NFTs: The Cornerstone of the Token Economy. Exploring Their Benefits and the Expanding Possibilities for the Content Business

Amid the expansion of token economies leveraging blockchain technology, NFTs (Non-Fungible Tokens) are attracting significant attention. News of digital art being traded at high prices via NFTs has become a hot topic, and major companies are entering the market one after another in Japan as well. Here, we explain NFTs from the basics. While touching on their features and benefits, we consider the expanding possibilities for content business and the future of the token economy they enable.

NFTs: Clarifying Digital Data Ownership and Creating Unique Value

NFT, an acronym for "Non-Fungible Token," is currently attracting significant attention as a mechanism poised to transform the future of business. The "Token" here refers to digital data issued using blockchain technology. While not official currency issued by governments, it holds value within specific services or communities, functioning like a substitute currency for transactions.

Cryptocurrencies like Bitcoin are also a type of token using blockchain technology, similar to NFTs. One Bitcoin holds the same value for everyone, and exchanging it between Person A and Person B poses no issue. Cryptocurrencies like Bitcoin are fungible, hence they are called FT = "Fungible Token."

Conversely, the defining characteristic of NFTs is their non-fungibility. This unique property allows NFTs to clearly establish ownership of digital data, endowing it with inherent value and asset status as a one-of-a-kind item. Traditionally, digital data posed challenges in establishing clear ownership because anyone could easily copy or alter it. NFTs solve this by recording transaction processes, issuers, and owners on the blockchain in a tamper-proof and non-copyable format.

The benefits of NFTs include clear ownership and broad applicability

NFTs enable highly secure transactions because ownership is clear and transaction details can be verified by anyone on the blockchain. Furthermore, in principle, they are not dependent on specific platforms and can be held as assets semi-permanently. They can also be circulated and used across platform boundaries.

Furthermore, a notable feature is the ability to add various functionalities to NFTs. The Ethereum blockchain platform, where many NFTs are currently traded, offers "smart contracts"—a feature that automates transactions. This can be leveraged to limit transaction quantities or adjust values over time. Moreover, since transaction histories can be traced back, it's possible to create mechanisms that return revenue to copyright holders with each secondary or tertiary transaction.

NFTs create unprecedented content business models and user experiences

NFTs, with the characteristics described above, hold the potential to transform every industry. Among these, the content business is said to have significant potential for future growth. NFTs have enabled the distribution of digital data as one-of-a-kind artworks or items with high rarity value. As a result, we are seeing digital artworks being sold at auction for billions of yen.

The Potential of Content Business Utilizing NFTs

Marketplaces have already emerged where art, music, in-game items, athlete trading cards, and collectibles are traded as NFTs. Active buying and selling occurs worldwide.

NFTs, which enable simultaneous global distribution of content and works, are generating significant anticipation among content holders and creators as a means to expand fan bases and develop new business opportunities. In recent years, numerous Japanese IT companies, social game developers, and content holders have entered the NFT space, advancing various initiatives.

Fostering Communities Connecting Digital Artists and Fans

Digital art whose value is proven through blockchain technology like NFTs is also called "crypto art." Platforms exist where users can make donations or tip artists and projects involved in this crypto art via NFTs. Artists issue NFTs, and supporters who purchase them receive rewards like the artwork itself or gain access to exclusive events. This system enables artists and fans to connect through NFTs, fulfilling their respective needs: "I want to create art" and "I want to support artists."

Supporting Secondary Creation Creators

In the worlds of manga, anime, and games, active fan creation can be a catalyst for expanding the fan base. NFTs also provide a mechanism to further develop this fan creation culture. This service allows secondary creators to submit their works for approval from official rights holders. Once approved, the works can be tokenized as official secondary creation collections. While rights issues surrounding secondary creations have been a topic of discussion for some time, this method provides official "endorsement." If the secondary creations sell, the rights holders receive royalty payments, benefiting the original creators as well. Publishing secondary creations thus becomes a form of support for the original creators.

Expanding the Market for Collecting and Trading Digital Fan Items

For content fans, collecting "fan items" related to their favorite works is a key part of the enjoyment. Campaigns where purchasing CDs or photo books comes with original merchandise featuring the work or artist's name are common sights. Platforms are emerging that digitize these fan items, enabling collection, transfer, and trading via NFTs. For example, digital figures viewable in 3D or AR, or special videos, are distributed as bonuses. When a fan item is acquired, the owner's information is recorded on the blockchain, turning it into an NFT. Since this information is publicly visible on the blockchain, fans can enjoy showing off their collections to friends.

Additionally, initiatives are starting to use NFTs as electronic tickets for concerts and events to prevent unauthorized resale. This application of NFTs is also said to help protect artists' rights.

Japan already possesses numerous globally renowned content assets in anime and gaming. Expanding NFT adoption will further invigorate Japan's content business. As this business grows, talented creators will emerge in succession, with the potential to thrive beyond national borders. In essence, NFTs are highly beneficial for enhancing the international competitiveness of Japan's content industry.

Token economies assign value to things that were previously difficult to value

Not limited to NFTs, the "token economy"—an economic sphere where tokens replace currency for transactions—is expected to grow significantly. In Japan, initiatives to build unique economic ecosystems are already advancing, such as local governments issuing "regional tokens" usable as area-specific coupons and major SNS platforms issuing tokens for their users.

One advantage of the token economy is the ability to conduct transactions casually, even with small amounts, often without intermediaries like banks and with minimal fees. This enables more active exchange of value between artists and fans, as well as among users themselves.

Furthermore, a major advantage of the token economy is its ability to assign value to things that were previously difficult to monetize and facilitate their circulation. Taking NFTs as an example, while "selling content" was the mainstream method for creators to earn profits before, NFTs now allow them to receive tips as expressions of support from fans, generate revenue through derivative works, and even assign value to the expansion of the fan community itself.

Moreover, token economies like NFTs are well-suited to the "metaverse," the virtual online space currently attracting significant attention. It is predicted that as the metaverse becomes more widespread, many people will routinely work or shop within virtual spaces. Owning, buying, selling, or leasing various items within the metaverse—such as avatars, fashion, land, and buildings—as digital assets via NFTs or tokens will likely become commonplace. Tokens enable the circulation of things that previously held no value. This movement holds the potential to significantly transform the nature of the economy.

Amid significant attention focused on NFTs—which clarify ownership of digital data and confer unique value and asset status—marketplaces for trading NFTs worldwide are experiencing rapid growth, with Japanese companies also entering the space in succession. However, it is also true that handling blockchain requires a certain level of knowledge, making it still feel like a high barrier for many general users. It is anticipated that the emergence of more user-friendly and appealing NFT services for content holders, creators, and users will further invigorate the content business.

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