NFTs, or non-fungible tokens, have received a ton of press as of late. This unique blockchain token has driven astronomical prices for digital art, sports cards, a New York Times article and even a set of GIF-tastic NFTs from Charmin that raised money for the nonprofit Direct Relief charity. While the hysteria has calmed around the NFTs, this technology promises to be one of the more revolutionary technological inventions since the advent of the internet. Yes, the tech is kludgy right now, but one can easily recall how difficult it was to post anything to the web back in the days before Geocities. As the tools become easier for consumers to use, blockchain and NFTs will become increasingly more prevalent in our society.
This blog post was written after a three-week deep dive where I created a collection and minted 26 NFTs to the Ethereum network and tied them to a physical product around my ecommerce business that creates Fiesta Medals (an item collectors purchase to show off during our 10-day Fiesta celebration). Ultimately, I think I may have overshot where consumers are at the moment, but my project’s aim was to raise over $900,000 for the San Antonio Food Bank through the sale of a gold “Million Dollar Medal,” in addition to creating 25 nickel medals with unique serial numbers and digital experiences. This practical experience of creating NFTs and diving into the future implications for brands led me to create this piece. If you’re a brand and have any questions, feel free to drop me a line at email@example.com — and if you’re an NFT collector, check out the unique MEDALS collection on Rarible, where each digital asset ships with a physical medal.
Three Reasons Why NFTs Are Important
While you may think of an NFT as “nothing f***ing there” (that term is courtesy of former boss Rob La Gesse), there are really three unique use cases for this technology, as I detail below:
Provenance and Ownership of Digital Assets. Digital assets have by and large been considered “uncollectible” because of the ease with which they can be copied. As NBA owner and entrepreneur Mark Cuban pointed out on his blog, NFTs solve this problem because their very non-fungible nature ensures that only one person can claim possession of an NFT, so that digital asset remains a store of value. Sure, you can CTRL+C and CTRL+V on any digital item and save it to your desktop, but this would be akin to taking a picture of the Mona Lisa and saying you own it. The blockchain serves as a public ledger where the provenance, ownership and transfer of an NFT are both public and incorruptible.
Granted, while the picture of La Joconde can never do justice to the original version (or the experience of elbowing fellow tourists at the Louvre to get a decent view), the analogy falls to pieces in the digital world, because a digital copy is an exact replica of the virtual asset. This problem of the “perfect copy” is mitigated by both our move to the metaverse (more on this later) and the following point.
Digital Token to Authenticate Ownership of Physical Assets. Like a title on a car, an NFT can be used to provide authentication and ownership of a physical item. This characteristic is incredibly exciting and an area where I think we will see the largest impact of NFTs in our daily lives. Continuing the car title example, while you can sell your vehicle to a buyer and they can immediately drive away, if you don’t have a clear title the buyer may be unsure of the authenticity of the transaction.
NFTs will soon provide authentication for a number of physical assets that exist in the world. Rather than having a centralized entity validating ownership, the validation will be visible on the public blockchain. I see this happening rather quickly with high-end sneakers because of how forgeries plague this community. Nike can immediately mitigate the forgery problem by issuing a digital token that accompanies a physical shoe. So when a sneakerhead cops a pair of Cactus Jack Air Jordans on a Nike drop, they will also have a digital token that can be used to prove authenticity if they decide to trade or sell in a collector’s market such as TradeBlock.us (a bootstrap company that I profiled in a recent case study for my client 8base). They will no longer need an independent authentication service to prove the legitimacy of those shoes.
A Digital Asset AND a Digital Authentication of a Physical Asset. This last example is basically a combination of the first two points, where the NFT is both a digital asset/experience coupled with a physical item in real life. This will become more important as we move towards the metaverse (more on that in a moment) and is what I was attempting to do with the virtual and physical NFT medals.
Moving to the Metaverse
While the authentication of physical assets is massively important—and will be here to stay—the thing that is most futuristic about NFTs is that they are going to be essential as we move to the metaverse. As Venture Beat recently explained, the metaverse is a “universe of virtual worlds that are all interconnected.” This structure is similar to that of the internet, a connected network of sites and applications that interact with each other. The major difference is that the metaverse will be a virtualized, and most likely immersive, experience.
Obtaining a federated identity through the unique address of a blockchain wallet will be pivotal to accessing this metaverse. This kind of identity is akin to using a Google identity across multiple (non-Google) applications without creating a novel username and password. However, by virtue of having a blockchain address, you can also bring along the tokens that are associated with that address into the virtual world. Simply log in with your blockchain address, and your tokens will “automagically” appear and/or be accessible in the digital universe with which you’re currently engaging.
To put it in simple terms, let’s say you purchased a piece of virtual art. That NFT is now associated with your blockchain address, so when you authenticate into the metaverse, that art is associated with you. When you hang that piece of art on the wall of your digital house and your friends come over for a chat, they have something interesting to look at instead of a blank space. And while it might be possible to copy and save that artwork to a desktop, if the code behind the particular virtualized world is sophisticated enough, it may only allow art associated with a digital token (or a specific collection with a digital token) to be displayed. In this way, forgery could be eliminated by using that digital signature.
But digital art is only the beginning. Just as there are SMTP standards that govern email, there will soon be protocols developed that can be applied to a variety of items. For example, there may be a SHOES protocol that developers and artists design for so that their digital footwear can be placed on a virtualized avatar that spans the metaverse. It is this protocol that will make lacing up a digital set of kicks as simple as it is in the real world—when the digital item is produced to a given standard, you won’t have to download, customize and rework the shoe to fit your avatar. It should, well, just work.
How Brands Can Take Advantage of NFTs
Assuming that (1) the metaverse is imminent and (2) every physical item will eventually be tokenized, the digital world becomes as important as the physical world for brands. Today, branded NFTs, such as those by Charmin, are more of a PR stunt and a “token” of the early days of this technology rather than a lasting fixture. However, as the metaverse expands and we begin to spend more and more time there, savvy brands will ensure that their products are available and usable in that digital realm.
This brand presence will be vastly different than today’s digital brand presence—digital banner ads, popups, and in-app billboards (think of the logos in Google Maps or Waze) just won’t cut it. A company can’t just “bolt on” a digital image and hope for it to mean anything in this new digital frontier. Instead, Nike will have to employ a team of developers that create a shoe that is as compelling in the metaverse as it is in the physical world. The same goes for Levis, New Era, Lacoste, Fossil and any other fashion brand that you can imagine.
Decking out an avatar is par for the course for the current crop of digital natives that drop insane amounts of money for “skins” in Fortnite. But a pair of Off-White Air Jordans will become even more coveted in the physical world if that purchase is the only way you can have that exclusive shoe in the digital realm. The collectability of a number of assets is about to go through the roof.
Brands will have to follow suit to be relevant, and the stakes will be high. Not only will they have to deliver an amazing product in the physical world, they’ll have to create an equally compelling counterpart in the digital world.
The Stratification of Wealth in the Metaverse
One unfortunate side effect is that this transformation will see the income gap transfer from the physical world to the metaverse. Today, that gap is not as exacerbated in the digital world. For example, while gaming online I can race a Ferrari against peers from across different socio-economic backgrounds in a virtual world. This changes completely when an NFT is associated with an IRL Ferrari. If a game in the metaverse is programmed to only allow you to race the physical car for which you possess a digital token, cruising around in a digital Ferrari also becomes a privilege reserved for the elite.
This is where the tokenization of physical assets may result in the stratification of the elite in virtual worlds. Some virtual worlds may not let you enter if you don’t have a specific car, clothes, accessory, or even cryptocurrency associated with a particular blockchain address. While the internet was an attempt to democratize access to information and computational power, you don’t have to stretch your imagination to see how the blockchain and this future metaverse could become a province of the 1%. This philosophical quandary will face many developers going forward.
Lowering the Barrier of Entry to Test a Product
While the income disparity gap is likely to expand in this online world, there is a silver lining for would-be entrepreneurs. As more people move into the metaverse, creators will enjoy a decreased barrier of entry to introduce products. Anyone who can design digitally—or use low-code tools that are certainly on the horizon—will be able to create products in the metaverse. This means that if you’ve dreamed up an idea for a particular handbag, you can design it and see if it takes off in the metaverse.
If the handbag is a hit, the entrepreneur would have a number of options. They could decide to manufacture it themselves in the real world, with a built in audience ready to make the purchase. Or they could partner with an established brand, such as Coach, to create their piece in a way that has been traditionally reserved for the “celebrity line” of handbags. This is a mutually beneficial relationship for brands, much in the same vein as influencer marketing. Smart organizations will not only attempt to tokenize/digitize their physical products; they will also seek out opportunities to collaborate with digital product creators in the metaverse to bring real products to the physical world.
Onerous Today, Easy Tomorrow
The blockchain, cryptocurrency and NFTs are anything but intuitive today. I’ve experienced firsthand some of the frustrations that come with simply trying to transfer a nominal amount of Ethereum to purchase a pack of NBA Top Shots. My attempt to transfer $42 carried either a 5% surcharge (roughly $2) for a credit card transaction to fund my Dapper wallet or a whopping $10 to transfer Ethereum due to the gas charge. This was not the world that was promised in the early days of cryptocurrency, that utopia where any amount of money could be transferred with a minimal fee.
Further complicating the matter is the overall kludginess of purchasing cryptocurrency on a platform like Coinbase, transferring it to an online wallet that’s accessible or used for authentication on a site such as Meta Mask and having to pay the gas fee just on that transfer. This has been overwhelming for a person like me who lives around the edges of high-tech; it is downright mind-boggling for someone who is completely technologically inept. “Why can’t I use a credit card?” they might well ask. “And when I use a credit card, why is the fee so high?”
As much as it is an attractive feature for some, the permanence of a blockchain transaction is also a sticking point for the untrained. There is no “backing out” of a transaction if it is sent to the wrong place.
Furthermore, the notion of digital assets is completely foreign to the average consumer. It would be like having told them in 1995 that they’d soon be sharing their most personal thoughts, locations and photos with complete strangers online, as well as paying a stranger to ride in their car or stay in their house
Plainly put: right now NFTs are not grounded enough in the real world for the average consumer. But just as the web has become more accessible, so too will this technology.