There is a lot of buzz these days about something called non-fungible tokens (NFTs). Both Lindsay Lohan and Logan Paul have created NFT-based collectibles; An exclusive celebrity beer-pong league was launched by Post Malone and startup Fyooz.
So what exactly is a NFT? How do they work? Why are they suddenly everywhere? Are there any real benefits to brand marketing that go beyond the intensifying hype and investment frenzy?
Cryptographic tokens that represent unique digital assets are non-fungible.
Blockchain technology is used, and the technology works as bitcoin (and other cryptocurrencies) does, with a network of computers solving complex mathematical functions to encrypt data and generate a private key, except that there is no exchangeability among the tokens.
Consider this: NFTs are like blockchain-verified dollar bills, similar to bitcoin. The value of all five dollar bills is the same, so they are interchangeable, but we’d care which artwork we owned, since different artwork has drastically different value, both monetarily and artistically. As a result, every NFT is assigned a unique hash during the encryption process. Their uniqueness is like that of snowflakes.
CryptoPunks, which launched their NFTs on Ethereum1 in June 2017, are at least three months old. Later that year, NFTs we’re popularized by CryptoKitties, a game that traded virtual cats. As of now, $174 million worth of NFTs has been purchased. OpenSea, an NFT marketplace, offers this detailed overview of NFT’s history if you wish to learn more.
A NFT is brilliant because it uses cryptographic ledgers not to log transactions, but rather to register digital assets with cryptographic tokens, an entirely different use of a blockchain. Typically, NFTs are annotated on images (jpgs, gifs, etc.) but they can also be included in tweets and MP3s. NFTs are digital assets that are easily copyable and widely shareable by design, and people can own and trade them.
An NFT is similar to the serial number that luxury brands use to prove the authenticity of their products. As with bitcoins, there’s no central authority (aka, a central bank) issuing new serial numbers except for NFTs. Currently, many NFTs are built on Ethereum, and each one represents a specific digital asset that is verified by the network. As a means of identifying ownership, an individual’s unique identifier is encrypted into NFTs when they buy and sell. All this is encrypted and distributed throughout the entire network, meaning that anyone with network access is able to see ownership information, but can’t see NFTs unless they have the cryptographic key.
As a luxury brand issues serial numbers to verify the authenticity of their products, NFTs are comparable to those numbers.
New frontiers in e-commerce, digital distribution of media, and membership management present brand marketers with exciting new opportunities. In this section, we’ll examine each domain individually to determine NFT’s impact.
Making Digital Goods Scarce and Valuable
Digital goods like video games are particularly popular. The sale of in-game items accounted for the majority of Fortnite’s revenue in 2019. The ease of copying digital goods has made digital goods unattractive to collectors.
It is NFTs that make it possible for digital collectibles to exist. In a time when copying and distribution are abundant, digital scarcity is possible with NFTs. The concept of scarcity can be seen as the creation of value. As well as being easily traded, digital goods from an NFT can also accumulate value. Since NFTs are visible to everyone in the network, the chain of ownership may also affect the NFTs’ value.
As more celebrities became interested in NFTs over the last year, they started to move beyond the crypto crowd. Hashmasks, a new Ethereum project, helped 70 artists sell more than 9 million dollars worth of digital artwork at the beginning of this month. Media companies are jumping on the NFT hype by licensing their own content and IP to Ethereum projects for use in digital collectibles, such as BBC-branded Dr Who trading cards and NBA Top Shot cards containing videos of memorable moments. Compared to last year, NFT transactions reached about $250 million in total.
NFTs are commonly associated with collectible items like virtual goods and digital art in video games, but they could be used to facilitate the sale of other digital assets too. We are also exploring real estate, event tickets, licenses for brands, and even tokens for real-world assets. The Nike company, for instance, patented a brand of sneakers called CryptoKicks in December3 so users could combine different shoes to make their own customized sneakers. Implementing NFTs in this way blurs the lines between physical and virtual, while monetizing both at the same time.
NFTs are commonly associated with collectible items like virtual goods and digital art in video games, but they could be used to facilitate the sale of other digital assets too. We are also exploring real estate, event tickets, licenses for brands, and even tokens for real-world assets. The Nike company, for instance, patented a brand of sneakers called CryptoKicks in December3 so users could combine different shoes to make their own customized sneakers. In implementing NFTs in this way, the line between physical and virtual is blurred while simultaneously monetizing both sides.
In the metaverse, digital goods play an important role. The gaming industry is devouring the world and more and more parts of our lives happen online, so brands should start thinking about digital ownership and how to leverage NFTs to generate buzz about their brand.
Monetizing digital media in a new way
A NFT could also revolutionize the way digital media is distributed and monetized. The vast majority of digital content is being monetized via platforms like Facebook, podcasts, and Netflix and Patreon that offer ad-supported content.
In addition to serving as middlemen between content creators and consumers, these platforms also profit from their distribution role. As soon as creators upload their work for distribution, they relinquish part of their ownership and control over the work to the platform owners and, in today’s meme culture, its consumers.
New media ownership models are being discussed in response to the rise of NFTs. The blockchain can also be used to enable a new distributed media ownership system and enable creators of the digital assets to profit directly from them instead of going through an intermediary.
Let’s take Lindsay Lohan’s NFT as an example. She minted an NFT on Rarible, a marketplace for digital assets, last week. On the image of herself with the token attached to her earring there is the word “LIGHTNING” inscribed in a lightning bolt. The user Loopify soon bid and purchased the token for 10 ETH (the Ethereum-based cryptocurrency unit, worth $1922 at the time of writing). Approximately one hour later, another bidder purchased it for 33 ETH ($63,447), and trading commenced thereafter.
Because Rarible’s marketplace operates in this way, the actress will receive a portion of the increase in resale value with every transaction. She has said that she will donate that to charity.
A similar structure is used by Zora, a crypto art marketplace. By allowing consumers to sell the original token and copy over and over again, they create artificial scarcity instead of creating artificial scarcity through copying. The original creator receives a portion of the sale price of each resold work. Furthermore, more people would bid on digital content the more popular it becomes. This is also why some investors would spend $35,000 to own an NBA-license video that anybody can see on YouTube, and why the Nyan Cat, despite its ubiquity around the internet, is being sold as a unique digital artwork.
It is intriguing to see how this new distributed model of monetizing digital media will affect the future of digital marketing. At present, digital assets are valued not only for how many copies they have sold, but also for how many memes they have inspired.
Digital assets have the advantage of being easily remixable, which is part of their value. TikTok videos, for instance, are valued not only by the number of views they receive, but also by how many copycat versions they inspire, which are all slightly different from the original. When meme’d versions are more common, the original versions become more valuable and popular.
While it’s fun to create user-generated content this way, brands tend to stay away because they’re protective of their branded assets appearing altered as they spread. With NFTs, then, branded digital assets can be remixed as well as non-fungible. In spite of this paradox, NFTs can verify brands as the owners of their digital assets and so disprove any other copies being produced by fans. Brands can maintain complete control over their digital assets without limiting its spread or worrying about maliciously altered versions, such as ones manipulated by deep fake technology, being incorrectly attributed to them. Owning content implies responsibility. NFT allows brands to be only responsible for creating original content without sacrificing viral potential.
With NFTs, then, branded digital assets can be remixed as well as non-fungible.
Tokenizing Service and Experience Access
The use of NFT for authenticating access to virtual experiences goes beyond encrypting digital goods. The company launched a game earlier this week to celebrate women in science and reward players with NFTs to unlock secret games inside Minecraft. RAC’s $RAC social token allows token owners access to a private Discord group, as well as early access to merch drops. NFTs have become a means for fans to trade access among themselves because they have been tokenized.
An interesting example of how service brands can use NFTs to market themselves is the Post Malone NFT mentioned at the beginning of the article. The American rapper, who has been doing a Facebook Watch series called “Celebrity World Pong League,” is partnering with Fyooz, an online platform that issues NFTs in the names of music and sports celebrities. If they have enough NFTs, fans will have the chance to take on Post Malone in a beer pong match.
Access management offers new possibilities for brands in this use case. Normally, digital tickets are easily transferable and interchangeable, since their sole purpose is to provide access to exclusive events, both online and offline.
As a result, each individual NFT becomes a unique object in and of itself, like a stub from an autographed performance by a celebrity. Through tokenization and commodification, access can be sold and bought without requiring an intermediary.
What lies ahead for NFTs
The growing mainstream awareness of NFTs will likely lead to more brands creating collectibles based on their IP to increase revenues and engage their core fanbase, or creating exclusive experiences that can be redeemed for collectibles, which will help to raise the profile of the respective experiences. We will be testing new business models for digital media creators, such as bypassing platforms and monetizing directly from their audiences.
However, NFTs alone are not going to enable digital collectibles to become mainstream; more research is needed regarding the possibility of transferring them across digital platforms, determining and offsetting their massive carbon footprints, and exhibiting them both in virtual environments and in the real world.
NFTs can also be used to tokenize more abstract concepts other than digital goods, such as social tokens. He tokenized his time by equivalent 1 hour of his work in $CSNL tokens, which he traded freely. Reuben Bramanathan previously worked at Coinbase. New York Nets guard Spencer Dinwiddie reportedly plans to offer digital tokens for those interested in investing in his contracts, essentially creating new currencies for his future earnings.
Laws and regulations haven’t been updated to bolster such abstract items as time or future income, and the sale is solely based on goodwill between the parties. Owning something requires everyone involved to agree upon it; ownership is a social construct. Laws and deeds protect ownership of valuable assets in the real world; NFTs do the same in the virtual world. The value of NFTs ultimately depends upon how many people believe in its value and support it.