Increasingly we are seeing that non-fungible tokens (NFTs) are here to stay and not the fad that some thought. These tokens, which can represent any kind of digital goods, from artwork to in-game items, are traded on the blockchain, allowing owners to ensure the goods’ authenticity, and making them an ideal technology to assure digital ownership.
Consumers seem to be convinced already: according to NonFungible.com, which tracks many of the sales of NFTs, $754m of NFTs were traded in Q2 2021, an increase of 3453% year-on-year. Crucially, the number of buyers is also increasing faster than the number of sellers — a sure sign of the tokens' desirability. As a payments provider to many of the NFT marketplaces, Checkout.com has keenly observed the growth of this space and we’re particularly excited to see the global nature of both the creators and the buyers.
As we watch brands innovate new ways of reaching customers with NFTs, I spoke to key leaders operating in the NFT space about what this technology means for ownership, value and the future of ecommerce.
One of the key differentiators of NFTs is that their authenticity can be guaranteed on the blockchain. Some of the biggest NFT sales have been of digital artwork and collectibles, an area that was hard to monetize previously.
Patrick McLaren, COO at Nifty Gateway has seen this transformation firsthand: “NFTs present an opportunity for true ownership of digital goods for probably the first time,” he said. “What we're seeing is an unprecedented opportunity to own different types of digital media and art where it wasn't previously possible.”
This assurance of provenance is also highly attractive for high-value items, where proof of digital ownership can be passed on through generations, explained tech futurist and Chief Metaverse Officer of the Futures Intelligence group, Cathy Hackl. “For luxury and legacy brands, NFTs just make sense. These items are very coveted and expensive — in the future, high net worth individuals are going to want some type of digital ownership.”
That’s why Hackl encourages the luxury clients she advises to think about the future: “How do we really look at digital goods and NFTs as something for the longer term, not just as a one-off marketing activation?”
For digital creators, NFTs open up whole new revenue streams. Instead of only being able to sell a digital file once, as in a traditional marketplace, creators can set the terms of secondary sales using smart contracts. For example, many artists will receive a percentage each time the NFT is resold. This creates a whole new marketplace dynamic.
“NFTs and crypto is a way to drive value to the creators rather than just the middleman,”
Jess Houlgrave, Chief of Staff, Checkout.com.
Nick Tran,TikTok’s Head of Global Marketing, sees a wealth of opportunity for all sorts of digital creators: “You see people who post content on YouTube, and the hope is they become well known and they monetize that through ad revenue: that's been this consistent model. What we're looking at is how do we shift the balance of ownership into the hands of the creators themselves, because if they create a compelling video, they should be able to monetize that, and allow fans to celebrate that.”
This also means that creators in places without a market infrastructure in place are able to participate. “We're talking about people being able to all access the same pool of art or digital collectible, from all around the world,” says Patrick McLaren. “NFTs act as a little bit of an equaliser of value. I can sell my NFT regardless of the fact that I'm from an economically depressed region, and I get the same opportunities.”
There has been intense conversation about the energy-intensive process of minting NFTs, on “proof of work” protocols like the current Ethereum blockchain. And as NFTs become more mainstream and engage with mass-market artists, entertainers and brands, this discussion will only intensify.
Dapper Labs’s Flow protocol, which, as a “proof of stake” protocol, expends far less energy than many others, sees a high level of interest in this aspect of their work. As Mickey Maher explained: “We're one of the first stops for any of those content providers to talk to about NFTs, so I would say at least 50% of those conversations, we have to talk about the environmental impact of what we're doing versus what other chains or entities are doing.”
The physical world is no longer the only game in town. It’s becoming clear that younger generations are happy to pay for items that have no tangible form at all. Mickey Maher, SVP of Partnerships at Dapper Labs, says: “The ability to capture social capital in a digital format is much greater and larger than you could ever do in a physical format. So you can conceive that the digital Air Jordans for this generation might be more valuable than the physical Jordans.”
“The crypto space can be an enormous equaliser and, it's created some really powerful connections for people as well bringing that community together,”
Jess Houlgrave, Chief of Staff, Checkout.com.
Nick Tran points out that NFTs also foster connections between consumers: “One thing that I've seen in the NFT space that I didn't see in the brand world...is the sense of community. You recognise these little niche groups popping up over the love of a specific NFT,” he says, citing the popular NFT collectible craze for Cryptopunks, in particular, one pictured wearing a purple hat.
Ultimately, NFTs’ growth show the rise of digital ownership as important in its own right. This will become more important as more resources are put into building the metaverse (roughly speaking, an alternate, digital world, where real people are represented by digital avatars owning digital goods).
Cathy Hackl sees an exciting future for brands in the metaverse, where virtual personas are just as important as physical ones: “It's a whole new way to connect and build loyalty.” She also notes the potentially disruptive nature of this shift: “Many brands in our physical world might not translate in the same way they do in the virtual world. But there's going to be a rise of different brands that are metaverse-native, that are created there. How does a brand become “a brand in the metaverse”? I think that's a really interesting conversation.”
Thanks to our NFT experts, Cathy Hackl, Tech Futurist and Chief Metaverse Officer, Futures Intelligence Group; Mickey Maher, SVP of Partnerships, Dapper Labs; Patrick McLaren, Chief Operating Officer, Nifty Gateway; Nick Tran, Head of Global Marketing, TikTok, for speaking with me.