What is an NFT?
No doubt you’ve heard of NFTs, from the eye popping sale of Pak’s NFT ‘The Merge’ for $91M, to the dubious investments and the cool down. The concept of NFTs is a paradigm shift, so we’ve put together a summary of what NFTs are and the practicalities around them.
NFT stands for non-fungible token. The ‘token’ is a unit of data that relates to a unique digital asset. They can be bought, sold, or traded like any other asset. NFTs can represent anything digital – from artwork to music, video games, trading cards, tweets, concert tickets and even virtual real estate. Being ‘non-fungible’ they cannot be exchanged for anything identical which makes them highly collectable.
Think of fungibility like this …
- You own a one-of-a-kind Marvel comic. It is non-fungible because if you traded it for a different comic you would have something completely different.
- You own a bitcoin. It is fungible because if you traded it for another bitcoin you’d have exactly the same thing. A bitcoin is not unique so it doesn’t matter which one you own.
When you purchase an NFT, what you are ultimately buying is exclusive digital ownership rights. This is their value.
Proving you own an NFT.
The answer to this lies in how they are made. Creators with artwork ready to go, use blockchain technology to mint their work as NFTs. Stay with us – blockchain and mint explainer below.
Blockchain is a digital ledger of transactions that is permanent and verifiable across the entire network of computer systems on the blockchain. It’s a transparent system of recording information via a custom digital code that makes it impossible to change, hack, or cheat the system. Each block in the chain contains a cryptographic hash of the previous block, a timestamp, and transaction data.
Minting an NFT is similar to minting a physical coin or stamp; it creates a unique, tamper-proof token that can be traded or sold. When someone mints an NFT, they are creating a new instance of that asset on the blockchain. This provides a permanent record of ownership that can be transferred to someone else.
The ownership data is stored in the digital asset’s metadata, and generally, NFT’s are stored an a crypto wallet, where bitcoin is also stored and managed. Brands can also store a backup of their NFT’s in Digital Asset Management systems (DAMs) that support custom metadata fields to help keep track of the NFT digital asset.
Who’s creating NFT Digital Assets?
NFT digital assets are also created by marketers who use them as both a branding and tactical tool. More on this later.
NFTs can be created by anyone. All you need is a digital asset of value, a computer, an internet connection and a digital wallet that supports NFTs.
Who’s buying NFTs?
NFT’s are sold via marketplaces such as OpenSea and CryptoPunks as well as more traditional channels such as Christies and Sothebys. Reuters reported NFT sales hit $25 billion in 2021, yet growth has tapered off in 2022.
How NFTs and DAM software work together.
To recap, when you purchase an NFT, you’re actually purchasing a token that represents the ownership of the digital asset. These tokens have IDs that are stored on the blockchain registry. So, if the blockchain stores the token as proof of ownership, where does the actual asset sit?
The blockchain itself can also store the asset, this is known as ‘on chain’ storage. This is a very expensive option – particularly for brands that accumulate a high volume of NFTs. Most opt for ‘off chain’ storage. This can take the form of simply storing on a shared drive, but there is risk in that. As such, the most logical solution is to have your NFTs sit either in a crypto wallet on a Digital Asset Management system along with all their other proprietary images and content. The advantage here is that as well as storing the image securely, you’re also storing the metadata that includes all the information associated with that image – such as the artist, dates, digital code and physical descriptions, as well as the blockchain metadata as a custom metadata field. The metadata not only acts as a form of record keeping proving provenance in perpetuity, but it allows you to find your assets at lightning speed.
How can Marketers use NFTs?
New product launches:
Jewelry brand Tiffany & Co. launched an NFT through partner CryptoPunks (premium NFT ecosystem) cutely called NFTiff. A limited supply of 250 NFTiffs sold for $50,000 each but came with a bespoke pendant handcrafted by Tiffany & Co. artisans.
Image source: leaderinsights.com
Brands are using NFTs to incentivize purchase and reward their customers. Burger King launched their ‘Keep it Real Meal’ campaign that involved a collaboration between three recording artists and collectable NFTs. When customers bought a Burger King meal and scanned the QR code on the pack, they’d receive an NFT of either Nelly, Lil Huddy and Anitta. Once customers collected all three, they were rewarded with a fourth NFT and the chance to win other IRL prizes.
Image source: sweetnfts.medium.com
Due to the unique nature of NFTs, they are perfect for event ticketing. Event organizers can now mint NFT tickets that not only admit people to the event, can become collector items or on-sold by the purchaser after it.
The NFL executed this brilliantly during the 2022 Super Bowl by turning their tickets into NFT collectables. Coachella followed suit and gave each ticket holder an NFT of a flower that bloomed each Friday of the festival.
Image source: nft.coachella.com
Branded NFT Marketplaces:
Some like the NBA have created their own marketplace Top Shot where brand-related NFTs can be bought and sold.
Image source: one37pm.com
NFTs as Digital Merch:
DressX, a marketplace for NFT fashion, enables purchasers to superimpose their digital clothing over real-life photos of them on social media.
Image source: dressxcom
Benefits of NFTs
Steps to getting started with NFTs
Identify opportunities for using NFTs in your business. This could involve creating natively digital assets, unique experiences, or reducing fraudulent practices.
Analyze and select use cases based on your organization’s goals and challenges. Make sure to include a risk assessment of the cost of doing nothing.
Build pilots and applications to test the feasibility and establish ROI for NFTs. Make sure to screen solutions for technology fit, support for different blockchains and ecosystems, and ease of integration with your infrastructure.
Open source licenses are important to consider when implementing NFTs. Look for licenses that allow for unrestricted use of the technology and easy modifications to meet your needs.
NFTs and Digital Asset Identity
Key NFT take homes:
- They represent ownership, so an NFT can be sold just like a physical ‘thing’.
- They need to be stored, preferably ‘off chain’ in a DAM system with customizable metadata
- They are uniquely identifiable – there is no other like it.
- They can’t be exchanged directly for another NFT
- They can’t be copied without being detected.
- They are not divisible. That is, they cannot be split into smaller units like stocks or money.
- They can tokenize and represent anything, from physical things to digital assets to intellectual property