Introduction

The rise of NFTs seems unstoppable following the recent sale of CryptoPunks to Yuga Labs, and the minting of metaverse land by Yuga just recently netting the company over £250 million. However, while this may seem just another chapter in the rise of NFTs in the digital collectable world the striking thing in 2022 is how they are going mainstream. The signs of mass adoption are already to be found online in social media channels, as people start to use their favorite NFTs for their Twitter or Reddit profile pictures; in turn the popularity has undoubtedly caught the imagination and marketing budgets of big brands, with both retailers and global brands like Adidas joining the NFT movement. With recent news that Facebook-owned Instagram will start testing the integration this week and will not charge any fees for posting and sharing NFTs on the platform it’s time to start taking the business use of NFTs seriously.

While the majority of consumers may be skeptical for good reason, as the user interface remains complicated for many people, this is not a passing trend, NFTs are here to stay. Which begs the question, how can businesses both large and small make use of this fascinating technology for the benefit of their customers and their own profitability? Clearly a major motivator for business involvement in the NFT market is to generate their own revenue. This is true for businesses looking to give away their NFTs as a promotional campaign, to consider the value of the NFTs on the re-seller market, and how that could also generate revenue. However, it’s worth underlying the fact that NFTs are just one small part of the broader new wave of the web called web3, which includes the metaverse and cryptocurrencies. And with Facebook going in hard with billions of dollars in metaverse-related spending (around $10 billion on AR, VR, and related hardware as well as the development of metaverse apps and services), and US theater chain AMC recently announcing significant customer spend using crypto, now’s the time to take a closer look at why NFTs have a real business case to consider.

Its perhaps useful to consider the comparison with the early days of the internet, when some industries found the new online world easier to take advantage of than others, with books sellers facing an easier task to e-commerce than say fresh food retailers. Similarly, now NFTs are more readily used by sports and media companies looking to create new sources of revenue from media assets. While the NBA’s Topshots is often cited, having become an integral part of the NBA fanbase, with a valuation of up to $7.5 billion (Sept 2021) the real expansion of the use of NFTs in 2022 has been in European football. Like the NBA it’s a way to engage a younger section of fans, and like the use of NFTs in the music business it has the advantage of building on an existing community of fans. The example of Sorare, which has built on the market for digital football trading cards, is the standout example of a business which originally built its revenue as a fantasy football league buy moved into NFTs. However, while this is one niche business that has seen the opportunity to expand its appeal and revenue through NFTs it does point to a powerful engagement element that all online businesses, particular consumer facing ones, namely community.

As business owners know, and marketers even more so in this competitive multi-channel online world, serving and sustaining a customer base over time that reduces the costs of customer acquisition and retention requires building and sustaining a loyal community. As shown with the case of football or music fans, each of which come with respective ready-made communities, NFTs are a great way to reach and retain communities. These include loyalty programs, which reward customers for their loyalty and encourage them to continue to do business with you, to B2B style membership programs, that allow businesses to give exclusive members-only content or discounts. **The bulk of the NFT community, as of right now, is on Twitter and Discord. There are many overlapping correlations between building a community on Twitter or Discord and doing so on more traditional social media platforms like Facebook or Instagram but there are some things to keep in mind with the current NFT community.

For example, many people inside the NFT communities right now work anonymously, meaning that they don’t use their real names, real photos, or public branding. This is opposite from platforms like Facebook, which requires your real name, or Instagram and TikTok, which rely heavily on seeing the face behind the brand. Inside the NFT community, they rely mostly on the merit of what you’re bringing to the community, your connection, and the conversation. There’s no judgment based on followers, platform size, or how nice your photos look. And this takes some getting used to, especially when the majority of social media marketing over the past decade or so has centered on things like showing the face of the brand because audiences prefer to connect with a person rather than a brand. That still holds true. People do prefer to connect with other people over things like logos. In regard to Discord, the connection comes through that conversation rather than through the picture. **

Assets and commodities

By attaching NFTs to physical goods, an additional level of guarantee can be offered to distributors and consumers to prove that the goods in question are the real deal. Examples might be NFT-enabled ear tags for premium beef cattle, allowing each animal to be tracked from ‘farm to fork’ with total accuracy. Likewise, shipments of commodities (e.g., grain, iron ore or water) can be assigned a unique NFT so their progress through the supply chain can be reliably traced.

NFTs can help prevent ‘leakage’ of genuine goods along the supply chain, as well as stopping counterfeit goods being introduced or substituted. They can also be utilized to guarantee specific characteristics of goods, such as methods and circumstances of production. Several fashion houses are looking to use NFTs to assure their customers their fashion pieces have been manufactured sustainably and ethically, and the gemological industry is exploring the use of NFTs to restrict the sale of ‘blood diamonds’.

As a fundamental aspect of blockchain, this concept is, in principle, scalable down to the level of individual items. Although the state of technology and the relatively high transaction fees for updating NFTs mean that such use cases are currently viable only for high-value assets, we can expect to see diamonds with NFTs linked to unique laser-engraved serial numbers, bottles of fine wine with NFT-enabled QR codes, or sports cars with vehicle identification numbers backed by NFTs.

Investments

NFTs can also be used to enable fractionalized or micro-investment in such assets, where an individual acquires a small share in a diamond, an artwork, or a plot of land, to name a few. This might seem somewhat counterintuitive as it effectively undoes the non-fungibility of a NFT by rendering its fractions fungible! However, there is a growing market for such things and, while it is still at a very embryonic stage, financial authorities around the world are working to extend their regulatory regimes in order to cover the new risks and opportunities presented.

Licenses, certificates, registrations

Many of us are still happy to accept a formal-looking certificate at face value, but the sale and use of fraudulent qualifications is widespread. In an era of hard-copy documents, the question of authenticity and security was traditionally addressed by using special paper, unique seals, holograms, and wet-ink signatures. None of these translates satisfactorily to the digital world, but NFTs are perfectly designed to verify electronic information, increasing efficiency, and reducing the administrative burden of keeping and checking records.

Collectibles and gaming

CryptoKitties, a game run on the Ethereum blockchain, was one of the first commercial use cases for NFTs. It allows players to ‘breed’ virtual cats, selecting sires and queens for specific traits much as in the real world. Animals with proven pedigrees can become extremely valuable – in 2018 one CryptoKitty sold for US$140,000.  Similarly, ZEDRun is a platform for breeding and racing digital horses where successful breeders can earn significant sums of money in prize money and stud fees.

Several online gaming platforms, including My Crypto Heroes and Aavegotchi, allow the purchase of NFT-backed in-game items to allow players to level up and gain unique advantages over their competitors.

While the trade in sporting highlights, such as NBA TopShot’s tokenisation of basketball matches, is akin to the market for digital art (covered in our previous article), NFTs can also be used to verify physical collectibles. Ethernity is a leading marketplace for NFT-backed real-world items such as limited-edition baseball bats and, in 2019, Austrian Post launched Crypto Stamps which can be used like normal stamps or collected and traded on the blockchain.

Tickets

Ticketing for sport, music and other events has been plagued in recent years by forgeries and fraudulent practice in resales. The immutable and ‘trustless’ nature of blockchain technology promises to help address some of these issues. While it may not be practicable (or even desirable) to completely eliminate ticket resellers, it may be possible to reduce sales of fake tickets and the use of automated botnets by scalpers to corner markets for specific events.

Creative industries

As highlighted earlier where much of the innovative use of NFTs that is currently taking place is within the creative industries, especially for individual artists and musicians to create new communities between collectors, fans, galleries, artists, musicians, sculptors, painters, and a whole new generation of digital only artists. Artists are able to build a long term relationship with their fans by offering a proportional share of royalties, and NFC is the perfect vehicle. American rapper Riff Raff is really interesting. His music is on the new Sonic Hedgehog film, he’s an up and coming artist who decided, for his next album, I’m going to sell 5,000 $100 shares. And that’s the royalties for the album, $500,000, directly earned from his fans. In a recent BigONE NFT discussion the wider use of NFTs to help musicians, collectors and fans was led by Token||Traxx co-founder Tommy Danvers, who has produced artists such as Beyonce during his career. He pointed out that tech companies have led the music business over the last 15 to 20 years, creating a system where less than 12% of music income actually ends up with the creators themselves. For him, the value of NFTs is that it allows for unique things that you can attach to any aspect of creativity, from musical tracks to tickets, to live performances. What makes NFTs valuable is that while they are unique, they are also tradeable. His aim is to build a new system built around NFTs to replace the one that’s operated at the detriment of musicians, but which allows artists, curators (DJs and podcasters) and collectors to work together.

Challenges faced in using NFTs: education and security

Two main challenges face the business adoption of NFTs is they are going to deliver, namely education within the business and with customers, and safety and security issues around use of NFTs. One of the best things Gary Vaynerchuk did before launching his NFT was to spend a month or so on Twitter educating his audience about NFTs first. If you’re planning on leading your business into the NFT space, start by educating your audience on what an NFT is and how you’re integrating it into your services and community. Because NFTs are still very new, many people are still somewhat skeptical about what an NFT is, what it does, and what they can do with it. They don’t yet know what a wallet is, how to set up a wallet, or how to keep their funds secure once everything is set up. As the business owner and community leader in your NFT space, you’ll want to take time to show your audience where to go to create their wallet, how to create their wallet, and explain to them what NFTs are before you even launch your NFT. This will help your audience accept and move into the NFT space with you. If you don’t do this extra step to prepare your existing audience for the advent of NFTs inside your business, then you risk losing them right as your NFT launches. Instead, you want them primed and ready to buy into your NFT and help build your community by buying into it. And that requires that your audience understand the value of NFTs in general but also the value of your specific NFT and what they’re going to get out of it.

At the recent BigONE expert discussion on NFTs a key issue came up that’s very relevant for businesses to ensure their adoption of this new technology is successful, namely safety. It’s really kind of sad and ironic that the entire point of a blockchain is this concept called Byzantine fault tolerance, meaning all the different people you’re connecting with, how do you trust that the messages you’re sending and receiving are legitimately part of consensus, meaning everyone there who’s participating agrees that this digital item that you use to control is now transferred from you to someone else, and now they control it. It’s very easy to do with a physical item, I just hand it to you and ever knows, oh, now it’s in your possession, it’s yours. But a picture of an item is very challenging. How do you know I didn’t send it to 20 other people before I sent it to you? While the concept of NFTs enabled people to say provably with cryptographic security, you are the correct owner.  The challenge is it can be very confusing.

One option to make life easier for businesses and customers is to use a solution by the FIO (Foundation for Interwallet Operability) which provides human readable addresses to your crypto interactions. So instead of a big, long, Ethereum address, or a long, Tezos address, businesses can have their own address, whether for a record label, or whatever the situation might be. And that’s a human readable experience for sending and receiving these digital assets. What’s good about the FIO’s solution to making NFTs more user friendly and more secure is that you can also sign into your NFTs with human readable addresses. So, when an artist makes a painting for example, he or she’s gonna he signs it like any piece of art, right? They sign it and to say, this is mine, I did this. If somebody then tries to take a copy of this jpeg, or a copy of this song file and pretend that they’re me, and then go minted on some other blockchain on some other.

The issue is how do you know that it’s the real NFT, as most people don’t actually check the contract address. Rather than invite government regulation it’s important for the crypto industry to self-regulate, and as much as possible to do so with self-sovereign tools like the FIO protocol, that are open source, openly, freely accessible, permissionless systems that actually reward all the participants. So, it’s worth businesses considering some solution to sign your NFTs with human readable addresses, so the artists get rewarded, the platform developers get rewarded, the participants get rewarded, via the value created by the blockchain itself.

Experiment with authenticity

Wading into the murky waters of Web3 will seem daunting at first. Over time, brands, businesses, and individual creators must figure out what works for them through trial, error and observing what succeeds and fails for others. Remember that much like with Web1 and Web2, sincere adoption and creative experimentation will attract greater rewards in the long term. Faking community membership by co-opting NFT slang in social media posts can backfire by making your business appear out-of-touch, and so token NFT art collection efforts will probably get you as far as your dotcom era vanity websites did.

The good news is that the true impact of NFTs will unfold gradually over the next few years, and there’s plenty of time to figure the space out for you and your customers. Your eventual audience is the entirety of your existing and future customers, not today’s early adopter crypto community. So don’t simply measure success by your NFT prices on popular marketplaces like Sorare or OpenSea. Rather, focus your success metrics towards those that better illuminate a future for your business in which NFTs both anchor all real-world products and experiences while also extending them into the digital world of your choosing.