible. This was also the case with the Yield Guild Games token sale in July, he added. “They raised $12 million from just 32 wallets. So this is a very concentrated market – it’s still the whales playing. I don’t think mass adoption is here yet.”
2. The hype cycles
In an interview with Finextra, CEO of crypto cashback platform, StormX, Simon Yu, argued that the hype around NFTs has done more damage than good to the marketplace. “Too much hype is never a good thing,” he said. “When everything gets overblown, people just create entities for the hell of it. Then comes the press, and people get exhausted, which stops most people seeing the true value behind it. This happened with crypto in late 2017.”
For this reason, Yu argued we will have to wait several years for some solid use cases to emerge.
3. Energy consumption
The sale of NFTs is notorious for its environmental impact. Grimes’ $6 million cryptoart collection mentioned earlier, for example, consumed as much energy as an average EU citizen would in over three decades, according to a defunct cryptoart carbon footprint calculator, invented by artist Memo Akten. This is preventing many buyers from supporting the technology.
“NFTs are inefficient right now due to the proof of work model,” explained Swami. “But the way things are going, I predict that in five years, the majority of blockchain will be minted on the Ethereum network, via the proof of stake model. The solution is already in place.”
Yu agreed that an organic transition to the Proof of Stake (PoS) model is the answer: “We live in a capitalistic world. Once governments put tougher restrictions around coal mining, for instance, brown energy will become too expensive,” he said. “Then, the blockchain network will have to convert to alternative energy to try and maintain their profitability. It’s simply not financially or environmentally sustainable to maintain such toxic energy usage worldwide.”
StormX, for its part, is limiting its carbon footprint by batching transactions. “This minimises costs, as well as the number of times we have to hit the Ethereum chain,” said Yu.
The Porini Foundation, meanwhile, addresses the sustainability issue by using a Proof of Authority (PoA) consensus mechanism, which is based on identity as a stake. “This means that not only do we not need to use much energy, but we also have much fewer nodes,” said Caradonna. “As such, the overall energy of our infrastructure is the equivalent of running eight to 10 light bulbs.” Interestingly, even the nodes Porini does run are operating in data centres that are powered by renewable energy.
For Blaisdell, the carbon footprint of NFTs is simply a function of their immaturity as a technology: “The first combustion engines were disgusting,” he argued. “New technologies need a chance to refine. Yes, NFTs and satellites have created a footprint, but both are just scratching the surface of their very near-future potential. Currently, only 1% of captured satellite data is being used by humans in any manner. There’s so much more we can do with the convergence of these technologies.”
4. User experience friction
Another considerable hurdle to NFT mass adoption is the clunky user experience. “Users need to create a wallet, then they need to get some kind of crypto to make a purchase,” said Swami. “Instead, it should be as simple as buying in-game items, like the App Store experience. Apple has your credit card on file – it’s very safe. Right now, if you want to transact with an NFT, you need to go through a lengthy KYC process somewhere else, which also means you need an exchange account, such as Binance or Coinbase.”
Indeed, if the number of steps involved in transacting with NFTs can be reduced, the number of buyers will likely begin to rise.
5. Other honourable mentions
Here are some other barriers to mass adoption that deserve a mention:
- Authenticity – it is still challenging to determine the authenticity of many NFTs.
- Scalability – most NFTs are held on layer-1 networks. For tokens that require high transaction speed, a layer-2 network is needed.
- Interoperability – NFTs can be on Ethereum, Binance Smart Chain or Flow. If these tokens remain in different ‘cities’, scalability, security, and messaging capabilities will be limited.
- Storage – the easiest way to store NFTs is in cloud storage solutions, like Google Cloud or Amazon Web Services. However, this can pose risks.
Considering the way forward, Swami argued that just like many other innovations, the NFT market needs time to specialise before mass adoption can be expected. “A good example is aeroplanes versus airports,” he said. “The aeroplane was invented first, then the airports. The infrastructure came after, in order to drive mass adoption. Then, custom-built airports began to be developed for custom-built planes. The pendulum from invention to infrastructure and goes back and forth.” Perhaps this will also be the case with NFTs.
Bubble and burst cycles cooling off: A case for NFT ubiquity
Non-fungible tokens are undergoing a process of maturation. From being leveraged by the art world to creatively monetise sculptures, paintings and music, NFTs are now being used in an increasingly non-speculative manner – delivering tangible value to the planet.
In the future, NFT use cases will only continue to multiply, and may even be linked to everyday activities such as ticket sales, proof of attendance, and battling fraud.
Considering the future of NFT usage, Caradonna said: “I’m a fan of derivatives – wrapping NFTs into synthetic tokens and attaching them to underlying assets. These could be used as collateral for paying your bill, for example. The ability of all these features will be eventually mapped on some sort of digital network that is open.” With some of the big players already taking on these ideas, Caradonna argued it will be just a few years before we see such use cases.
Blaisdell, meanwhile, feels NFTs will become the digital backbone of the economy. “Everyone will one day use them but not necessarily know it,” he said. “There will be bubble and burst cycles, but they will slowly level out. The NFT format is here to stay. How we’re applying it to the space economy sets a precedent on its scalable applications in the future.”
Swami echoed this sentiment: “Covalent’s total addressable market in the next decade will be every business with digital assets on their balance sheet. Doesn’t matter if it’s an NFT, a stable coin, or if they’re a crypto business.” The moves some of the traditional fintechs have been making recently – such as PayPal accepting crypto – are evidence of fintech and DeFi beginning to merge, he added.
“The NFT space blew up and became too popular and expensive,” claimed Yu. “However, I do see a very strong demand for this concept in the long-term. In several years it will start picking up. People want NFTs for the same reason they want a Picasso. They want to show it off to everyone. The difference with a digital asset is that you can showcase it to an unlimited amount of people – and prove irrefutably that you own it.”
So, while we may be some years away from the hype cycles cooling off, steady organic growth can be expected in the medium-term as more and more stakeholders begin to appreciate the value and multifarious applications of NFTs. Once this happens, digital tokens have the potential to be linked to any unique, tangible, and non-tangible asset – including endangered species and space assets.