NFT stands for Non-Fungible Token. It is a digital asset or token that is unique and can’t be replaced with another. One bitcoin, for example, can be replaced by another bitcoin but LeBron James video highlights from a particular NBA game can’t be replaced by just any other player or a different highlight. The bitcoin is fungible, the LeBron video highlight is not.
An NFT is a token that represents ownership of a particular digital asset and can be mathematically proven while any copies or reproductions of that asset are not verified as the original and therefore, won’t be worth anything. Should someone produce a digital asset like a painting, a song, a game, a highlight, and so on, the ownership can be proven through NFTs and the value of it stems largely from the idea of scarcity or uniqueness or the general “hype” around the token.
How do NFTs work
The name comes from the concept of fungibility and unlike actual crypto, NFTs are non-fungible so they can’t be replicated, changed, or destroyed. They are stored on blockchain that is decentralized and used for peer-to-peer transactions. Each one being completely unique, duplicating NFTs is pointless as they can be traced to the original issuers using blockchain technology.
The majority of today’s NFTs are built utilizing Ethereum which is an open-source blockchain platform. Ethereum allows for the creation of decentralized digital applications for smart contract creation. A decentralized blockchain network provides many benefits to its users like the ability of each member to have a copy of the exact same data in the form of a distributed ledger and if this ledger is altered, it will be rejected by other members on that network. This type of blockchain allows for transparency and more security. Comparison chart provided by Amazon:
- Centralized: Maintained & controlled by a single entity in a centralized location
- Distributed: Spread across multiple data centers & geographies; owned by the network provider
- Decentralized: Resources are owned & shared by network members; difficult to maintain since no one owns it
What are some benefits of NFTs
Blockchain technology and NFTs allow content creators, artists, celebrities, and other public figures to monetize their content whether it’s art, music, or digital fashion. They do not have to rely on auctions, galleries, and shows to sell their creations. They instead can sell directly to the consumer as an NFT and in return keep more profits because they cut out the middleman.
As mentioned previously, NFT technology gives people an assurance that regardless of what happens to the blockchain, there always will be other nodes running around the globe. Since the data/information stored on each is identical, there will always be a copy of it somewhere making it a secure option. In summary, the advantages of NFTs are many including:
- Decentralized marketplace
- Copyright protected
Downsides of NFTs
NFTs have demonstrated their power in the music, food, fashion, art, and even real estate industries. We know that this technology is permanent, but it doesn’t mean that it’s perfect. Since NFTs are only digital, they eliminate the exclusivity of tangible items like art, for example. A painting from several hundreds of years ago is not the same as a digital rainbow cat GIF. You cannot showcase it in a museum, at an auction, or use it as a decoration piece. It only exists online and it’s available for everyone to enjoy even though you own the exclusive rights to it.
The value of NFTs is highly subjective. One fashion brand RTFTK released an NFT sneaker in collaboration with FEWOCiOU generating $3.1 million dollars. It’s a digital image of a shoe. The value of a token is difficult to determine and is highly dependent on availability and exclusivity.
The environment also does not benefit from Etherium’s blockchain as it requires significant computing power, which means energy, and unless that energy is green, the world is affected by it.
Viral NFT Campaigns
Taco Bell decided to jump on the NFT train in March of 2021 to produce a digital version of the famous taco. This digital taco could be purchased and added to a digital wallet. The demand for taco GIFs was high and the company claimed that they sold the 25 tokens they had within 30 minutes. Taco Bell is not the only company to utilize NFTs to advertise its products. Pringles launched their “CryptoCrisp” campaign selling their tokens for $713 each to start. PizzaHut released “1 Byte Favourites” which was a digital image of a pizza slice. The first one was listed for 18 cents and sold for $8,824.
How Companies Can Benefit From NFTs
NFTs are here to stay and it’s in the interest of every consumer-facing brand to understand how they work and figure out how to take advantage of this technology. NFTs are another channel for brands to build a connection with the consumers, build a loyal following and expand the customer base. With the use of NFTs brands are able to:
- Create unique, exclusive experiences
- Drive awareness
- Expand creative campaigns
- Think outside of the box
- Support a charitable organization/cause
- Stay current with the time demonstrating a modern approach to technology
- Respond to demand
NFT Potential in the Future
- Brands utilize exclusivity and allow owners of certain NFT tokens priority over others when shopping online for limited items.
- The gaming industry may sell exclusive tokens for certain cars in racing games.
- Brands may sell the “moment” like a launch of a new product as NFTs.
- Sports Teams may sell a “moment” with a team during the game like being able to be on the field during games.
The possibilities of brands utilizing NFTs are limitless and it is a matter of time until this technology becomes mainstream.
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