NFTs and WTH Can Brands Do with Them
The many headlines and much furor attest that NFTs can be big business. But even those that dabble in their trade may not fully understand what they are, or how they can be used and manipulated.
They look like exotic Furbies. Rainbow mitts. Bacteria that’s outgrown its petri dish. That furriness is misleading. The fluffy handbags are incorporeal, entirely digital. They won’t be pet or carried by anyone.
But there has been a lot of litigating over them. As non-fungible tokens (NFTs) based on Hermès’s coveted and costly Birkin bag, the MetaBirkins caused a dispute upon their debut. One that resulted in creator Mason Rothschild paying damages of $133,000 to the luxury label and a jury deciding that unlike art, NFTs aren’t protected speech.
And if you’re online at all you’ve certainly stumbled across the Bored Ape Yacht Club, a collection of cartoon NFTs shared across social media by celebrity owners like Eminem, Jimmy Fallon, Justin Bieber, Snoop Dogg, and Paris Hilton (not without legal scrutiny). Cumulative sales of the tokens at Sotheby’s auction house surpassed $24.4 million in 2021. Since then the sale has been linked to the now disgraced cryptocurrency exchange FTX, who was itself an investor in Bored Ape’s creative studio, Yuga Labs. Revelations and accusations like these made many look askance at all the hype previously surrounding the Apes, and over the last year some of the tokens’ value has decreased on NFT marketplaces. (Vanity Fair’s piece on NFTs best explains this bursting bubble.)
The many headlines and much furor attest that NFTs can be big business. They’re certainly property brands are serious about investing in and protecting. But even those that dabble in the trade may not fully understand what they are, or how they can be used and manipulated.
Understandably, it’s an evolving platform, artform, and speculative asset.
Internet forum and news aggregator Reddit has leaned heavily into NFTs. Their extremely online community with its passion for technology and culture is an ideal audience for these social signifiers. As part of their most recent partnership with the NFL, Reddit released Super Bowl-themed NFTs designed with imagery of the Kansas City Chiefs and the Philadelphia Eagles in its collectible avatar series. All NFTs in the Reddit collection feature uniquely numbered “limited-edition avatars made by independent artists.” Many are customizable.
Some NFTs are entirely unique, there’s only one. But most are part of a series of identical works. What makes NFTs valuable and part of the web3 revolution is that their unique number, their identifying feature, is generated by the blockchain. Most NFTs are part of Ethereum, a cryptocurrency blockchain. That means that they’re stored and traded as bitcoin is, in digital wallets using their distinct numeric ID. This marker is what tracks authenticity and ownership. Blockchains are publicly viewable, so anyone on the internet can look up who owns or has owned the work throughout time, as well as its last sale price, i.e. its ostensible value.
Why are companies interested in creating NFTs?
Nike became the first big brand to acquire an NFT studio in December of 2021. It was a natural fit: RTFKT Studios is a known pioneer in the NFT fashion space, offering digital styles—especially sneakers—as works of art. With the purchase, Nike was able to combine two high-growth markets, collectible sneakers and NFTs. Their first collection of 20,000 Nike Dunk Genesis Cryptokicks debuted in April 2022. Designed in partnership with the international artist Takashi Murakami, the collection included a design that sold for $130,000.
Bragging rights are naturally included with these price tags. Collectors can show off their digi sneakers on social media or in NFT exchanges. For brands, NFTs are a way to engage with fanatics, partner with artists and creatives, and generate buzz and visibility on social channels. Of course there’s also the revenue generated, some of it clearly substantial.
NFTs revolve around online communities.
RTFKT runs Clone X, one of the most popular NFT collectives. Membership costs over $50,000 but comes with its benefits: months before the Nike Cryptokicks launch, the Clone X community received a dropped box that contained a pair of the Nike Dunk Genesis Cryptokicks and an assortment of virtual vials that can alter the sneaks’ colors—a pretty neat perk considering the going price for pairs.
Brands getting in on NFTs are often looking to build this kind of hype and foster devoted online audiences. Last year, Starbucks launched a loyalty program around NFTs called Odyssey. Members of Odyssey, which is in beta and has a waitlist, collect Journey Stamps, NFTs in the Ethereum blockchain Polygon. Stamps feature artwork from the Starbucks community and equal points that can be redeemed for products and experiences like virtual espresso martini-making classes or even trips to Costa Rican coffee farms.
Budweiser, GameStop, and Fjällräven, have also used the technology to create memorable customer engagements and loyalty programs.The interoperable nature of NFTs means they can be exchanged across different programs. Customers can interact with each other, share and trade points, and businesses can combine their loyalty rewards to offer layered experiences, opportunities for surprising offers and beneficial partnerships across customer bases. As digital tokens, NFTs offer rich data points between brands and consumers, especially when the purchasing trail is obscured, as it often is online.
How protected are NFTs?
Due to the transparent way the token is constructed, NFTs are pretty protected against hacking. There’s a record of each time one is transacted, and without that record it’s not an NFT. But the NFT art world has encountered problems with theft from people “minting” (converting digital files into crypto collections) art they didn’t create or don’t own. Adobe is piloting a system within Photoshop to help prove that the actual artist is the one selling their art. Dubbed Content Credentials, NFT sellers can link their Adobe ID with their crypto wallet, giving them direct compatibility with NFT marketplaces like OpenSea. Such credentials may make NFTs more valuable, the way a lofty provenance for art lends authenticity and subsequently value.
But are they really worth anything anyway?
If you peruse NFT marketplaces like OpenSea, Nifty Gateway or Rarible, you will see some NFTs being traded for high dollar amounts. Like any speculative asset, though, the value is in the eye of the wallet holder. Even Christie’s auction house has created an arm dedicated to this market. It seemed a good investment, no doubt, after it sold a Beeple piece for $69 million.
For artists, there’s opportunity to be had. Most marketplaces offer creator royalties on primary and secondary sales. Royalties can be up to 10% of the selling price. And partnering with brands can be lucrative for many independent artists. For example, Time Magazine showcased artists from around the world when it revealed its NFT collection TIMEPieces in September 2021. Containing art from 40 NFT community members, it included the project’s first artist-in-residence, Nyla Hayes.
For investors, NFTs are an open question, one that’s become more questionable over time as many have come to perceive them as manipulable and erratic. Back in 2021, financial titan JPMorgan gave away NFTs during their “Crypto Economy Forum for TradFi Investors.” One of the 69 owners put up their NFT for sale at the price of $1.8 million (420 ETH). There’s no harm in asking, right? But there've been no takers.
The medium is still too new to know how it will fluctuate over time. But as a way to garner interest, engage audiences and interact with culture, right now it’s a good investment.
As a financial investment, well, that’s all speculation.
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