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NFTs (Non-Fungible Tokens) are everywhere. They’re so popular, in fact, that there are now more of them than websites on the internet in 2010; it’s expected that they’ll soon outnumber webpages. Yep, webpages. Let that sink in for a moment.
So, what exactly are NFTs; why have they become so popular; and what does it all mean for brands? Let’s dig deeper.
A fungible asset is something that shares the same exact value as another unit; think, for example, a £5 note, or one Bitcoin. It’s determined by a universal system of valuation and can therefore be interchanged with identical assets.
A non-fungible asset, on the other hand, has a unique value. There is no like-for-like unit; its worth is dictated by qualities exclusive to that asset. Examples of this include land and houses.
Understanding this difference is the first step towards wrapping your head around NFTs, but unlike, say, diamonds or MP3s, they are not assets in of themselves. Instead, they are verified digital signatures that act as the keys to valuable content. The value of this content is determined by demand on marketplaces.
In order to ensure it remains inimitable, an NFT is encrypted on blockchain, which essentially creates a unique stamp; this, in turn, proves authenticity, and allows the buyer to claim ownership.
Need a breather? Here’s a gif.
So, why have NFTs become so popular? Part of the reason is that we’ve simply become more familiarised with the likes of cryptocurrencies and blockchain technology; this normalisation has led to a growing acceptance of NFTs as a form of value exchange and asset management.
The mechanics of scarcity is another factor. Due to their inherent uniqueness, NFTs have become popular because nobody else in the world can own what you have; there are no copies. This works very much in the same way as art does (indeed, NFTs and the art world have long enjoyed a flirtation).
It’s worth noting here that although an NFT itself is wholly singular, the content or asset it contains can still be downloaded or shared over the internet. Demand for that content increases its value, which in turn elevates the value of owning it. Again, the more people that see an art piece (be it through prints or digital files) the more famous it becomes and the more valuable it is to own. Holding the key to an NFT works on similar principles; in this sense, it can be seen as an investment.
Yet, crucially, it’s not just the owner who benefits: the original creators receive royalties with every sale, and the platforms they’re sold on take a cut. This lays the foundations for a thriving market.
And perhaps most significantly, it’s a decentralised market. The value of an NFT is determined by the community – not banks, corporations or other faceless entities driven by profit. For a lot of people, this is the biggest appeal; value is not attributed by a financial system many have grown to distrust, but by the levers of supply and demand. There’s a purity and sense of fandom around NFTs.
NFTs are not a new trend. They’ve been around since at least 2015, and in that timeframe have gone from being the playthings of a fringe community to mainstream cut-through. Last year, Christies sold the NFT for an artwork by Beeple for $68 million; the company now regularly hosts NFT auctions and has sold over $100 million in tokens. Meanwhile, total NFT sales in 2022 are surging towards £90 billion.
Indeed, examples of businesses embracing NFTs now abound. Luxury fashion house Balenciaga, for instance, has launched a range of NFT accessories gamers can deck their avatars in when playing Fortnite, while Nike recently bought out RTFKT, a company responsible for developing 3D NFT characters that now sell for thousands of US dollars.
The likes of ASICS, Taco Bell, Team GB and Time Magazine have also launched NFTs that have not only become extremely valuable as collectibles, but also gold dust in terms of long-term brand building. Such assets – the vast majority being gifs and digital art – have acquired a quasi-legendary status due to their rarity and value.
Ticketmaster, meanwhile, is the latest big name to get in on the act, partnering up with the Flow blockchain to create collectible NFTs attached to tickets. It’s following a trail blazed by the likes of Coachella, the Super Bowl and the NBA, each of which has launched commemorative NFTs around events that now sell for big bucks.
Companies operating in the metaverse are particularly ripe for NFT experimentation, due to the transferability of digital products into a digital space. It allows brands to enter new spaces and drive visibility, while making royalties on re-sells.
But physical products are seeping into the market, with Adidas and Gap two brands that have launched NFTs containing unlockable codes for physical merchandise. Patron, too, has unveiled an exclusive range of 150 NFTs that act as a verification of ownership for a physical bottle of Chairman’s Reserve. Only with an NFT can you redeem a bottle, which is stored at a safe location. The NFTs now sell for upwards of $4,000.
The NFT market is not bullet-proof. Big losses in value happen due to the fact it’s essentially tied to wider fluctuations in the stock market, while scams are unfortunately common. Though no longer embryonic, it still has a lot of growing up to do.
But the brand building opportunities are obvious. The metaverse is broadening in stature and new generations are growing up as digital natives; with physical, virtual and augmented realities blurring, NFTs represent a ticket into new spaces teeming with promise. It’s not unreasonable to speculate that everything from cars to houses will soon come with a digital verification of ownership and unlockable offers from partners.
For now, NFTs remain the domain of early adopters and experimenters. But with marketplaces like OpenSea, Rarible and Mintable surging in popularity, it won’t be long before brands of all sizes are seeking new avenues to grow their coffers and profiles.