NFTs or non-fungible tokens are gaining plenty of column inches as a versatile digital asset. Our simple business guide highlights why their appeal could be much broader than many first thought.
‘NFT’ stands for non-fungible token. Something which is ‘fungible’ simply means it is replaceable by another identical item and still holds the same value. For example, a £10 note is fungible because it can be replaced by another £10 note and retains its value. Therefore, something which is ‘non-fungible’ is unique so a ‘non-fungible token’ is a one-of-a-kind asset which can be bought and sold.
NFTs are digital assets and can be anything from a piece of artwork to a video or an old tweet. NFTs are currently making headlines in the sporting world. For example, the National Basketball Association (NBA) has worked with Dapper Labs to create ‘Top Shots’ – digital highlights of games. These NFTs have generated over $780 million in sales.
Endless commercial opportunities
Since an NFT can be any kind of digital content, the opportunities are endless and have the potential to benefit all kinds of businesses, not just global sports properties. By way of example, Taco Bell sold 25 “NFTacoBells” GIFs as a way of raising money to support its Foundation’s Live Más Scholarship. Within 30 minutes they had sold out with the bidding starting at $1 but all 25 being sold for thousands of dollars each – the highest value being $3,646.
The versatility of NFTs means they can be used to represent all kinds of creative work from virtual real estate to fashion shows. These digital assets can broaden a business’ marketplace and create new revenue streams providing additional sources of income for businesses of all kinds.
Secure and protected
While it is true that anyone can download digital content for free any number of times, because NFTs are unique, they are considered collectibles. They can be compared to Pokémon cards but with the difference being there are only digital versions stored in a digital wallet and purchased with cryptocurrency. NFTs are stored on a blockchain, which is a public digital ledger of transactions and which is almost impossible to hack or change.
When an NFT is purchased, it is logged on the ledger and effectively ‘stamped’ to signify originality. This means the unique nature and associated value of the NFT is protected as anyone can view the ledger to confirm originality, which is critical for collectors. NFTs also give basic ownership rights, for example, if the NFT is an image the owner will be allowed to use that image as a profile picture.
The appeal to artists
NFTs are particularly attractive to artists because they are able to retain copyright and production rights. Not only this, but the artist can code the token so that every time it changes hands they receive a percentage of the sale value. This is seen as a great triumph as historically it has been difficult for artists to secure rewards for artwork which appreciates in value.
To show how profitable NFTs can be, American digital artist Beeple recently auctioned a collection of his digital artwork as an NFT for $69 million, and musician Grimes made around $6 million in 20 minutes through the sale of 10 music videos as NFTs.
Key ingredient to brand awareness and audience engagement
The take away for businesses is to consider how your customers might be willing to engage with NFTs. Many online communities have been created by those who have purchased NFTs of a particular kind including a community which own NFTs of pet rocks and another for ‘Pudgy Penguins’.
To capitalise on consumer interest, businesses can create digital limited editions of products and encourage customer communities which can drive audience engagement and lead to greater brand awareness alongside increased income. Our view is that all types of businesses should be capitalising on this exciting new trend.
At Hamlins we are advising our clients to consider how they could utilise NFTs in their businesses to open up new revenue streams. If you would like more information about structuring NFT arrangements, please contact Matthew Pryke.