Given that we still spend much of our lives in the physical world, there is immense value in connecting NFTs and tangible objects in a meaningful way.

Naturally, at this early stage of the technology cycle, we mostly see skeuomorphic approaches like redeemable NFTs. Yes, this model will probably make the most sense for the majority of consumer products, but there’s an alternative approach that has the potential to unlock a whole different category of products. One that is digitally native, and able to take advantage of the decentralised infrastructure it is built on - and that’s where it gets interesting.

TL;DR

Redeemables: Physical object is the original, NFT is a receipt. Value is stored outside the blockchain and requires support from centralised entities.

Digitally native physical objects: NFT is the true original, physical object is an extension. The NFT has no physical dependency, therefore able to interact natively with the blockchain.

Limitation of Redeemable NFTs

The most common way to link up physical objects with NFTs is using the redeemable model. This is where a token could be redeemed for the physical good it represents, - popularised by the Unisocks model. Having a tokenised “Digital Twin” allows them to be traded with less friction and more liquidity in the open market, and be redeemed whenever the token holder wants the item IRL.

Although built on top of a decentralised blockchain, the true value is still stored outside of the blockchain and requires support from centralised entities.

1. If the physical good is lost or destroyed, then the NFT that represents it is also essentially worthless. However secure the NFT might be, its value is dependent on the physical object.
2. There will still be significant friction and trust needed if the redeemed physical goods are to be exchanged on the secondary market, therefore, likely to require centralised intermediaries to escrow, authenticate, and verify conditions.
3. The system is still hinged on securely and immutably binding the NFT and the physical object - i.e. an embedded chip. The burden of differentiating counterfeits still lies with the legacy system - and we all know how reliable that can be.

The NFT in this case is nothing more than a glorified digital certificate of authenticity; that still relies on a few centralised entities to uphold its value. So instead of merely storing a receipt of what is valuable (the physical object), what if we store the very thing that makes the object valuable in the NFT?

Value in the idea and design

Most types of artwork have their value embedded in the physical work itself. E.g. Mona Lisa or Michelangelo's David.  However, there are physical artworks whose value is not attached to the objects themselves, but instead, to the concept and design.

Conceptual art like the Basel Banana (Maurizio Cattelan’s Comedian) is such a category. The banana can rot, be eaten, and replaced; yet it is still the same artwork. The concept is captured in the form of instructions attached to a certificate of authenticity. Many conceptual artworks are experienced and enjoyed physically. They can be torn down at the end of one exhibition and rebuilt in another location, without destroying the value of the underlying asset. The work of art is valuable not because the touch of the artist makes them so, but rather the captured idea, supported by proper execution.

Physical form as an extension

In the world of NFT art, digital artists offer museum-grade prints for their collectors, because these masterpieces deserve to be enjoyed and admired in a professionally framed print. These are physical manifestations of the original digital art, which some artists consider to be a key component of the work.

Yet these physical prints are not “redeemables”, where you need to burn or swap the NFT to claim. Printing a physical does not syphon value away from the NFT, rather, it adds value on top of the NFT, as a complementary element. This means that the physical object can be stolen, lost, or burned; yet have no effect on the value of the underlying art; because the NFT is the true original.

Making physical objects digitally native

I believe this concept can also be applied to objects. We can record designs using 3D CAD models, blueprints or manufacturing instructions, and then use this information to digitally fabricate objects IRL. NFTs give us the ability to ascribe provenance, ownership and scarcity to these digital assets, and in doing so, the core properties of what makes an object unique and valuable are now captured digitally.

Benefits of bringing a physical object on-chain

Being digitally native allows the asset to benefit from all the perks of a decentralised infrastructure: immutability, transparency, true ownership and composability. This becomes even more interesting when there is an added physical component.

We can now provably own a genuine item as an NFT. The physical object does not have to rely on an NFC chip or another technology to prove its authenticity. Having a replica/counterfeit object without the NFT will be equivalent to “Right Click Save”. I would argue that this approach actually democratises the design, and allows more people to enjoy it, without diluting the value of the underlying asset/brand.

Digitally native physicals can be traded without escrow, authentication, disputes over physical conditions, and other frictions normally associated with trading physical goods. The new collector will always have the option to order another physical from their preferred manufacturer.

We no longer have to rely on a single entity to produce an object. Coinciding with the rise of the maker movement and rapidly improving 3D printing technology, this could open up manufacturing to localised and on-demand production.

There are many other interesting possibilities that we have yet to touch on: Fully on-chain generative objects 👀, forking of designs, fractionalisation, permissionless and trustless connection between patron, designer and manufacturer. All topics that we will hopefully explore in the future.

Limitations

Admittedly, this approach is not without its limitations:

1. This model would only suit objects that can be digitally fabricated. Anything that requires the finesse of a skilled craftsman or precious materials could not work as that is where the bulk of the value lies - E.g. Tiffany’s 30Eth cryptopunk pendant.
2. The cost of a one-off production can still be high, especially for high setup (fixed) cost manufacturing methods like CNC milling. 3D printing is currently the most suitable choice for this model.
3. Since the manufacturing can be decentralised, it would be hard to guarantee a standard of quality and consistency. Curated manufacturing partners would be helpful. - Generative artists often partner with their local print shop and tweak specifications to best fit their work.

I am a glass-half-full kind of guy, so I tend to see this more as a feature than a bug. Limitations are sometimes useful in focusing our creativity, on finding solutions within a set framework that inspires even more unique creations.

End note

I believe that NFTs secured on a public blockchain is currently the best mechanism we have for ensuring true ownership, provenance and scarcity. But the security of a system is only as good as the weakest link, and at the moment, the link between physical and digital is pretty weak. That’s why I think there is value in making physical objects more digitally native with this approach.

With this in mind, I created Hash inc. as the first step to testing this thesis. I have designed a limited series of small objects with their digital assets minted as NFTs. Echoing artists that offer museum-grade prints, we will also be producing these designs for collectors.

The category of digitally native physical objects is only possible because of the recent convergence of technology like CAD, digital fabrication and NFTs. I believe the rapid development of these technologies would only amplify their value and enable creations that are beyond our imagination.