Crazy things happened in 2021.
But nothing beats the explosion of NFTs in 2021.
NFTs may have been floating around since 2015, but they only gained massive popularity in 2021. Some NFTs sold for millions of dollars!
Although an emerging technology, NFTs in business have become a hot topic. This article explains how to use NFTs for your business and what to know before delving into these digital assets.
Let's dive in!
NFTs are digital assets that exist on the blockchain. Each NFT is a unique property that cannot be traded for another. That's why they are "non-fungible" ('NFT' is short for "non-fungible token").
You can exchange a fungible asset for another asset of equal value. A dollar bill is fungible, so you can trade it for another dollar bill or buy a cup of coffee worth a dollar.
But you cannot exchange an NFT and get a similar NFT in return. Each NFT is a unique blockchain item, complete with its digital signature.
NFTs thrive on scarcity, like one-of-a-kind Pokemon cards, original Renaissance-era paintings, or limited-edition Nike sneakers.
Because NFTs have a digital signature, you can always prove ownership and validity. To verify if someone owns an NFT, simply cross-check the meta information with publicly-accessible blockchain records.
So, you understand what NFTs mean. Now, it's time to see just how they work.
NFTs are created ("minted") and stored on a blockchain. Most NFTs were minted on the Ethereum blockchain in the early days, although other blockchains now offer them.
An NFT can be a digital representation of virtual or physical items. That includes artwork, music, GIFs, video snippets (a la Grimes), images—if it has a digital footprint, it's NFT material. Heck, Twitter founder Jack Dorsey's first tweet is an NFT worth $2.9 million.
Rarity increases the value of NFTs. At least, that explains why some are forking over millions of dollars for them. Owning an NFT gives bragging rights, just like owning an original Da Vinci painting or an autographed Harry Potter novel.
However, brands are quickly jumping on the trend and creating NFTs, too—but for different reasons. Most branded NFTs rely on the following qualities of these digital assets:
1. NFTs are a means of self-expression. Owning unique artwork, image, song, or virtual clothing/real estate and knowing it cannot be copied affords people a sense of individuality.
2. NFTs thrive on scarcity. While someone may buy an NFT Gucci for self-expression, another buys it hoping for a future increase in the item's value. Given that NFTs are rarely mass-produced, they make for somewhat sensible investments.
3. NFTs power the metaverse. That fancy "Metaverse" concept you’ve been hearing lately? It's here already. Virtual worlds like Decentraland allow users to purchase virtual houses and clothing and build entire lives online. As the Metaverse continues to grow, more people will spend time in these virtual worlds, and they'll need virtual assets, such as NFTs, that can be used there.
4. NFTs boost brand recognition and consumer loyalty. Buying branded NFT is perhaps the greatest stamp of approval customers can give the businesses. This is especially true of limited-edition NFTs available to only select customers.
From luxury clothiers (Gucci) and sportswear makers (Nike), there's no shortage of brands using NFTs for different things. While the valuation of these companies allows them to experiment with different things, smaller businesses may be cautious.
Are you confused on how to use NFTs in business? Here's a quick crash course on using NFTs for your small business:
With virtual products getting the hype, it's a good idea to create one for customers, and even better, to tie it to a physical product.
For example, a furniture business can ask buyers to purchase a couch and an NFT version. Nike is doing something similar with CryptoKicks, where customers receive a digital pair of kicks after buying the real thing.
For eCommerce businesses, this represents an opportunity to drive profits. Since NFTs cost little to make, the returns can be mind-blowing.
Plus, the smart-contract mechanism can allow NFT creators to benefit from future item sales. If it wishes, a company can stake a claim on a percentage of future profits and program the functionality into the NFT.
In the Metaverse, people can buy virtual real estate and clothe their avatars in fancy clothing. Savvy businesses can take advantage and commission branded NFT items to sell them for use in virtual worlds like Decentraland.
Again, Nike is ahead of the curve here, filing patents to produce virtual sneakers for in-game audiences and virtual world residents. Coca-Cola also sold an NFT bubble jacket, which buyers could wear virtually, to celebrate its 200th anniversary; another example of excellent business use cases for NFTs.
Branded sneakers, clothing, devices—the possibilities of NFTs for business are endless. A business owner only needs to mint an NFT version of a real-life product and sell it to people through Rarible, OpenSea, or any NFT marketplaces. Indeed tokens-as-virtual-products is among the best business uses for NFTs.
Brands have rewarded loyal customers and achieved higher recognition with limited-edition merchandise. Now, small businesses can do the same, but with NFTs.
Restaurant chain Taco Bell famously released taco-inspired GIFs (dubbed NFTacoBells), which sold out in minutes. Similarly, Coca-Cola sold a digital “loot box" comprising various NFT products, including a redesigned Coca-Cola logo and a virtual jacket.
Businesses have unsuccessfully tried to combat sales of counterfeited products for years. However, new research shows NFTs may help turn the tide against counterfeiters.
As explained earlier, NFTs live on blockchain's open, immutable, permissionless, and trustless ledger. That's why verifying ownership and validity is easy.
Applied to the world of commerce, an NFT tied to a physical product can help limit counterfeiting cases. Customers could scan the NFT barcode on an item to confirm its originality. This is already happening in the luxury goods industry, with Ackerwines, a specialty winemaker, selling wines with companion NFTs.
This technology can also protect other items businesses would rather were not counterfeited. That includes event tickets, discount coupons, ownership certificates, licenses, and many more.
While people are generous, many would feel better if they got something in return for their charitable donations. And what better way to reward donors than allowing them to own a hyper-rare NFT?
Taco Bell and Coca-Cola are some of the brands using NFTs to raise money for social causes. Other businesses can follow this example and sell company memorabilia as NFTs, with proceeds going to charity.
Beyond creating buzz for a business, this tactic may help raise its profile and improve public perception.
One of the best business use cases for NFTs is in supply chain management. Stamping NFT-enabled tags on physical commodities makes it easier for businesses to track items across the supply chain. Each NFT can be updated with relevant information at different points of the production process.
For example, product-linked NFTs on the blockchain may contain data about the origin of raw materials and techniques used in production. Companies can quickly detect if a defective product is introduced into the supply chain.
Since blockchain information is visible to everyone, customers can confirm a good's manufacturing details. This is an excellent way to assure buyers of the quality and authenticity of products.
Although the business potential of NFTs is undeniable, businesses must be careful with investments. Brands using NFTs must conduct extensive research to find and evaluate risks associated with NFTs in business, some of which are explained below:
1. Security Issues
NFTs rely on blockchain technology, which has had a fair share of hack attacks. In a recent high-profile case, around $2.2 million worth of Bored Ape NFTs were stolen from the OpenSea platform. As a new technology, blockchain has a few kinks to work out. This is normal for every emerging technology, but it's worth considering, nonetheless.
2. Declining Economic Value
Many believe NFTs are going through a hype phase, evidenced by their high prices. Will their prices crash when the bubble bursts? Depends on who you ask. However, you want to remember that NFTs may well become commonplace with time, such that they won't command extreme value anymore.
3. Unpredictable Demand
The best NFTs have some social value attached. Remember: you're selling a product people can't touch, so what matters is how people perceive it.
If customers think owning an NFT from your brand is cool, nothing can stop them from paying good money for one. But if your brand has little social value, your NFTs may find no buyers.
It helps to measure demand for branded NFTs among your customers. Once you've established that there's a market for NFTs, the rest is easy.
4. Environmental Impact
A major stumbling block to adopting blockchain technologies is their high electricity consumption. This has led many, including prominent climate change activists, to protest against their usage.
Businesses may be wary of associating with a controversial technology for fear of public backlash. This is even more important as consumers pressure corporations to promote eco-friendly practices.
Learning how to use NFTs for your business can help improve brand recognition and loyalty, create unique experiences for customers, prevent piracy, and improve supply chain tracking. With the enormous commercial involved, every smart company would do well to incorporate NFTs in their business model.
Also published on: https://eawosika.hashnode.dev/how-can-businesses-use-nfts