Most conversations about NFTs (non-fungible tokens) start with a question along these lines: “Why on earth would anyone in their right mind pay almost $600,000 for a GIF of a cat?!”. Some would say it’s not just any GIF of a cat but the legendary Nyan Cat. Nonetheless, as ‘legendary’ as it is, it is only natural that a lot of questions arise and for some, some of the answers may not be entirely satisfactory.
Moreover, the truth is $600,000 is by no means the largest sum ever paid for an NFT: as we speak, the record is held by a piece created by digital artist Beeple, which sold for almost $70 million. To make matters worse, anyone can download the artwork, called “Everydays: the First 5000 Days”, although perhaps not in the same resolution as the “original” (which, like any digital file, can have an unlimited number of identical copies).
So what did the purchaser actually buy? The NFT itself, of course. A blockchain certificate stating that the only owner of the file is the person who paid for the NFT. Even if many other people have it too.
If this reminds you of Andersen’s fairy tale “The Emperor’s New Clothes”, it is likely that you may be making a judgement, or at the very least, a generalisation.
Let’s start from the very beginning
Before we get to it, let’s start with the basics: what exactly is an NFT, or non-fungible token? NFTs are used to register ownership of a given (often digital) asset, and thus certify that asset to be unique and not interchangeable. Ownership is recorded on a blockchain which, in theory, makes NFTs quite safe.
Whenever an NFT is (re)sold, the transaction is publicly recorded. Moreover, as these records are made on blockchains such as Ethereum, where the smart contract functionality is available, NFTs allow the author of an artwork to receive a share of each subsequent sale, which is virtually impossible in the traditional art market.
However, although it is the digital art market that has been making the most news, NFTs are certainly not confined to the art market. In fact, there are many other successful platforms, such as Top Shot: an NBA website for collecting, buying, or selling iconic and memorable moves, kind of a digital version of trading cards —a market that is already undergoing a boom of its own.
In fact, since we are talking about unique assets, it is the collectible aspect that makes sense of the NFT phenomenon. The value of a collectible, whether it is physical or digital, does not follow a logical rationale: it is worth whatever people are willing to pay for it.
However, we must keep in mind that when we talk about NFTs in terms of thousands or millions of dollars, we are talking about the equivalent amount of a cryptocurrency, typically Ethereum (ETH), at the exchange rate it was trading at when the transaction took place.
While this does not imply that the money is play money —if instead of buying NFT one had exchanged that amount of ETH for fiat (everyday dollars or euros), the amount obtained would have been the same—, it is slightly different from taking fiat money to buy ETH and then purchase an NFT.
This is why, most (if not all) NFT transactions so far have been carried out by so-called crypto-millionaires, who have already accumulated a significant wealth in cryptocurrencies and prefer not to exchange their money to fiat so it doesn’t affect their cryptocurrencies’ valuation. Their preferred option is to acquire another digital asset, either as collectionists or to speculate on its future value.
Points of criticism
Indeed, the speculative nature of NFTs is one of the most criticised aspects of this technology. Some people claim that NFT collectors don’t really appreciate the artist’s intent for a given artwork, but simply buy it as they would buy anything else whose value may increase over time.
Another valid criticism has to do with the amount of energy required for the generation and transaction of NFTs. According to artist Joanie Lemarcier, the sale of six of her works (which sold for thousands of dollars in just ten seconds) consumed as much energy as her own studio did over a two-year period. Given the current climate crisis, it is not easy to justify the existence of NFTs while they continue to consume such disproportionate amounts of energy.
This criticism extends to most crypto-assets and is leading several major players to take action. Ethereum, for example, will transition from a proof-of-work consensus mechanism to a proof-of-stake one during 2021, thus significantly reducing their energy consumption. Less popular blockchains, such as Tezos (which can also register NFTs), are already making use of this mechanism, so it is likely that the environmental drawback to NFTs fades away in the short term.
Legal considerations must also be taken into account: although there is no legislation addressing NFTs in particular, the purchase of crypto assets is restricted or prohibited in some countries. Legislation applies only to cryptocurrencies, but as you cannot buy an NFT using fiat money, cryptocurrency is always required. Of course, brands will need to make sure they are not encouraging users to do something illegal.
Finally, another curious feature of NFTs is that users don’t buy the artwork itself, which for technical reasons cannot be stored within a blockchain, but a link redirecting to the server where the artwork is hosted. This implies that if the server ceased to be online, the link would break and the artwork would be lost. To paraphrase the Zen saying, an NFT is like the finger pointing at the moon, but not the moon.
Beyond the ‘wow’ factor
At this point, one might ask: is it really worthwhile for brands to consider the idea of issuing NFTs? Most probably, but from our point of view there are several aspects that should be taken into account before making the final decision. Does it make sense for your brand, or are you just considering it because it’s trendy?
Of course, several brands have already jumped into the universe of non-fungible tokens.
Pringles, for example, issued 50 copies of an animated GIF of a “CryptoCrisp” tin as an NFT. Charmin issued six different GIFs with toilet paper motifs. And so did Taco Bell, who issued seven GIFs, with five copies each, which featured …tacos. The approach of Tequila Don Julio was slightly more interesting, featuring a work by artist Claudio Limón.
Depending on your brand’s personality, it might make sense to issue an NFT just for the sake of it or in an attempt to be innovative (although you might be a bit late for that). However, given all the points of criticism mentioned above, it doesn’t seem sensible to do something so superfluous in order to achieve a (questionable) ‘wow’ factor.
So what should my brand consider before issuing NFTs?
If your brand is considering whether to jump on the NFT bandwagon, you must first think in terms of brand storytelling and ask yourself: do the essence and main assets of the brand connect with what NFTs are and with the possibilities they offer? How could they contribute to further build my brand’s storytelling?
As mentioned above, NFTs are essentially collectibles. And there are some brands and companies whose magnetism, impact on culture or intellectual property naturally makes them suitable for becoming collectibles (and, in fact, many already use them in offline channels). In this case, the move into the world of digital assets (and eventually into the metaverse, which we will discuss in another Rebel Thinking article) is clear and makes perfect sense.
This group includes brands of all kinds, from the most mainstream and massive such as sports leagues or associations (like the NBA) and major film studios, to niches such as luxury brands, manga and brands that appeal to nostalgia, for example.
On the other hand, brands with no natural affinity to collecting will have to reflect more deeply so as not to make the same mistake Pringles or Charmin did, and not end up implementing actions that add no value to the brand or its consumers.
As you may know, at Good Rebels we believe in human-centred organisations (HCOs), whose principles can provide guidance on the issuance of NFTs:
- Create products and services that are relevant to both the market and society. Before issuing an NFT, we must ask ourselves whether it would bring value and be useful and appreciated by our audiences.
- Create seamless experiences for customers, taking ergonomics into consideration. If our clients, customers or other relevant stakeholders are not already using cryptocurrencies, it makes no sense to ask them to join the NFT universe.
- Are obsessed with their co-workers and with creating a harmonious working environment. One of the most relevant features of NFTs and intelligent contracts is they allow for the revenue of a transaction to be distributed among co-creators, internal and external collaborators and even clients and customers. There is still fertile ground to explore in this regard.
- Eradicate bureaucracy and work past systems and procedures. As all crypto-assets, NFTs are decentralised by nature, and thus they contribute to reducing procedures. However, we must always take users’ and consumers’ perspectives into account.
- Are concerned with the long-term and the future of our planet. If the NFT market doesn’t significantly reduce its energy consumption, then it will never be compatible with the HCO vision. But once it does, it could help shape a less vertical, centralised and hierarchical world.
In short, NFTs open a world of possibilities for brands, allowing them to develop marketing and branding strategies in a 100% digital ecosystem with 100% digital codes. In order for those strategies to be successful, we must always keep in mind the principles ruling the cryptocurrencies in general and NFTs in particular, their collectible nature, their environmental impact and, above all, the needs of the end user.