NFTs. We have seen meteoric growth of NFTs and their massive use of it almost everywhere. But what exactly is an NFT and how can brands capitalize on this digital asset artform?
According to Merriam-Webster’s Dictionary, a non-fungible token is “a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights relating to it).”
While it seems like NFTs have exploded this year, they’ve been around for a lot longer than most people think.
Most people consider the Bitcoin “Colored Coins” that came out in 2012 as one of the first NFTs.
NFTs are one of the most powerful concepts to emerge from blockchain technology.
As of this blog post, the most expensive NFT was a jpg file sold at a Christie’s auction for $69 million. Christie’s billed it as “a unique work in the history of digital art.” The piece, “Everyday’s — The First 5000 Days” by the artist known as Beeple featured a collage of all the images that he has been posting online each day since 2007.
While Christie’s had the most expensive NFT sold, Sotheby’s has the distinction of selling the first NFT ever minted, Kevin McCoy’s Quantum. It sold for $1.42 million. Whether it’s memes or viral videos or digital art or another digital expression (e.g. Jack Dorsey, founder of Twitter, sold his first tweet as an NFT for $2.9 million), there are many different assets that can become NFTs. And brands are getting involved.
With an ever-expanding digital marketplace, technology innovations, and multiple companies’ focus on digital offerings due to the pandemic, it’s the perfect time for an all-new licensed product to hit the market: the NFTs.
Digital assets could be the next big licensing wave for consumer products.
If you’ve worked in the licensing industry for some time, you probably feel as if you’ve seen it all. From licensed apparel to toys and games to beauty and cosmetics, licensed products have almost always been physical, tangible, and relatively predictable.
Industry experts not only see NFTs as the hottest new option on the licensing market but one of the most important additions.
Brands and artists can sell digital artwork, a unique skin for a gaming avatar, and even event tickets. For example, Berlin-based Look Labs released their digital perfume, Cyber Eau de Parfum, and created an NFT artwork out of it.
And the NBA now offers NBA Top Shot, officially licensed NBA and WNBA digital collectibles.
Every business is going to have a strategy revolved around NFTs, the same way that businesses now have social media strategies. It’s an adjusted extension of the brand. Every business needs to have a strategy for the long term.
According to License Global, unlike traditional assets like JPEGs or GIFs, NFTs have characteristics that truly make them unique.
- Standardization: there are standards for storing the digital assets
- Interoperability: These standards allow tokens to freely move between different ecosystems.
- Programmability: NFTs are programmable, behaving like traditional assets that can be leased or collateralized to generate cash flow.
- Scarcity and Immutability: Developers can etch certain properties into NFTs to make them unique or scarce.
- Liquidity: Buyers can trade items on completely open marketplaces.
- Digital Property Rights: Unlike virtual goods that sit on centralized servers (e.g. Fortnite skins), NFTs redefine digital ownership.
Some of the main NFT categories coincide perfectly with brands:
- Traditional Digital Art
- Music NFTs
- Video, GIF, Art, etc.
- Game-Specific NFTs
- Virtual Real Estate
- Access Keys and Tickets
- Crypto Collectibles
- Sports Collectibles
- Branded Collectibles
- Proof of Attendance
NFTs allow for different economic models. There’s the usual royalty avenue where whoever minted the NFT gets a set percentage of the sale price. IP Licenses can be added to NFTs. This area is still new, however, several companies like CXIP and Aragon are working on developing this sector. NFTs can have limited-edition runs, allowing for a robust collectability market.
Provenance is more easily obtained as NFTs can hold a record of all their transactions included who used them and how it was used from their mint date.
As with all new licensing avenues, there is an inherent risk in NFTs. It’s still a relatively young industry prone to unexpected swings. It also relies on cryptocurrency which can fluctuate wildly in value.
Currently, only a small share of Americans actually own crypto currency (about 17%). In addition, legalities are still being worked out. After artists were selling NFTs based on popular superhero characters, DC Comics, Marvel, and other studios sent a notice to artists forbidding NFT sales.
While NFTs are not quite mainstream, they are expanding beyond the crypto universe as more major brands launch their own NFTs. The question moving forward is whether they have the staying power as traditional art assets. Time will tell.