NFTs are all the rage now! Over the past few months, we have seen the NFT gold rush making headlines around the world. In August alone, OpenSea hit $1B in trading volume, up from less than $100M in all of 2020. As NFTs go mainstream with trading volume reaching new record levels, its internet searches even outnumber those for "blockchain," according to Google trends. Yes, you heard it right.
For some, it's a bubble waiting to pop. For others, it's the hope for a new future. Our advice? Take a deep dive into what an NFT really is, and once you have had a good grasp of its capabilities, then you'll get the answer for yourself.
Having been in the NFT sphere since 2017, here at Arianee, we know a thing or two about NFTs. So let us guide you through the maze of NFT by addressing some of your most frequently asked questions.
We will discuss:
- What is an NFT?
- How do NFTs work?
- Why are NFTs suddenly trending now?
- What are some benefits of NFTs?
- Getting started with NFTs: what are the options for your brand?
WHAT IS AN NFT?
NFT stands for non-fungible token. That just added to the confusion, didn't it? Don't worry, just keep reading.
WHAT ARE FUNGIBLE GOODS?
Simply put, fungible assets are items that are interchangeable for commercial purposes because they have identical properties. For example, oil, stocks, gold, dollar bills, or a bottle of milk are fungible goods because they can be traded or exchanged for one another and because they’re also equal in value.
IS A BITCOIN FUNGIBLE THEN?
Bitcoin is fungible as one Bitcoin is always equal to another Bitcoin. The fungibility of crypto plays a critical role in the way blockchains work.
GOT IT! SO WHAT ARE NON-FUNGIBLE TOKENS?
By contrast, "non-fungible" refers to something unique and can't be replaced with something else. Consider precious diamonds. Because rough diamonds come in various sizes, colors, grades, and cuts, determining whether two diamonds have the same value is challenging. Most likely, a diamond cannot be of the same value as all other diamonds.
A non-fungible token is a data unit stored on a blockchain that certifies a digital asset as unique and thus non-interchangeable. An NFT can only have one owner at a time. Even though it has no physical form, NFTs can be bought and sold just like any real-world asset. NFTs enable true ownership of any forms of digital assets, be it a digital work of art, a tweet, or a gaming asset.
CAN NFTS BE LINKED TO PHYSICAL GOODS?
Yes! NFTs have proven to be helpful in the realm of tangible assets and collectibles. In the fashion and luxury sectors, NFTs can aid in verification and authentication processes as each NFT is unique and cannot be replicated.
For example, starting from April 2020, the French label ba&sh provides a digital passport (NFT) for each product. When someone wants to resell their bag, they can sell the bag while also transferring ownership of the digital passport associated with that bag. Consider when you want to buy a valuable second-hand item and request a receipt or paperwork from the seller. The difference here is that because the “receipt” is recorded digitally on blockchain, it cannot be faked, thus adding an extra layer of security.
WHAT ARE SOME ATTRIBUTES OF NFTS?
Unique, Irreplicable, Unforgeable
HOW DO NFTS WORK?
Let's go back to basics: what's a blockchain? Consider a blockchain to be a type of database that stores data in blocks that are digitally linked together. Each data block has a limited capacity, and therefore when its capacity is reached, additional data is transferred to another block that is chained to the original. In the end, all of the chained blocks create a long record that is permanent. When an NFT is sold, for example, the new ownership information is added to a new chain in the blockchain, making sure that the NFT's history is preserved and ownership is secure.
CAN NFT CREATORS SELL MULTIPLE REPLICAS OF THE SAME NFT?
The scarcity level of an NFT is set by its creator. NFTs can represent a one-of-a-kind "original". NFTs can also represent one of a fixed number of copies in a limited series.
SORRY I STILL DON'T GET IT. CAN'T I JUST DOWNLOAD DIGITAL STUFF FROM THE INTERNET?
People are asking this question all the time, and it's a valid one. With digital art living mainly on the internet, we can't stop people from taking screenshots or downloading the file for themselves. BUT remember, since they don't own it, they can't profit from it unless they also own the NFT. As we are moving towards a digital future, tangibility doesn't matter anymore (at least not as much as it used to). On a side note, as a collector, you wouldn't want to prevent people from downloading your art. You want your artwork to gain as much exposure as possible because the number of views and shares are the best indicators of an artwork's value.
BY THE WAY, I'VE HEARD OF THE METAVERSE. WHAT IS IT EXACTLY?
The Metaverse can be best described as a network of always-on virtual environments where people can interact with each other and digital objects while using avatars to represent themselves. Consider a hybrid of all virtual worlds, augmented reality, and the web. NFTs and cryptocurrencies can be seen as the lifeblood of the Metaverse.
To give you an example, Decentraland is a virtual world where users have the opportunity to buy land, develop it, and potentially sell it as an NFT. Soon enough, we will have museums open in Decentraland to exhibit NFT artworks. The next step will be in retail, with Decentraland virtual shops hiring real human sales assistants to sell NFT bags, shoes, and cars.
WHY ARE NFTS SUDDENLY TRENDING NOW?
In some ways, NFT owes its booming popularity to the global pandemic. Stay-at-home restrictions resulted in hundreds of millions of people spending more time online, finding ways to relieve stress, or seeking alternative sources of income. Gaming was having a moment. Cryptocurrencies were surging in value. At the same time, there has been an influx of easy-to-use and cost-efficient NFT minting platforms, protocols, and marketplaces. The perfect conditions for the NFT storm.
NFTs then gained momentum in the art world. When thinking about crypto, you envision nerdy people who are into things you don't understand. But if an NFT lets you have a front-row ticket to your favorite musician's concert, are you in? Music, art, sports, and games are where people can easily get excited, and that's where NFTs attract a lot of buzz. In other words, "NFTs take crypto out of the just-for-nerds territory and make it hip."
But NFTs aren't just for art and fun: as the technology matures, more applications emerge. In the fashion and luxury sphere, the NFT trend is picking up. Much of fashion and luxury is based on exclusivity, authenticity, and ownership - it's why we prefer one brand over another, why we want to know it's authentic, and why we place so much value on our possessions. Because NFTs offer a perfectly suited solution to the digitized world in which we all live, they appear to be a natural progression of the fashion and luxury industries. NFTs have a wide range of applications in the fashion and luxury industries, and brands and consumers are now exploring their potential.
WHAT ARE SOME OF THE BENEFITS OF NFTS?
LET'S SAY I'M AN ARTIST/CREATOR. HOW CAN I BENEFIT FROM THE RISE OF NFTS?
For a long time, content creators like you have suffered from the ugly socialization of their creativity and unfair share of gain where a big chunk of money flows into the pockets of publishers, producers, and auction houses, right? But NFTs have the potential to change these dynamics:
- NFTs lower the entry barrier for individual creatives and allow them to sell their works directly through digital commerce without the need for intermediaries, thus improving transaction efficiency and retaining more profits.
- NFTs enable creators to profit off their work in perpetuity. Some blockchains enable NFTs to go further by integrating royalties, which are payments made to creators every time their works are sold to other buyers.
HOW ABOUT THE COLLECTORS?
Besides the obvious usage and bragging rights, NFTs also help collectors stay in direct contact with their favorite artists and benefit from creative reward schemes such as physical merchandise or tickets to a live experience. Purchasing an NFT is like investing in a piece of culture.
On the advantages of NFTs, US entrepreneur and crypto-enthusiast Mark Cuban said:
"It's chill. It's easy to buy, it's easy to sell, it's easy to hold, it's easy to look at on your phone".
AND WHAT ARE THE BENEFITS FOR BRANDS?
NFTs have opened up new doors for brand communication and customer engagement. Below are a handful of applications that are taking shape:
- Boost brand awareness: As early adopters, companies have earned a ton of free media: Visa, Taco Bell, Pizza Hut, Nike, Formula 1, among others. Brands can use NFTs to offer incentives for interactive contests or fund-raising activities. If you want to generate buzz prior to your events or product launches, releasing early access tokens is a smart way.
- Increase brand engagement and instill brand equity: Limited-edition collections have always been a winning ingredient for brands. Via the creation and distribution of exclusive digital collectibles, experiential events, and memorabilia, brands can leverage NFTs to better tell their brand stories and engage consumers. For instance, Louis Vuitton, for their 200th anniversary, launched "Louis: The Game" along with 30 NFTs embedded in this adventure-based video game. As consumers play, they get to learn about the house's history through collecting cards and other memorabilia. A perfect opportunity for the brand to introduce itself to a younger audience and keep them engaged without having to buy anything (yet).
- Build brand trust: For consumers nowadays, transparency is no longer an option but a must. Brands can use NFTs as digital passports for their products and communicate transparently about products' history. For example, for the limited-edition collection of the sustainable brand Olistic and the eco-activist Arizona Muse, each product comes with a blockchain-enabled digital passport, allowing consumers to trace the garment's origins in complete transparency, from the selected raw materials to the suppliers who contributed to its manufacture.
- Deliver exclusive brand experience and foster brand loyalty: With NFTs in the form of digital passports, brands can make services such as insurance, repair, return, or resell easy and trackable from the comfort of a consumer's phone. And beyond physical products, owning an NFT can be a way for consumers to be part of a brand community, enjoying exclusive events & experiences. Through ownership of NFTs, consumers can have a deeper relationship with their favorite brands, which will translate into customer loyalty.
SOUNDS IDEAL! SO WHAT IS HOLDING BRANDS BACK FROM IMPLEMENTING NFTS IN THEIR STRATEGIES?
The idea of implementing a blockchain-associated project can be daunting to some people. The main challenge for corporations is a lack of understanding of how it works and what it is capable of. But fear is hampering imaginations and the exploration of fresh ideas; instead, a business-oriented approach is very much needed. What companies may not know is, they don't need to start big. Starting with small-scale, budget-friendly projects is a great way to test the waters. By experimenting with ideas and looking at the impacts of small projects, businesses can ratify market needs and speed up the innovation process without breaking the bank.
The hesitation towards NFTs also lies in their environmental impacts as they use a lot of energy in their computer transactions. Good news: it's possible to implement NFTs on blockchains that use far less energy. For example, the Arianee solution is deployed on a public side chain of Ethereum called POA Network, which uses a “proof of authority” mechanism to create transaction and confirm blocks, resulting in a significant decrease in energy consumption compared to proof-of-work networks.
Our advice: As new technologies emerge, questions arise. But considering the opportunities NFTs bring for ownership and the fact that the real and digital world are becoming increasingly interwoven, we would advise businesses to start exploring NFTs before opportunities pass you by.
HMMM, I WANT IN. TELL ME WHERE DO I START?
It's simpler than you would think. In fact, one of our missions is to simplify the creation, distribution, and management of NFTs for brands. Here’s how you can do it with some help from us:
First, you need to decide whether you want to implement it by yourself or using our SaaS platform. If you choose to do it by yourself, great, it's free thanks to our open source protocol. You'll need to download our SDK (Development Kit), follow our tutorials, then go on to validate your identity on the blockchain. It will branch your IT system to a side chain of Ethereum to create your personalized NFTs. And then you will be able to distribute them. Mission accomplished!
If you want to use our SaaS platform, don't hesitate to contact us. We'll help you create your brand identity and give you access to your platform SaaS. We'll advise you on the type of NFTs and the best use according to your needs. We will also help you onboard and integrate the solution in your systems, organise workshops to define the best use cases for your brand. In addition, the communication team will give you the tools to market this new project and educate your community.
And there you have it, a new world of opportunities for customer relationships with ultimate data privacy!