By now, most of you would have heard of 3D renders that sold for thousands of dollars, or a 3D video that sold for a whopping USD 6.6 million that you could otherwise just save with a click of a button for free. By now, most of you would have also heard about the NFT market and its ups and downs lately. So are NFTs a thing of the past? No. To understand why it is not, let us understand what an NFT really is.
Note: In case you do have clarity on what is an NFT, and how it works, then we suggest you jump to the last section of this blog - Use cases and how brands can leverage them.
What is an NFT? How do they work?
NFT stands for Non-Fungible Token. In simple terms, it’s a digital asset that is unique, and one whose identity could not be substituted or tampered with. They are a part of the blockchain network. For example, the first NFTs were a part of the Ethereum blockchain. These days, other blockchains have implemented their version of NFTs. These blockchains keep track of who’s holding or trading NFTs.
Now, what is blockchain? Let us give you a quick 101 on what blockchain is. Currently, the data is stored in the respective servers of a company. For instance, your data on Facebook is stored in a Meta server and if someone is looking out for certain data, it's evident where and on which server it’s available. Now, this opens up a portal for hackers to steal, tamper or commit other sorts of illegal activities. With blockchain, your data is stored in different places that do not belong to one company or an entity, which,
1. Makes it harder to get hold of the data because it is stored in the alphanumeric ID format and
2. In case of tampering of data, since it is stored in other places as well, it gives a clear indication of tampering and gives a picture of what is accurate.
So with blockchain, it's more secure and accurate.
Why are people spending millions of dollars on NFTs?
Currently, the NFTs that are released for the public to buy/trade are in image format ( .GIF .PNG or .JPEGs), video formats (.MP4), audio formats (.MP3) or 3D formats (.GLB).
Image & Video NFTs: We often hear art collectors spending millions of dollars on paintings or antiques. More than being art enthusiasts, they see it as an investment that will bring profits in the future. The same applies when it comes to this category of NFTs. These digital assets are seen as one-of-a-kind collectables that one can own. They are bought with the expectation that one day the value of it will grow, and it did to an extent. These are mostly traded as collectables, such as the above examples. Check out the Bored Ape Yacht Club collection and the work done by Beeple. When the Bored Ape Yacht Club NFTs were initially released, it was sold at an average of 1.4 Ethereum (roughly 1,200 USD) and now they are selling for an average of 65 Ethereum (roughly 88,000 USD). That is a massive jump in the value of just a digital image.
Audio NFTs: Imagine exclusively owning Queen’s Bohemian Rhapsody. The artist releases the music track as a single-edition i.e. one track that the buyer fully owns or it can be a limited or an open edition where many people can own a certain track. Audio/Music NFTs, apart from the investment standpoint, are mainly bought for the pure love of music, and to support the artists.
3D NFTs: The concept of 3D assets is not new. It has been making rounds in the gaming industry for quite some time now where gamers can buy in-game assets such as weapons, clothes etc. Similarly, with NFTs, you buy a certain 3D asset that you can use on any of the decentralized virtual worlds. For example, imagine owning a one-of-a-kind Nike Jordan shoe fully owned only by you and you can flaunt it on all the decentralized virtual worlds. These hold the same exclusivity as Image and video NFTs.
So are NFTs just collectable digital assets? No, it is not - this is a misconception that many have about NFTs. They are more than collectables. We will come back to it later in the topic.
How is an NFT made, and how is it sold?
The value of the NFTs is defined by their uniqueness. Some might want to create an exclusive NFT while others want to create NFTs with identical copies to reach out to the masses. Two steps go into making an NFT. Create & Minting.
Create: The brands/creators start with a story, a concept behind the NFT. The concept is then rendered into a design in a format that is feasible. It could be any multimedia file, audio, text, video, image etc.
Minting: The rendered design, basically digital data is then converted into a digital asset that is recorded on the blockchain. The signature of the digital asset will then be stored in a decentralized database and cannot be edited, modified, or deleted. This establishes its unchangeable record of authenticity and ownership.
The process of minting is a complex task that requires:
1. To choose what blockchain platform to mint on (Ethereum, IBM Blockchain, Ripple etc.. to name a few)
2. An NFT developer to help the creator in minting the NFT. To make this complex process easier for the creators, there are Marketplaces. Marketplaces such as Opensea, Foundation, Rarible to name a few are online galleries where you can list the NFTs. These marketplaces also help you mint the NFT for a fee. The fee is either charged when the creator lists the item for sale on the marketplace or when the NFT is bought by a collector.
Who is benefiting from NFTs?
Whether it's an artist, designer, musician, or company, NFTs provide the opportunity to eliminate the need for the middle agent and directly connect with their audience.
Artists/Musicians can create on the blockchain, reach out to their audience, and sell the art piece directly. Marketplaces also provide a broader audience base than an advertisement and this drives the prices of the NFTs drastically.
Companies like Nike and Taco Bell largely benefited from their 3D NFTs and taco-themed art respectively. Nike's 3D NFTs have already made more than USD 185 million to date, and Taco Bell’s NFTs had peaked up to USD 700 per piece.
Use cases, and how can brands leverage them?
The above are a few examples from a monetary standpoint. Apart from the hype it has created, NFTs have many more use cases than just being a collectible. NFT, as mentioned earlier, is a digital asset that cannot be duplicated or tampered with. This property of NFT alone opens up innumerable use cases from art to supply chain management. Below are a few examples and how the brands can leverage them.
Ticketing: Was there a time when you wanted to attend a concert and the tickets were sold out in a jiffy and you had to buy it from the black market or through another marketplace where it will be sold for a higher price? This happens usually because of ticketing trafficking, and according to a 2019 report, about 35 percent of ticketing trafficking consists of ticket bots that buy tickets and resell them on other marketplaces for higher prices. This is both expensive and frustrating to both consumers and the organizers.
NFT ticketing is the answer to this problem. NFT ticketing cuts down the bot trouble and the organizers can connect directly with the customers without the need for third-party sellers. The organizers can check transaction histories which in turn can result in a reduction in scams and an increase in transparency. Among a few music festivals that integrated blockchain into their framework, the Coachella Music festival stands out the most with NFT Festival passes and collectables that could be redeemed for physical items.
Shareables: We love to share our achievements or show off our valuables, don't we? A proud post on LinkedIn, a Tweet on Twitter, or a story or a reel on Instagram or TikTok. With NFTs, this goes to a next level. Imagine being awarded NFT badges or certificates for your career or academic achievements that could be shared on any social media platform. Not only does it add a feather to your cap, but just the fact that it’s an NFT adds authenticity to it.
With play-to-earn games gaining popularity, players are being rewarded with weapons, costumes and other NFTs that can be used in other games or traded or sold in other marketplaces.
Brands such as Nike, Skechers, and Adidas have released their NFT collections where the owners of the NFTs can not only use them in the virtual worlds such as The Sandbox and other platforms, but also get exclusive access to the brand’s launch experiences and product discounts.
Supply chain: The global supply chain has already adopted blockchain technology. Implementing NFTs in particular into the framework can make it easier to verify and track items as they go along the journey. When a product moves from raw materials to finished products on its journey to a consumer, NFTs can provide visibility into not just where an item is, but all the other information associated with it such as what is it made of and where the raw materials are sourced from, where it was manufactured etc. This process is not only efficient but also cost-effective as it eliminates intermediaries, unnecessary costs and duplication.
Utility: Complete control of one’s identity or documentation has been the most notable selling point of NFTs. Unlike the image/video/music NFTs where the purpose is to sell/buy for monetary value, Utility NFTs’ purpose is to offer a tamper-proof asset that one owns. This could be a college degree, identity documents, documents related to a house, vehicle etc.
The concept of Utility NFTs enhances the USP and the stronger purpose of NFTs. They are not only eliminating the tampering of documents, but also offering owners complete control of their assets.
In summary, NFTs aren’t just images. This is a rapidly evolving technology that ensures uniqueness, identity and ingenuity. While Blockchain has been around for a while, there are plenty of new use cases, and old use cases are getting completely revamped. With the speed at which this technology continues to grow, we expect them to be integrated into how we live, work, play and collaborate in the future.