The proof of authenticity and provenance offered by non-fungible tokens or NFTs opens up numerous possibilities for brands to use as a way to encourage loyalty, long-term fan engagement and advocacy.
On the surface, the value of non-fungible tokens or NFTs can be confusing – why is this JPEG by an artist called Beeple worth US$69 million? To understand this, you need to understand that it’s not the pixels that are valuable, it’s the undeniable proof of authenticity and provenance that is attached to it.
One of the most popular categories of NFTs is digital art, so a useful way to think about it is that it isn’t the oil and wood that make a physical painting valuable, it’s the signature from the artist that enough people have agreed is genuine.
In the case of NFTs, this signature exists on the blockchain as a “token” with proof recorded on the ledger along with some information like how you can experience the item, the date of creation and the creator. The reason it is a “non-fungible” token is because it isn’t interchangeable.
You don’t care which dollar or Bitcoin is in your wallet because it is completely interchangeable with another one – it is fungible. Whereas NFTs are unique or belong to a defined set of limited editions (eg, in the art world the corollary would be number “x” out of an edition of “y”).
Proof of ownership
An NFT is essentially digital proof of ownership enabled by a blockchain. A majority of NFTs are currently being secured by the Ethereum blockchain with popular examples being the scarce CryptoPunk collectibles, digital art from a rapidly growing community of artists and even novel ideas like the algorithmically generated music of Euler Beats.
There are also popular alternatives such as the Flow blockchain that houses a basketball trading card collection called NBA Top Shots that has had several hundred million dollars in sales. These proofs can represent anything like images, animated GIFs, videos, music, in-game items, text, memes, code and even real world items.
True digital ownership couldn’t exist before the advent of blockchains because you could never really be sure that a centralised entity with centralised servers would shut down and with that your proof of ownership would disappear.
For example, if you bought lots of special items in an online game, you can’t trust that they won’t ban your account, change the parameters of your item or go bust with everything being deleted. With modern blockchain based games, for example, you have total control over the ownership of the asset because you have the cryptographic proof that says you own it.
In the future we will even see networks of games where you could seamlessly move your “special item” from one game to another, sell it to someone else or even just display it in a digital frame like a piece of art.
A common assumption by naysayers is that digital things shouldn’t be worth more than physical things. A simple way to correct that is to talk to a few teenagers about what they value. They place a huge amount of value on digital items, often more than even physical items because digital items, social media profiles, currencies etc increasingly represent who they are in the modern world.
As people are spending more and more of their time online, we are starting to see a clear shift in what we value as humans. All “value” is essentially a collective belief in that value, regardless of whether it is in the real world, online or in a virtual world.
Because NFTs are blockchain-based tokens, they also open up endless possibilities through programmability. A common example in the digital art space is a set of instructions attached to a token that ensures royalties go back to the original creator’s cryptocurrency address. This could be set to anything you want, like:
- 10% of all resales in perpetuity;
- 50% of only the first three secondary sales;
- 5% of every sale to a charity of your choice; or
- It could be something even more exotic like spreading royalties across all the people who have ever owned it to reward them for their early belief in the value of that art piece.
NFTs and marketing
So, what on earth does this have to do with marketing? Some of the many possibilities for brands include using NFTs as:
- access rights
- loyalty memberships
- authenticity certificates
Collectibles – would involve minting a set of unique (or limited edition) visuals, perhaps your brand character or icon, designed by a sought after digital artist with revenue shared between the brand and the artist.
Badges – are a great way to reward someone in your community and enable them to proudly share that badge as part of their online profile because they achieved something. That badge could perhaps even reward a customer for that accomplishment or even a good deed within the community.
For example, a food delivery brand could issue a limited edition NFT to the top 100 customers who tipped their delivery drivers the most in 2021, and with that NFT there could be a set of instructions that entitle you to 10% off every order for the duration of 2022.
Why does this need NFTs on a blockchain as opposed to just a voucher in the app? Because an NFT gives you the assurance that this achievement will always exist and the ability to use it on other platforms.
This NFT badge could be placed on your LinkedIn profile or used as a way to get access to special services on a completely new delivery app in the future based on your past good behaviour.
Access rights – an example could be the right to participate one day early in a sale on your e-commerce site or in your physical store, ie, you can’t enter the store unless you have your access token scanned by a QR code reader to verify authenticity. Or it could be the access key to exclusive content or experiences like a one-on-one dinner with your favourite music artist or a five-minute Zoom call with the product designer at your favourite brand.
Bought one of the first 100 physical T-shirts from a clothing brand? You could get an NFT that demonstrates that you were one of the first people to own that T-shirt, an achievement which you can proudly share with friends.
Maybe even combine all of the above examples into one mega fan experience!
NFTs’ marketing opportunities
In short, NFTs present very exciting possibilities for marketers but it’s important to keep in mind that NFTs started as a grassroots movement to enable creators to monetise their work directly with their fans.
It was inevitable companies and brands would also see the potential. However, blatant money grabs by brands will end badly. It’s important to consider that this is largely a community-driven movement and should be treated more like a way to build up an avid set of followers on social media over the long term, rather than as a “campaign” or “something to sell to generate revenue”. The collective belief that something should have value needs to be authentic, nurtured and rewarded.
Brands must treat NFTs as a way to encourage loyalty, long-term fan engagement and advocacy. Brands should therefore focus on building an incentivised community of recognised and rewarded customers and above all create a connected experience worth being part of.
One caveat: there is no doubt that we are in an early stage of rapid experimentation and enthusiasm, with lots of stuff to still figure out. For example, there are real world legal ramifications around the use of existing IP, licensing and enforceability of copyright that need to be integrated with this new paradigm.
Having said that, these challenges will be overcome and what we have seen so far is just the tip of the iceberg. Most of the current NFT craze has been around digital art, digital trading cards and in-game items, but these are just a few of the use cases that are possible. They don’t even need to be “digital items” in the sense that an NFT could just be the digital certificate that represents a real world asset like a real estate deed.
Just a few of the other use cases that are being explored include:
- domain names
- virtual land
- access keys to a website instead of a login
- lottery tickets
- your bonus pending hitting certain targets
Plus a mind boggling variety of complex financial instruments such as a representation of collateral that you can use to get a loan.
One thing is for sure, brands will have plenty to explore over the next few years as the experimentation continues in the fast-paced world of crypto.