In an increasingly dematerialized world, becoming the owner of a virtual object is a need that has led to the emergence of NFTs (Non-Fungible Tokens). But the field of use of this digital asset is not so limited. In fact, it ranges from becoming the owner of a property in the Metaverse to owning the rights to a physical work of art. That said, why should NFTs be of interest to companies? The answer is in the last paragraph, so if you already know what NFTs are, you can use the summary to go straight to the part that interests you; otherwise, let’s find out together, starting with their definition.
What are NFTs (Non-Fungible Tokens)?
There are a multitude of definitions of NFTs on the web, and it is superfluous to rehash them. Instead, I quote the explanation given by Ethereum whose blockchain, to date, is the most widely used for this type of asset as it supports the ERC721 token standard:
“NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. Ownership of an asset is secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.”
And now, let us explain the steps. Tokens are digital certificates that prove ownership of a physical or digital asset. What is their special feature? That they are unique, non-replicable and non-fungible. Therefore, whoever holds them is the sole owner of the asset they certify. A bit like an event ticket: they all have the same format, but each one identifies only one person who can attend the event in question.
Guaranteed by the blockchain (distributed public ledger that records transactions) on which they are created, NFTs retain the characteristics of the distributed public ledger: immutability, validation and disintermediation. If you are not familiar with how blockchain works or would like a simple explanation to fully understand it, I recommend reading the article “Blockchain: what is the best time to invest?”
NFTs can be sold, bought, but also given away for free. The positive aspect of this digital asset is that it allows you to bypass the intermediary and make the purchase by interacting directly with the owner. The currency of exchange is often, but not necessarily, cryptocurrency, which, as we will see later, is contained in a digital wallet. But let’s take it step by step.
An NFT allows me to become the owner of a digital asset or, in some cases, to buy a copy of it. In what sense? During the creation phase of an NFT, you can choose to make it unique or to have a limited edition. Obviously, if we are talking about collectibles, the more copies I make of the original, the lower the selling value will be.
In addition, the digital asset may be sold with all rights reserved, or the original creator may be guaranteed a percentage of royalties when the asset is resold. In fact, the creator can give away all or part of the rights to the asset and receive a commission for each transfer.
How does NFT work?
What does an NFT consist of? Metadata and unique identification codes. Metadata is the digital representation of the attributes of the asset (images, audio, video, text and anything else that makes it similar to the original). The code, on the other hand, is used to identify it and make it unique and therefore non-replicable. In essence, when you create NFTs, you are setting up the smart contract code.
Let’s take a concrete example. If I want to create an NFT that digitises a book I have written, I will have on one side the pdf with the text and on the other side a visible unique code that makes me the owner of this digital book.
The steps to create an NFT may vary depending on the marketplace platform (the blockchain where NFTs are minted and offered for sale) you choose, but in general they are as follows:
- select the format;
- decide whether to create a single token or a collection;
- choose the marketplace;
- coin the resource;
- proceed with validation;
- promote the product to encourage purchase.
The process starts, of course, with owning a valuable asset that is attractive to the marketplace. Then, depending on the format (audio, video, document, image), you choose the marketplace that best suits your needs. In fact, with the widespread use of NFTs, many marketplaces have been created for the sale and purchase of products (OpenSea; Binance; Crypto.com; Rarible), which differ in the following ways:
- blockchain type;
- supported file standards;
- cost of use;
- level of autonomy (curated or self-service);
- User Experience.
If you choose a curated marketplace, the path will be much easier. In fact, we will have clear instructions that will allow us to transform a digital object into a blockchain resource. The steps involved in creating an NFT are called minting or even coinage, borrowing from the terminology used for coins. In fact, the computer process used is the same as that used to create cryptocurrencies. However, while cryptocurrencies are fungible and the tokens all have the same value, NFTs are the exact opposite, they are not fungible and the values are unique.
The minting process begins after the file is uploaded to the marketplace, a title and description are added, and the person creating the resource signs it. This is the stage at which the resource becomes secure, immutable and validated. In fact, an NFT can only be sold if it passes validation by the blockchain. Other variables to consider are whether to create a single token or a collection, and whether to associate a fixed price or allow an auction up or down.
At the end of this phase, the NFT will only appear on one’s profile if the blockchain has been validated, and the sale can be made immediately. Finally, to increase the chances of a sale, it is advisable to combine the creation with a good marketing strategy.
How does NFT trade?
In the previous point, I deliberately did not address the economic issue, which deserves a separate discussion. If you want to buy or sell an asset using NFTs, you need to have a wallet, i.e. a digital wallet, and a cryptocurrency or a credit or debit card. This would allow us to access different platforms, sign transactions and manage our balances.
Newer smartphones already have apps that allow you to manage credit or debit cards and store cryptocurrencies, but there are a multitude of solutions available online. Relying on trusted apps is a plus in terms of security, privacy and user experience.
How can a price be attached to the NFT created? The economic value of the digital asset is determined by the market. A painting by an emerging artist has no objective value, but will depend on how much a fan is willing to pay for it. Another consideration is the number of copies. If the NFT is unique, it will have a higher value than if there are copies, albeit limited ones.
Example of NFTs
From these premises alone, it can be deduced that the highest revenues from the sale of NFTs will be generated in the field of art, where collectors and fans of artists are willing to pay sky-high sums to acquire the digital version of a work.
The point behind the creation of an NFT is therefore the subjective value of the good. It does not have to be an already digital good, but can also be a physical property or material object of which we make a digital copy.
These can become NFTs:
- videos;
- tracks;
- events;
- real estate;
- works of art;
- collectibles;
- licences;
- certifications;
- legal documents;
The list could go on and on as, once again, value is a subjective concept and anything representing it can be certified by an NFT.
NFTs in the organisation create exciting opportunities for supply chain tracking and customer loyalty Click To Tweet
Pros and cons of NFT
Like any technology worth its salt, NFTs have pros and cons. As for the pros, we have discussed them at length and they are also linked to the characteristics of the blockchain.
The biggest benefit is precisely the ability to track all changes in the ownership of the asset through the blockchain, highlighting changes or any interference with the original copy. This, as we shall see, is a key aspect that adds value to the supply chain in the corporate world.
However, not everyone is able to check the blockchain and ensure that a digital asset, purchased at a high price, is truly unique and original. And this is also the other side of the coin, the so-called “double coinage“. To explain this, let’s start with an example. The identity of the seller of an NFT is not necessarily obvious, unless the person wants it to be, and yet it is not verified upstream. This is because blockchains are pseudo-anonymous.
If an artist creates an NFT that includes an audio track, anyone can copy it and it is difficult for an inexperienced person to detect plagiarism. As a result, a buyer can pay a lot of money for a digital product and only find out later that it is an imitation. This is because there is currently no immediate way to verify the legitimacy of an NFT creator.
What are the uses of NFTs in business?
Now that we have understood the potential of NFTs, let’s try to understand how they can help businesses. The biggest use of NFTs is still in the arts, but in the social world, the first tweet by Jack Dorsey, co-founder of Twitter, was sold as an NFT for over $2.9 million.
Being a very versatile technology, it can also be adapted to the corporate context, with results that are by no means negligible in terms of customer loyalty and supply chain transparency, with significant implications for corporate sustainability certification.
NFTs and Marketing
One of the main applications of NFTs in marketing is to create engaging and personalised experiences for consumers. For example, a unique NFT could be created for a specific product or event and offered as a prize or gift to loyal customers. In this case, they could also act as a guarantee to reduce counterfeiting and ticket fraud.
Or you can use them for a prize draw, where the most loyal customers can win an exclusive gadget. In this case, NFTs are used to track purchases.
Finally, they could be used as a fundraising tool for social causes or non-profit organisations. A company could create a piece of art or other unique digital asset, offer it as an NFT and donate the proceeds to a specific cause.
These are all techniques that reflect customer loyalty, create a competitive advantage and improve brand perception through elements of exclusivity.
NFTs in the supply chain
The inherent characteristics of NFTs make them a valuable tool for improving supply chain transparency on a global scale. Until now, the main problem in the supply chain has been the lack of information at key points of contact. There is little transparency and, as a result, fertile ground for counterfeit goods to enter.
This is where blockchain is already playing a key role, through the traceability offered by smart contracts. NFTs make it possible to verify the origin of raw materials, ensure quality and authenticate products. By creating a unique and transparent digital record, counterfeiting can be drastically reduced and every movement of goods along the supply chain can be traced. This is because NFTs provide a digital photocopy of the path of goods in the real world.
In addition, Phygital NFTs make it possible to physically mark goods to certify their origin. The risk of counterfeiting is eliminated and the consumer knows the material composition of the product. Remember, a transparent brand is a trustworthy brand in the eyes of the customer.
Finally, traceability and supply chain transparency, also linked to the use of NFTs, are the key elements that allow companies that are committed to sustainability to easily access certification.
Whether NFTs are the future or just a passing fad remains to be seen, but it is important to understand the applications of NFTs today so that we are not caught off guard and are the first to seize the opportunities.
