What are NFTs and how can brands leverage them?
Imagine spending $69 million on a piece of art that you can never physically touch or hang on a wall. Welcome to the wild world of NFTs.
What is an NFT?
NFT stands for non-fungible token.
Let's start with the "fungible" bit - the word that sounds like a pompous and clumsy mushroom-related term thrown around Cambridge libraries instead of a much simpler alternative.
Fungibility is used in economics; it is the ability of a good or asset to be interchanged with other individual goods or assets of the same type without affecting its value (Investopedia). For example, if you were to give a friend a £2 coin in exchange for two £1 coins, you would still have £2.
Something that is non-fungible, therefore, cannot be interchanged as it has its own unique properties. To borrow an example from above, this would be like swapping the original Mona Lisa for a copied print. They might look similar, but the original has the uniqueness of being the first of its kind, which makes it non-fungible, or authentic.
What types of digital collectibles are being sold as NFTs? And how much are they worth?
NFTs can be any type of digital collectible. Sellers have made millions from original artworks, animations, videos, and even GIFs.
Last month saw the NFT market explode with the sale of an animated GIF called Nyan Cat that sold for more than $500,000. Shortly after that, musician Grimes sold digital art that she produced for $6 million. Actress Lindsay Lohan also cashed in on the NFT market and has sold digital images of herself for thousands of dollars. Rock band Kings of Leon will release their latest album as an NFT, and Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5 million.
With money like this being spent on NFTs, they could be a valuable investment.
How do NFTs work and why are they valuable?
NFTs are valuable because just like original works of art, they are one of a kind. The digital tokens you receive are like certificates of ownership. A record of who owns what is stored on a shared ledger known as the blockchain. These records cannot be forged because the ledger is maintained by thousands of computers around the world in a decentralised network.
The Rise of the NFT
NFTs are actually nothing new. In fact, domain or social handles have been bought and sold in the digital space for yonks. But when a piece of art recently sold at a Christie’s auction for an eye-watering $69 million, it make people sit up and take notice.
(To put this into perspective, the original Mona Lisa was valued to be worth around $850 million in 2019 but a copied print can be purchased on Etsy for £11.88. The value is in the original and the same applies to digital collectables).
The proud new owner of this new record-breaking piece of digital art did not walk away empty-handed. They were given a unique digital token which is called an NFT. The digital token proves that the owner has purchased the original artwork (which itself is fully verifiable thanks to blockchain technology) although the artist often retains the copyright ownership of the piece which they can legally reproduce.
Most of the collectible items sold have been art but the NFT market could grow to include real estate, event ticketing, and brand licensing. As the market matures there could be room for brands that can think outside of the box. NFTs open up another possible revenue stream for brands and a new ability to have more control over digital assets.
So, are NFTs worth investing in or are they sitting in a bubble? And how could brands gain any value from them?
How can brands leverage NFTs?
It might be hard to envision how a business could benefit from NFTs, but here are a few inventive ways:
Creating branded NFTs
In 2020, Nike patented shoes called CryptoKicks. They can be digitally customised meaning each user could design a unique pair of shoes. These shoes could eventually be recreated by Nike in the real world but the user owns that unique pair of digital CryptoKicks.
Brands could start creating NFTs and selling them just like Nike has done. Iconic brands like Givenchy could create a digital handbag that you buy in a video game with Ethereum. Kylie Cosmetics could create original digital artworks using a product. Barbour could market and sell a digital jacket.
Buyers will spend money on digital assets sold by strong brands. The ideas behind these digital products will need to be original and unique, just like the NFT itself.
Embrace the world of NFTs as we do with real-life assets
It may take time for businesses to see the true value of embracing digital assets like they would real-life ones, but, for some brands, it could be the financial boost they need in a post-pandemic world.
Soon we could see businesses sponsoring digital art auctions just like they would with real-life auctions or being the digital sponsor for a digital football team. If the world of unique digital tokens stays as popular as it is now, then it's important for brands to jump on board if they want to stay ahead of competitors.
Testing the strength of your brand through NFTs
It is clear to see from what has sold that recognisable art, music, and people are what buyers want. They want something that will stand the test of time and will not lose its value therefore NFTs will be a test of brand strength.
Creative marketing and NFTs
The possibilities are truly endless for marketers but they will need to create unique digital assets and products. The key to success lies in the hands of strong brands that hold known value or the creation of unique NFTs.
Fortune favours the bold, as they say. Brands who experiment could see new sources of revenue, more connection with their loyal fan-base, and the ability to bypass third party platforms and go directly to the consumer.
Are NFTs here to stay or is it just a bubble?
The million dollar question.
While the opportunities that NFTs present could be hugely beneficial for brands around the world, it is hard to say if they will always be this popular. Many experts believe that NFTs are a bubble and we are in it at the moment. Although some sellers are making a lot of money, experts warn that most people will not.
With Elon Musk about to release a song about NFTs as an NFT, the hype around them is not going to die down anytime soon. It will be interesting to see the longevity of these digital tokens and if more brands will invest time and marketing power into them.
As with any type of investment, it is a risk and you should always seek financial advice.