There are Six Kinds of NFTs, and You Still Need to Care
First published in the Australian Financial Review on 11 July 2022
In case you were still wondering, NFT (non-fungible token) technology is how we will own digital assets in the Metaverse. If everything in the real world is owned by someone, it makes sense that everything in the Metaverse will be owned by someone, ultimately.
NFT tech establishes proof of ownership of a digital file – be it a JPEG, a GIF or a piece of virtual land. This drives value by creating a provable scarcity of the digital asset, just like in the real world.
Many people will be hoping that the current crypto crash will be the last they ever hear of mind-bogglingly valuable NFTs, but there are a number of uses beyond wealth ‘flexing.’
The prices of NFTs have been volatile in recent times but the NFT market is less than two years old, so we should expect it will take some time before the value proposition for this technology is established.
For those that think NFTs are just a Ponzi scheme, and this most recent crypto-winter means they are now banished from the economy for good – you may need to rethink.
In the last week eBay bought NFT marketplace KnownOrigin to help its customers trade digital assets; KPMG launched a Metaverse Collaboration Hub to help clients “operationalise their Metaverse journey”; and Australia-located, global NFT marketplace Magic Eden raised $187 million at a valuation of over $2 billion.
The Magic Eden marketplace has been live for nine months making the company one of the world’s quickest to achieve unicorn status. Nine months ago, I was lamenting Covid restrictions, clearly I should have been setting up an NFT marketplace.
Currently, there is a move for NFT projects to not just be images but that they should also have real utility, and this is where the opportunities for companies will be most exciting.
Put simply, something is fungible if it can be replaced by another identical item. A $20 note is fungible, as it is identical to every other $20 note but a drawing, I do is non-fungible; it is unique. There is not an identical artwork like it anywhere – thankfully.
I have identified six categories of NFTs doing the rounds:
Flex Club NFTs
JPEGs of pixelated punks and indifferent-looking apes are selling for tens of millions of dollars. The high value afforded Flex Club NFTs is hard to fathom.
They have the following characteristics:
- There is a limited number of them, so they have provable scarcity, which drives up value
- They offer additional benefits such as entitlement to future NFT drops. Think of this as like a dividend stream from owning shares in a company.
- They offer access to VIP events where you can hang out with other like-minded folks – a bit like joining a fancy country club.
- Finally, digital flexing. A lot of people have made fortunes on crypto and they are keen to show off their success and in the digital world, that is done by owning Bored Apes or Cryptopunks.
Many were shocked to see a piece of digital art sell last year for $69 million, even if it is a one-of-a-kind digital file. But art is art.
It is not uncommon for contemporary art to sell in the tens of millions of dollars, so with Art NFTs, we just say that beauty is in the eye of the beholder, and if that beholder just happens to have enormous amounts of crypto, then happy days for the artist.
This is where the NFT world starts to become more understandable for people. For example, sports NFTs.
Digital sports memorabilia is booming and footballer Tom Brady just raised $US170 million for his sports NFT business, Autograph. In effect, it is the digitisation of the old sports trading cards idea.
The US NBA recognised the NFT opportunity and created NBA TopShots , a series of iconic basketball images sold as NFTs. In 2021, more than $US700 million in TopShots NFTs changed hands and every time one of these NFTs gets on sold, the NBA gets 5 per cent of the sale automatically via the NFT’s smart contract coding.
Every sporting group is looking at NFTs. This year’s Australian Tennis Open sold out its run of 6776 NFT designer tennis balls. The AFL and Cricket Australia have NFT drops coming up.
This is where you get a digital twin of your real-world purchase. It is especially popular in the luxury goods market.
For example, Dolce & Gabbana sold nine suits for $US6 million and the hook was that you received an NFT twin of the suit.
Alfa Romeo just released the first-ever car with an NFT logbook, so you can track your car’s service history on the blockchain.
There is a massive opportunity for digital twinning in the personal data space. This tech will allow us to have our own digital twin.
Australian company Itheum is wrapping people’s health data in NFT tech and giving the control of the data back to the individual via smart contracts. No more concerns about companies misusing our data.
This is where the most amazing business models for NFTs are developing. Right now, there are so-called play-to-earn Platforms like Axie Infinity, where gamers can actually make money from playing games.
In places like the Philippines, there are people whose full-time job is gaming, and they are earning more than twice the average wage from it. They are the first true “Metaverse workers”.
However, it can cost more than $2000 to start playing this game and many people cannot afford that, so they borrow the game avatars (called Axies) from so-called Gaming Guilds like Yield Guild Games.
The gamer, or scholar as they are known, then splits the money they make on the Axie Infinity game with the Guild.
Corporate marketing NFTs
Over 100 of the world’s biggest brands have minted their own NFTs in the past six months. It started with fashion brands selling NFT versions of their famous products and moved quickly from there.
Now, many companies are minting NFTs with a whole range of more sophisticated strategies. Many are using NFTs as a modern upgrade to the loyalty program while some are getting Phygital where they merge the physical and digital offering.
A great example of this is Penfolds. One of the big markets for their premium wine is the gifting market, but it is difficult to send a bottle of wine as a gift as it is fragile, so Penfolds released wine NFTs.
The actual wine stays in a cellar and you can redeem the NFT for the wine any time you like. The NFTs are as easy to gift as sending an email. According to Penfolds chief marketing officer Kristy Keyte, “if you are in a marketing department and not thinking about NFTs, you should be”.
NFTs have proven to be an important part of the marketer’s tool kit and we are starting to see more big Australian brands jump on the NFT juggernaut.
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