Pop quiz. When you hear the word NFT, do you think:
💪 I know exactly what an NFT is and how to use it for my business
🤔 I think I understand what NFTs are, but I have no clue if they’re relevant to me
🤢 Argh! I should know what NFTs are, but thinking about them makes my head hurt
If you answered the latter two options, you’re not alone. Don’t worry – we sat down with NYU Stern Professor Sabrina Howell to simplify it for you.
What exactly is an NFT?
NFTs – or non-fungible tokens – are digital tokens that we can use to represent ownership of unique items.
In real life, when you pull up to the club, everyone knows you own a Ferrari because you’re driving it.
But online (and in the burgeoning Metaverse), it’s harder to prove ownership of assets. You could simply have screenshotted a piece of artwork and passed it off as something you paid for.
This is where NFTs come in.
NFT are digital tokens that let us show ownership of assets like art, collectibles, and even deeds to real estate – all online. NFTs can only have one owner at a time, and they’re recorded on a blockchain, so everyone can see the history of ownership all the way back to their creation.
Plus, NFTs contain a smart contract that creators can use to get royalties from future transactions – so if someone resells the asset, the creator makes money on it no matter how many times it changes hands.
What are the use cases of NFTs?
NFTs have many use cases, but they can all be boiled down to a simple question:
Do people get value from proving that they own an asset?
If so, an NFT could have value. Think of the following cases:
- Digital art. Digital art has been historically undervalued. NFTs give creators the ability to sell digital art and continue to make money on resales of their work, and buyers can prove they own a one-of-a-kind piece.
- In-game purchased items. The NFT-based game Axie Infinity lets players collect and mint NFTs for digital pets known as “Axies.”
- Membership cards. NFTs act as the membership card for the Midnite Movie Club, a decentralized community that votes on which films a studio should produce.
- Virtual real estate. Users of Decentraland can purchase NFTs for virtual real estate deeds.
- Tickets. NFL and NBA teams are already tying NFTs to physical ticket purchases. In the future, the NFTs could be the tickets, cutting down on fraud and allowing the sports organization to track resales.
- Medical data. NFT ledgers could potentially store medical records without compromising confidentiality or risking tampering.
What are the downsides of NFTs?
Of course, there's also a dark side to NFTs (and it's not just those freaky-looking apes).
NFTs can be bad for the environment
The way NFTs are created is highly energy-intensive. Minting a single NFT using the traditional proof-of-work method uses the same amount of electricity as an average American household over nearly nine days.
Blockchain platforms that use the proof-of-stake operating method can generate NFTs more cleanly.
The people minting NFTs may not be the creators themselves
It’s pretty easy to mint an NFT for a digital asset you didn’t create. Creators have said that they’re now susceptible to scammers, who can take their asset, mint it into an NFT, and make a quick payday.
Creators can contact NFT marketplaces like OpenSea to get the scammed NFTs taken down, but that requires energy and resources.
NFTs can be stolen, and the theft is usually irreversible
The other downside of NFTs is that they’re relatively easy to steal. In February, $1.7 million in NFTs were stolen in a phishing attack on OpenSea users.
To steal NFTs, scammers trick their targets into signing a contract that transfers ownership of the NFT without payment. And once the NFT is stolen, it can be almost impossible to get back – even though, infuriatingly, you can see the wallet that stole it on the blockchain.
Any business looking into NFTs needs to be aware of these risks – and of the expected blowback from customers if things go wrong.
How are NFTs applicable to business?
So far, much of the discussion of NFTs has been centered around artists and collectors. But Sabrina Howell believes there are burgeoning possibilities for businesses as well.
They present an exciting new marketing tactic
We know from The Viral Growth Sprint that successful marketing campaigns use social currency to catch on. And NFTs are a prime example of social currency.
Displaying an NFT on your online profile demonstrates that a) you are rich enough to afford an NFT, b) you have something no one else in the world has, c) you are an innovative and progressive thinker, and d) you are part of a community.
Let’s look at how companies are using NFTs to build brand awareness and loyalty.
- Marriott teamed up with artists to create three NFTs celebrating the power of travel. They released the NFTs during the modern art show Art Basel and invited attendees to submit their name for a chance to win.
- Papa Johns released a series of “hot bag designs” that a select number of people could claim before they sold out.
- Super Bowl 2022 tickets came with souvenir NFTs from the NFL. Each guest received an NFT unique to their section, row, and seat, allowing the NFL to give “collectables” that feel more relevant than a physical ticket stub.
They can be linked to real-world benefits and physical objects
You might be thinking, “Okay, I get the general concept. But why would anyone on earth want a JPEG of a hot bag from Papa Johns?”
You wouldn’t be wrong. But NFTs can also be linked to real-world perks and physical objects, similar to members-only benefits or VIP offerings.
- Jewelry brand Kendra Scott released NFTs of a women’s empowerment charm that also came with a physical version of the jewelry.
- Music festival Coachella minted NFTs that can be collected or redeemed for a physical print of the image.
- Canned water brand Liquid Death minted 6,666 NFTs of severed heads, each of which came with access to Liquid Death’s Discord community, virtual events, NFT-branded merch, and other real-life perks.
They can create new marketplaces for branded collectibles
Most companies approach intellectual property (IP) in one way: Protect it at all costs.
But Sabrina says NFTs should prompt us to shift our mindset away from protecting IP toward creating value with IP.
Imagine that you create a marketplace for people to buy and sell collectibles related to your brand.
Similar to the olden day baseball card market, you could create a whole new business venture related to the exchange of your collectibles – and enable your customer to develop a closer relationship to your brand.
This is what the NBA has done with the NBA Top Shot marketplace. In 2021 alone, fans spent $800 million to buy and trade highlights from NBA games.
Should our business be using NFTs for anything?
Okay, so we understand what NFTs are and how they might be used for business. But does that mean your business should use them?
We’ve put together a short checklist you can use to assess whether NFTs are right for you.
- Does your brand have an engaged community who identify as fans of your brand or product?
- Does your brand have recognizable assets that could be turned into NFTs, such as a trademark character, notable branding, etc.?
- Can you tie an NFT to a real-life perk, such as exclusive events, discounts, or early access to products?
- Do you have the bandwidth and freedom to test out an innovative but unproven marketing channel?
We’d love to know how you’re using NFTs for your business. Submit your ideas and initiatives here and we might share them in a future post!