First it was cryptocurrency, you kept hearing about Bitcoin, Bitcoin, Bitcoin. Then the terms blockchain and decentralized everything began coming up more and more in conversation. Now, all we are hearing about are NFTs. What in the world is an NFT? Maybe you saw the Saturday Night Live sketch that sang about what they were. And maybe this was the first time you heard about them, or when you finally realized what they were, or it left you more confused than ever.
An NFT is a Non-fungible Token. That doesn’t help does it? Let’s back it up.
Fungible. I don’t know about you, but that is a word I don’t hear a lot of. I immediately think of a fungus but... In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable and each of whose parts is indistinguishable from another part. A dollar bill is fungible. If you have a dollar bill, and I have a dollar bill, we can switch our bills and still have a dollar bill that is worth one dollar. Even if you drew a mustache on Washington.
Non-fungible means that the value is not interchangeable, in other words its value is based on unique characteristics. Land is an example of non-fungible. One acre of land is not equal to another acre of land. There are many factors that go into the value of land, like location, topography, current utility hookups, and accessibility are some. An NFT gets its value from being built on a blockchain, so it can never be tampered with and can always be traced to its original source.
A Brief History
The foundation that laid the groundwork for NFTs came about in 2012 with bitcoin and colored coins. Colored coins were small denominations of bitcoins that were marked to have an additional, special component. For example, if you had a dollar bill and wrote, good for one free taco at Bill’s house, that dollar is now worth one dollar and the value of that taco. This unique mark determines their use. While colored coins had strengths and laid the foundation for NFTs, they also had flaws like issue sharing and an inability to establish worth.
From 2014-2017 a lot of development and experimenting in this area occurred. Most notably, Counterparty was founded as a peer-to-peer financial platform that also allowed the creation of digital assets. This was followed by numerous types of NFTs in gaming, memes, and other types of art.
In 2017, NFTs moved to the Ethereum blockchain, as many Bitcoin users didn’t like the idea of filling their block space with tokens that represented ownership of images. 2021 is when the notion of NFTs really became more mainstream. But most people’s idea of an NFT still revolves around gaming and one-of-a-kind digital art… until…
NFTs, What are they Good for? Business.
With all this talk around NFTs being digital art, it might surprise you that the original purpose of NFTs was for business. Because NFTs are created on the blockchain, this allows businesses to create or see proof of ownership and provenance. Why? The smart contract coded into the token can’t be edited or altered.
And while most use cases have so far been digital art, we can see the inner workings of business when we look at the sale of these art NFTs. On May 3, 2014, Kevin McCoy, a digital artist, minted the first-known NFT “Quantum.” On
November 28. 2021, the one-of-a-kind Quantum art piece sold for over $1.4 million at a Sotheby’s auction. When the buyer purchased this piece, they received a digital certificate of ownership with the piece. So, even if you take a screenshot of Quantum, you cannot sell it as the original because it does not have the valuable information attached.
If you think about it, many physical pieces of art and valuable antiques come with a certificate of authenticity, which is an official document that proves your work is genuine and authentic. The NFT is that certificate of ownership–it’s just digital. As we said earlier, an NFT is any digital file embedded or attached via a link into the blockchain. This means, an NFT can prove irrefutably where, when, who, how an NFT was created. This absolute proof begins to prove very valuable in business. It establishes proof of identity, ownership, and authenticity.
NFTs are transparent and instant. If people purchase an NFT and later decide to transfer that NFT to a third party, the business will still receive a share of the transaction as written into the smart contract. A company can still earn revenue just based on the fact that the experience it created for its audience is being accessed and enjoyed, even if that access wasn’t purchased directly through one of its sales funnels.
With NFTs, businesses are also offering their audience a chance to buy into their community. This is a much deeper connection than people who simply purchase a subscription. Buying into a community essentially gives that member partial ownership of that community. The members help determine the value of the community based on how many tokens they hold, as well as their asking price when they sell off their tokens after they no longer need access.
Ready to Start?
Are you ready to take your business to the next level? NFTs are an excellent way to start. Contact us today to see how NFTs, the metaverse, blockchains and more can elevate your company and your customer experience.