WTF is an NFT?

Written by Alex MacNicol (Strategy Intern @ Naked)

If you’ve spent any time online in the last few months you’ve probably caught a glimpse of the incessant buzz surrounding “non-fungible tokens”. From the NBA’s Top Shot program generating over $230 million in sales, to the digital artist Beeple selling a jumble of colours and pixels for a gob-smacking $69 million, to William Shatner selling a line of personally-branded collectables that included a X-ray of his teeth (yuck) – NFTs are exciting, baffling, and downright weird.

If you’re anything like me, when you were first told that non-fungible tokens are unique, cryptographically encoded files on the Ethereum blockchain  – you nodded your head, smiled politely through vacant eyes, and returned to your simple life of pen and paper and the occasional email. But, today, let’s try to dive into this emerging world of crypto craziness to understand – in human terms – what exactly NFTs are, how they hold value, and why marketers should care.

So, What’s an NFT?

In the simplest terms, an NFT is kind of unique digital voucher that says “I own X digital file, it’s mine and only mine”. These digital files can be anything that’s encodable into 1’s and 0’s – digital art, video content, and, yes, even a picture of Captain Kirk’s teeth. These vouchers live in a decentralized digital network spanning a vast number of computers and servers across the world (the blockchain). Manipulating or hacking this decentralized network requires ungodly amounts of computing power and electricity, ensuring the security and authenticity of non-fungible tokens in the absence of any central governing authority.

While NFTs do not prevent the sharing of digital media – you can, for example, go and download a video file with the identical properties to the one that Beeple sold for $69 million at auction – the secure, verifiable blockchain tokens enable sole ownership of that file at the end of the day. Think of it this way: everyone can own a Van Gogh print, but only one person can own the original. In a world where digital media, in essence, becomes shareable public domain as soon as it’s put online, NFTs have managed to create a new form of digital ownership and, ultimately, digital scarcity. As our economics textbooks loved to remind us – where there is scarcity there is value.

For artists, the evolution of NFTs has meant a new marketplace for previously unmonetizable digital creations. For consumers, it’s a new way to demonstrate taste, interest, support, and provides, quite simply, a new cool thing to collect. But what about us, your friendly neighbourhood marketer? Is there any reason why these strange digital collectables should matter to us?

Marketers and Brands: Listen Up!

What should excite marketers about NFTs is that this new digital scarcity creates completely fresh avenues for brands to generate value, engage with core audiences, and create exclusive experiences. We know this because it’s already happening.

In February of this year, Microsoft released an online game to celebrate the International Day of Women and Girls in Science. Those who played the game received NFTs that unlocked unique collectables and game modes inside of Minecraft. In a climate of disingenuous corporate efforts to bring CSR into the fold of their brand, Microsoft managed to leverage NFTs to create at CSR experience that was fun, fresh, and young, all while furthering the brand’s historical cachet as pioneers of innovation and new technology.

In December of 2019, Nike received a patent for their NFT-driven concept “CryptoKicks” – a platform that would enable users to track and verify the ownership and authenticity of a pair of sneakers by tying a unique, digital, blockchain-power token to each physical product. What’s really exciting and innovative about the CryptoKicks concept is that the token attached to each shoe would contain a kind of ‘genetic code’ for that particular item. When combined with the genetic code from another pair of sneakers through Nike’s proprietary platform, users would be able to turn their “CryptoKick” parents into unique, digitally-generated ‘shoe offspring’, and have those shoes produced as a new, unique, tangible Nike product. With CryptoKicks, Nike has not only proposed an innovative method for protecting their brand and the quality perennially associated with the Swoosh, they have created a whole new avenue for generating sales while engaging deeply with consumers through co-creation.

Ultimately, NFTs provide a whole new bag of tricks for marketers to dream about at night and to desperately pull from in those blue-sky ideation meetings. While the technology is still burgeoning, it is already providing brands with new ways to drive deep engagement, affinity, and sales. Those three words should be enough to get every marketer’s heart pumping and palms sweating – this is f$%#-ing exciting.

All of this being said, I would be remiss if I left you without mentioning how NFTs are dripping gasoline onto the raging fire that is the climate crisis – both the environmentalist and the cynic in me demand a tempering of expectations. Because of the highly distributed, computation-heavy nature of the blockchain networks on which NFTs live, the average NFT transaction consumes about 48.14 kWh’s of energy. For comparison, that amount of energy is equivalent to just over one and a half days of energy consumption of the average US household. It would seem that before the NFT can make the full jump to mainstream relevance and implementation by brands, there is a need to streamline the energy costs of the technology to levels that are palatable for today’s eco-conscious consumers.