Blockchain And Digital Assets Are Paying Off — And Your Business Should Take Note

Dave Padmos — EY Americas Technology, Media and Telecommunications Leader.

For many businesses, blockchain has remained more theoretical than practical, or it’s seen as indistinguishable from cryptocurrencies. Now there’s a first-of-its-kind business application that connects online content creators and buyers, showing how the technology is generating real-world business opportunities, not just hype, that should resonate across many sectors.

This blockchain solution aims to bridge a gap that has long existed on the internet. While social media has become a tremendous force driving creativity and collaboration, with artists and influencers being catapulted into the limelight overnight, this environment has been better at creating clicks and publicity than profit. It can take years for an artist to perfect a song or an image — and mere seconds for someone else to copy or pirate it. Meanwhile, influencers play a key role in the ecosystem by publicizing, endorsing or repackaging such content, and consumers trust key influencers and friends and family more than brands (61% vs. 38%), according to a May 2020 survey by Matter Communications. But rewarding their contributions can be a struggle.

Now, all the players in this ecosystem can be compensated transparently on a system that uses blockchain and nonfungible tokens (NFTs). NFTs represent a limited number of a digital asset that are then put up for sale and facilitated by the blockchain solution, which validates ownership of the asset. This platform is why Beeple — an artist you probably never even heard of until March of this year — was able to sell a collage in a JPEG file for $69.4 million. It can efficiently manage the contracts and royalty payments required to bring in other parties, such as influencers. 

There is a business opportunity to develop these ecosystems beyond digital artists and influencers, and you should explore them — but how? Here are some questions to answer to help you determine whether a blockchain solution will benefit you, your customers and your business partners.

Does the process depend on an extended business network? Are there multiple parties in the transaction cycle?

Most companies have cooperation established with direct partners but struggle with multi-tier network visibility. They can share information or assets among themselves or across an extended value chain/network of business entities. And they may rely on many individuals in the transaction cycle instead of one customer. NFTs and blockchain are well-suited for bringing together a variety of stakeholders on one system that enforces contracts and transparently tracks activity, and blockchains get more secure with more parties in the network.

Do all the parties need to work with shared, complex business logic?

Having multiple parties in a complex transaction cycle can produce accounting headaches and delayed payments of varying kinds, whether as a portion of overall sales or revenue from secondary distribution channels. Smart contracts can encode licensing contracts over every merchandise category, physical or digital, automating transparent payments to everyone. They work in the background to dramatically reduce sale-to-settlement time, with the event-to-accounting process largely automated.

Are you securing the ownership or management of a finite resource? And is establishing trust between all the parties an issue?

These complex agreements cannot exist without trust, and they can be especially opaque for intangible goods. Lack of transparency into transaction computation and data results in a lot of settlement and reconciliation issues that are very time-consuming and expensive to address. NFTs create an amount of each kind of asset with assigned ownership. Core logic can be designed into the system to prevent double counting of assets and record ownership and transfers. A decentralized general ledger includes transactions involving the NFTs and smart contracts, and the information is simultaneously accessible to all while remaining decentralized yet secure.

Making this work in the real world

In such a system, creators and influencers get the peace of mind they will be compensated fairly, and end consumers know their ownership is evidenced beyond an emailed receipt. It’s why one artist who makes viral animated GIFs says she is now getting 10% in royalties for resales of her work, according to the New York Times. It’s how one basketball fan purchased an NFT of a slam dunk by LeBron James for over $200,000, CNBC noted.

Bizarre sequences of flashing pixels and intangible sports memorabilia may sound trivial, but its underlying platform is transformational in the right use case — not just for your business but your customers and other third parties you work with. One such use case that passed our five-question test exists today and has been revolutionary: royalties management in video games.

A video game ecosystem can include thousands of partners — not only game publishers but also designers who create skins, which are customized designs for how characters look within a video game. They are sold within the game, and artists are paid royalties. A form of tokenization tracks ownership of the skins, passing from the creators to the users — not the manufacturer of the console that nonetheless facilitates the transaction.

For example, in the Axie Infinity game, monsters called Axies are unique digital objects that exist as NFTs, and their “genes” are stored on the blockchain. In the course of the game, players gain tokens that can be used to create new Axies that are offspring of the originals, with traits carried along in the lineage. Training, breeding and selling Axies is a way for some people to earn a living, with payments in cryptocurrencies. According to DappRadar, which tracks decentralized apps, total trading volume in the game surpassed $2 billion in September.

A blockchain platform’s most dramatic impact is in processing the royalties. An example of this is the solution our company created with Microsft. It used to take 45 days before content creators could see their earnings statements on a purchase. Now, with this blockchain solution, it takes only minutes, and processing times have been slashed by 99%. 

These are the results possible if your answers to the above questions point your business toward a blockchain solution. You’ve seen the hype. But now you can see the results.

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

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