“The new internet is being built as we type.” Cathy Hackl, Forbes, on NFTs
Blockchain in simple terms can be described as a data structure that holds transactional records. It does this while ensuring security, transparency, and decentralization. It is a technological method of verification that is impossible to change. One of the most famous examples of Blockchain in action is Bitcoin - a digital ‘cryptocurrency.’
Blockchain technology has created opportunities that the world has never seen the likes of before. You can find anything from medical data to collectable games all living on blockchains. NFTs (non-fungible tokens), an evolution of the cryptocurrency concept, are the latest example of this to hit the mainstream. The NFT market appears to be skyrocketing. The NFT Report 2020, the value of the NFT market tripled in 2020, putting its current value over $250 million.
This 52INSIGHTS explores the world of NFTs.
WHAT EXACTLY ARE NFTS?
To understand NFTs or Non-Fungible Tokens, it’s useful to first look to understand the concept of fungibility. Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Money is an example of something fungible - €5 can be converted into two €2 coins plus one €1 coin. Cars or houses are examples of non-fungible items - you cannot replace one with another the exact same.
“Assets like diamonds, land, or baseball cards are not fungible because each unit has unique qualities that add or subtract value.” Investopedia
A Non-Fungible Token is a cryptographic asset on blockchain with a unique identification code. Not to be mixed up with a cryptocurrency (that can be used as a medium for commercial transactions) - a Non-Fungible Token can't be replicated. They are not mutually interchangeable - they contain unique information. As such, they allow buyers to purchase ownership of a digital good, usually an image, animation, or video, in the form of a unique digital token living on a blockchain. Essentially they are used to prove an item is one of a kind and are "aimed at solving a problem central to digital collectibles: how to claim ownership of something that can be easily and endlessly duplicated." Only limited runs/amounts of NTFs are created.
“If you understand utility aka membership cards, rewards on credit cards, tickets to VIP access ...Orrrrrrrrr ... you understand why people care about blue checks on Instagram, or wear clothes with brand logos on them or drive certain cars or hang pictures on their wall with important people aka social currency, you now start to understand where NFT’s are going.” Gary Vaynerchuk
They can be used to represent real-world items like artwork and real-estate, or purely digital items. Making tokens for real-world tangible assets essentially allows them to be bought, sold, and traded more efficiently while reducing the probability of fraud. NFTs can also be used to represent peoples identities, property rights, and more.
THE WORLD OF CRYPTO COLLECTABLES
Why is it ‘the new internet’? NFTs play in the intersection between fandom, memorabilia collecting and digital investing, as a new model of ownership.
NFTs essentially open up a new space to play and trade in while reinforcing the value of digital assets in a different way. While buyers of NTF artworks, for example, can’t hang them on their wall, they do get ‘bragging rights’ for owning a famous work like Nyan Cat or something from a popular artist. Digital resale marketplaces also offer the theoretical ability to resell assets for more - increasing NFT hype.
Also important to note is that when you buy an NFT, that doesn’t mean nobody else on the internet will be able to see it. The Nyan Cat for example is still all over the internet. What’s significant is the ownership of the original:
“Where previously an artist might print 10 copies of their original art, sign and number them, and sell em… Now they can use NFTs to do so digitally instead: with each being unique and numbered. Critics say "why would I buy one of the 10 when I can look at it for free online?".Google "Mona Lisa" There you go. You are looking at it. You can see it. For free. Guess what - there's only one actual copy of it, and it's estimated to be worth $860M. Looking at it and owning it are not the same thing. Get it?” @landforce
EXAMPLES OF NFTS IN ACTION
The uses of NFTs are vast and expanding - especially in the realms of fashion, art & entertainment. Why? People are engaging as creators, fans & investors.
The art world has been an early adopter in the NFT arena. A NFT artwork consists of two things; 1) a piece of art - usually digital, but sometimes physical. 2) a digital token representing the art (also created by the artist).
Digital artist Beeple (Mike Winklemann) sold $3.5 million worth of art through Nifty Gateway (an online marketplace for ‘Nifties’ - digital items you can own) last year. He was also responsible for auction house Christie’s first ever record-smashing sale of digital artwork; selling an NFT for $69 million this week made him “among the top three most valuable living artists”. Before now, he reportedly hadn’t sold a print for more than $100. The lucrative nature of NFTs in this example is not to be understated:
“After an initial “drop” (a term laced with streetwear overtones) of NFTs in October, Winkelmann decided to conduct his December sale through the website Nifty Gateway. The sale broke the top records for digital art within five minutes. Many buyers immediately resold the works at higher prices, seeing their initial investment multiply within minutes. Today, many of these works are selling for more than 1,000 percent of their original price.” NY Times
In February 2021, Grimes sold about $6 million worth of tokens representing digital art on Nifty Gateway. The highest-selling piece was a one-of-a-kind video called “Death of the Old” that involves flying cherubs, a cross, a sword, and glowing light that’s set to an original song by Grimes. The winning bidder took it for nearly $389,000.
In addition to the NFT medium adding to the piece of art and giving agency and control to artists, artists might be embracing the NFT universe enthusiastically because it adds security to the authentication process: “An artist can provide a proof authenticating an artwork which can never be altered. This proof can then be sold at auction passing it from artist to collector…” Paul J Ennis
We already referenced The Nyan Cat meme NFT - this sold for US$600,000. It was already a widely distributed meme, but was prestigious specifically in NFT form because the creator “signed” the work on the blockchain. Some have joked that NFTs are essentially an expensive notice of ‘meme acquisitions.’
From the fandom perspective, memorabilia & other collectables is another genre of NTF that’s started to thrive. Dapper Labs, in partnership with the NBA, launched a version of their NBA TopShot collectable and tradable NFT-based app (like digital trading cards) in the first half of 2020. It sells tokens in packs which contain multimedia and data smashed together. Last month, they reported over $230 million in gross sales in the app - proof of the appeal of ‘next level’ collectables.
Taco Bell is an example of another big brand NFT play. It celebrated the return of potatoes to its menu with taco NFTs that sold out in minutes. The ‘NFTacobells’, five versions of digital art, selling 5 copies of each (25 pieces of digital art in total), are now being resold for 1,000s of dollars.
BIG NFT CONVERSATIONS
It’s important to note the conversation and debate around the impact of NFTs in the physical world. One such conversation is the value placed on real life vs technological items. A story that garnered headlines around this was around the destruction of physical original art - a Banksy - in order to reinforce the value of its NFT. The group who set fire to the Banksy print explained-
“If you were to have the NFT and the physical piece, the value would be primarily in the physical piece. By removing the physical piece from existence and only having the NFT, we can ensure that the NFT, due to the smart contract ability of the blockchain, will ensure that no one can alter the piece and it is the true piece that exists in the world. By doing this, the value of the physical piece will then be moved onto the NFT.” The Art Newspaper
The objective value of the piece existing only as an NFT - an immutable blockchain - means that it can’t be destroyed… Many would question how that burning an artwork could make it more valuable. It seems only right that NFT art has been described as blending ‘the niche subculture of cryptocurrencies with long running philosophical questions about the nature of art.’
NFTs are hot from the perspective of being on trend - but also literally from the perspective of heating up the planet... There’s also a lot of debate and concern about the climate emissions of crypto and NFTs. Energy usage associated with NFTs is significant.
The use of NFT technology is at an early adoption stage right now, but it is building momentum fast. Right now, novelty and exclusivity are key drivers of engagement. Brave brands now have the opportunity to explore its potential.
You can create an NFT for practically anything. This ‘new internet’ is ripe for experimentation - a place where you can achieve fast fame if you do it right. The beauty in successfully deploying any new technology is identifying what need it is going to meet for your consumer. NFTs can be used as a value add / special inside track for your super fans or as an innovative way to drive engagement and get on the radar of new audiences for example. Think about how you could optimise this (and any new tech innovation) as part of your consumer touchpoints and brand ecosystem.