NFTs or Non-Fungible Tokens are unique digital assets that have been verified as original using blockchain technology, and businesses across fashion, art, music and more are jumping on this growing trend.
According to Forbes, the combined market cap of major NFT projects has increased by 1,785 per cent in 2021, less than three months into the year. Christie’s auction house sold its first piece of NFT-linked digital art for US$69 million in March, and major NFT marketplaces have reported a surge in sales. In the first three weeks of March, OpenSea recorded US$82.5 million in transaction volume, against US$24.2 million for Rarible, according to DappRadar.
Business futurist Gihan Perera describes an NFT as a certificate of authenticity for digital products.
“Just as you get a certificate of authenticity from a jeweller when you buy a diamond ring, an NFT provides authenticity from, say, a photographer who takes a beautiful artistic photo of that ring on a celebrity’s hand.”
It’s this uniqueness that distinguishes NFTs from crypto coins, which are identical and are all worth the same.
While it may be possible for others to download, copy, and share a digital asset, the NFT proves ownership of the original. Why would one pay for the “original” version of a digital image when there are millions of copies of that image freely available online, you might ask.
“For the same reason people line up for hours outside the Louvre to see the original ‘Mona Lisa’ when they could see dozens of (very good) copies of it from street vendors along the Seine just around the corner! Because they want to see (not even own!) the original,” Perera said simply.
The consumers of NFTs are “collectors” and they value “ownership, authenticity, and the status and prestige of the brands they buy”.
Digital fashion steps forward
Perera expects high-end luxury brands will stand to benefit the most from NFTs.
“Somebody buying a Fendi, Cartier, or Tiffany is buying more than the product – they are buying the status and prestige that goes with the brand. They won’t even buy the Bali knock-off version because they would know they don’t have the real thing,” he said.
Gucci already launched a series of augmented reality (AR) sneakers in March and the brand told Vogue Business that it’s “only a matter of time” before it will release an NFT.
For digital brands it’s a natural progression. Earlier this month, UK digital fashion brand Republiqe released two bespoke digital outfits for auction on an NFT marketplace.
Republiqe creates digital clothing for Gen Z consumers to support their fashion-forward online profiles in a unique and sustainable way.
“They live their world on these devices … building and improving their digital persona is so important to them. And they’re natural born advocates of environmental sustainability,” founder James Gaubert told Inside Retail of the brand’s Gen Z consumer base.
For Gaubert, the move into NFTs is about being at the cutting edge within the category rather than establishing a new sales channel. In fact, 50 per cent of the proceeds from the auction will be donated to Britain’s National Health Service (NHS).
“I don’t see this as being our main revenue stream moving forward as a business. It’s more a case of this is something that’s been talked about at the moment a lot and is a real hot topic,” he said.
“Popularity could be its downfall”
Arnold Ma, marketing expert and founder and CEO of digital creative agency Qumin, told Inside Retail that a big draw card of NFTs is that they offer “a decentralised revenue stream for any company that creates content”.
But he said that the popularity of NFTs “could be its downfall”.
“Just as what we saw with ICOs (Initial Coin Offering), too many fraudulent companies and individuals took advantage of the concept, exploited the trust of the public, thus tinting the concept of ICOs and blockchain in general,” Ma said.
“I am afraid this may happen again for NFTs, the exploitation of the concept could destroy itself and we will lose any benefit we may see from long term adaptation.”
There are also some concerns around the environmental aspect of NFTs, Perera explained.
“One of the biggest criticisms of NFTs is about their carbon footprint, because they rely on blockchain technology, which requires huge amounts of electricity. On the other hand, you could argue high-end luxury brands (and their customers) already have a disproportionately high carbon footprint.”
Just a fad?
While Perera says NFTs are “novel and quirky” right now and that alone is driving consumer interest, it’s still early days.
“Even the retailers who have started using them don’t know its long-term value,” he said.
“But don’t write off NFTs too soon. They might seem like a fad now, but that’s only because we can’t see how they add value to our lives in the “real world”. But in the future, we will be spending more time in ‘virtual worlds’ … When that happens, we will want the same things we want now in the physical world – and for some people, that includes authenticity, ownership, status, and prestige.”
For now, Ma said NFTs can support real-world purchases by acting as a digital token for limited-edition products, improving the omnichannel experience retailers are so determined to offer.
“Brands and retailers can issue/sell NFTs to loyal customers or competition winners. They can then use the NFTs to purchase the offline product at a later date. And/or, the customers can keep the NFTs as a piece of digital collectable that is attached to the offline product. In summary, generating more revenue opportunities and truly integrating O2O (online to offline).”
Perera recommends high-end, luxury, or aspirational retail brands to consider the potential of NFTs to extend brand value into the digital space.
“Because NFTs are digital – not physical – products, it’s easy to dip your toe into the water and experiment. You’ve got very little to lose!”