NFTs are everywhere — and wherever there’s a new asset class, there’s rampant skepticism and nay-saying. “No inherent value” and “passing fad” are the reigning NFT criticisms. But detractors may be lacking vision. Because from our vantage point, NFTs are valuable, market-making assets.
NFT Crash Course in Nine Bullet Points
- NFT stands for non-fungible token, meaning it cannot be traded for another token of exact value and scope because each is unique.
- NFTs are created and sold on blockchain networks.
- NFTs don’t contain traditional files. Instead, they authenticate ownership and trace the provenance of a given item. Many are governed by smart contracts(link).
- NFTs are easy to transfer from party to party and difficult to counterfeit, making them a good base technology for market development.
- Though the technology has been around for a few years, NFTs took off in 2021, and now millions sell weekly.
- NFTs usually don’t prevent the public from viewing or downloading a given asset associated with it. Moreover, many of them provide ongoing royalties to the original artists and creators, making it a win-win situation in many instances.
- Some NFTs have gone for millions, the most well-known being Beeple’s “The First 5000 Days,” which sold for $69 million at Christie’s.
- NFTs are easier to monetize than traditional crypto tokens because of their standalone value.
- Popular NFT trading and exchange platforms include Nifty Gateway, OpenSea, Foundation, Veve, and the branded NBA Top Shot.
Six Ways NFTs Are Valuable
Currently, the NFT headlines are rife with manic headlines that may as well read: “Person Paid a Zillion Dollars for Nothing!” But what these hot-takes fail to recognize is that the underlying technology has the power to create new markets, which translates into fresh opportunities and jobs! So let’s look at six ways that non-fungible tokens are valuable.
As Collectibles
Affluent folks have long leveraged art as a wealth shield. People buy works from emerging artists for lower amounts and sell them at higher values. Plus, art trading confers some significant tax benefits when done right.
Ultimately, NFTs are an updated, digital version of the model. It’s not for everyone — just as the traditional art market isn’t. But it does provide wealth-protection value for high-asset individuals.
As Tangible Ownership Record of an Unruly Asset
NFTs can function as ownership certificates, so people are replacing traditional deeds and asset paperwork with smart contracts for larger items. For example, there’s an NFT for a 2,000-pound cube of tungsten. Moving the piece from owner to owner would be a costly logistical hurdle. But transferring and exchanging an NFT is a snap.
As an Exclusive Membership Perk
Exclusivity is an effective bait used by most marketers and brands. Curated scarcity increases engagement and secures loyalty, and NFTs are a convenient way to establish tiered access to special content and exclusive online hangouts.
NFTs are also being used to create new communities.
As a Ticketing Vehicle
Companies and ticketing agents are also starting to experiment with non-fungible tokens. They’re more dynamic than traditional paper tickets and q-codes, allowing for increased creativity and flexibility. An NFT ticket can confer access levels and enable venues to collect secondary sale royalties. Restaurants are also beginning to experiment with NFT reservation systems.
As an Access Totem
Access is a big part of the NFT ecosystem. Creators are now producing in-person events for holders of certain NFT collection items. Non-fungible tokens are also being used to grant degrees of governance in a given board or group.
As a Reward and Royalty Vehicle
The programmability of NFTs supports new profit models. For example, royalty contracts can get more complex when supported by blockchain technology and smart contracts. This dovetails with the growing popularity of exclusivity marketing initiatives.
Examples of NFT Programs Currently in Action
The NFT market is more than just collectibles. Many brands and businesses have already started leveraging blockchain technology for promotional and engagement ends.
- NBA Top Shot: The NBA-branded online platform allows people to trade videos called “moments,” which are basically digital trading cards. Industry watchers suspect that “moment holders” may soon enjoy real-world benefits and discounts.
- Bored Ape Yacht Club: Anyone with a Bored Ape Yacht Club NFT has exclusive access to the group’s membership, including exclusive social events and special merchandise.
- Jenkins the Valet: This subset of the Bored Ape Yacht Club enjoys a higher level of access and can provide direct feedback to the principals.
- Adam Bomb: A project linked to streetwear brand The Hundreds, Adam Bomb is an NFT collection that gives holders direct access to the company’s founders. They also enjoy early product releases.
- Social Media Projects: Several social media companies, including Meta (Facebook), are heavily experimenting with blockchain-based membership and rewards programs.
The Dos and Don’ts of Establishing an NFT Program
Before launching an NFT collection, we suggest you check a few boxes.
- Viability Check: Ask yourself whether you’re making meaningful use of the technology or simply bringing a dud to market to chase a trend. Succeeding in the NFT world requires community engagement, and community engagement can only grow from a firm base.
- Credibility Check: At the moment, clout matters in the NFT world. Can you get an established brand to back your NFT initiative? If yes, it’s a plus because token projects heavily rely on consumer confidence.
- Intellectual Property Audit: Have you secured permission from artists, authors, programmers, or other parties who may have copyright privileges linked to your NFTs? Make sure everyone is on board and get it in writing. Otherwise, you risk an expensive and resource-consuming intellectual property lawsuit.
- State, Federal, and International Regulatory Audit: NFT regulatory frameworks are still in their infancy — but they do exist. Exchanges, wallets, and blockchain-based businesses are almost always subject to certain laws and regulations related to cryptocurrencies, intellectual property, and money transmission. Launching without an NFT regulatory audit isn’t wise, and it could lead to state, federal, or international legal headaches.
NFTs are more than a passing fancy. Sure, the landscape will likely change — and the worth of NFTs may shift from an investment play to a value-benefit tool. Whichever the case, they’re not like jelly shoes: a highly questionable, short-lived fad.
The Kelly Law Firm helps startups, businesses, and investors navigate a range of NFT legalities. Get in touch today to set up a consultation.
