NFTs for supply chain management

The non-fungible token (NFT) market surpassed 40 billion dollars in 2021, with nearly 41 billion dollars’ worth of cryptocurrency sent using smart contracts. This impressive market increase over the last year shows how interest is gathering around NFTs. With applications to various industries, from music to healthcare, it is time to assess how NFTs can benefit manufacturing too.

NFTs are non-replaceable units of data stored on a blockchain. These units are uniquely identifiable, and have been traditionally used as representations of digital assets such as videos, photos, music and digital art. However, their applications extend beyond the world of collectables.

For example, long, extensive and complex paper trails will soon be a thing of the past if companies are to implement NFTs to their supply chain. Instead of an endless paper trail of transactional ownerships and more, NFTs would create a digital footprint or a token ID that would follow that item throughout its lifespan. 

To be more specific, NFTs in the supply chain would work by creating a unique identification for each product. This ID would contain all the relevant information stored in the NFT’s metadata. Once this NFT is minted, product documentation is recorded using blockchain, which is updated in real-time. Due to the nature of blockchain, the records assigned to the NFT are unchangeable, reducing and potentially eliminating discrepancies in information between parties. 

NFTs' transparency and immutability can ensure reliable and authentic supply chain data, making them the perfect management tool.

Uses for NFTs in supply chain management

NFTs can be beneficial for supply chain purposes, as many companies are concerned with maintaining trustworthy digital data. NFTs ensure this data cannot be tampered with, making them perfect for supply chain management. NFTs also offer many other benefits, such as reliable traceability, product authentication and certification.

Because NFTs can be assigned to physical, real-world objects, a supply chain manager can use them to track a variety of products and materials. To do this, the supply chain manager only needs to create a digital representation of the physical object on the blockchain to enable the transactions to be safely tracked and stored. 

The use of NFTs for traceability purposes allows for a range of useful tracking applications, such as tracking packages from warehouses, recording each new owner, and preventing package losses. NFTs can also be useful in tracking reusable packaging or expensive materials. This could help ensure consumers get the quality goods they ordered instead of cheaper alternatives, and helps prevent the loss of goods during delivery.

Other uses include product origin and authentication records. This allows third parties to easily confirm the product's origin as well as its ownership history, just like a car logbook, except this record cannot be changed and is digital. The NFTs creator can even design it to send royalties back to the original creator every time the product is resold. The NFT can also be used to control and extend warranty and insurance information. This application is demonstrated by the luxury watch brand Breitling, which introduced NFT passports for their watches. 

NFTs can also be used to provide certifications for a product. Nowadays, consumers are becoming increasingly more selective about the products they buy, searching for trusted certifications such as fair trade. This concept can be applied to NFTs by having third-party certifiers for product standards or labour safety requirements that would mint the NFT with the appropriate certification. This would ensure the product is digitally labelled as certified, much like the physical free-range ones seen on eggs.

The challenges

There are legal aspects to consider with using NFTs and current law does little to protect them due to the infancy of the technology. Copyright protection currently exists separately to NFTs, meaning that NFT creators should be careful when it comes to marketing and advertising them. For example, an NFT could be created to represent a sculptor’s artwork and be sold as a creation of that sculptor even if the artist played no role in making the product or authorising the use of images. 

Similar issues could occur when using NFTs in manufacturing. For example, an NFT could be created to represent a components design without the designer being aware or authorising the use of his designs. NFTs are known to have a common issue with plagiarism, fakes and spam, with more than 80 per cent of NFTs minted for free on OpenSea’s platform being reported for these issues. 

However, there are ways to lessen counterfeit risks. Some platforms use manual verification to solve counterfeit issues, for example, OpenSea requires all people submitting NFTs for minting to provide information such as name, email, selection of works, social network presence, and more, in an effort to authenticate the person’s identity. 

Although NFTs are a newer concept with kinks that still need working out, they show increasing potential across a variety of industries and are proving to be a more effective way of identifying and tracking items and information. With the growth of industry 4.0 and a push to make manufacturing more modern, NFTs are certainly a useful innovation to apply to a business.

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