Everything you need to know about NFTs
NFTs: Everyone is talking about it, but do you know why?
In December 2021, nearly 30,000 collectors jointly bought The Merge, an NFT by the digital artist Pak, for a total cost of $ 91.8 million. It is the most expensive NFT ever. But what is an NFT? Why are NFTs becoming so popular even with businesses?
What is an NFT?
NFTs, or non-fungible tokens, are digital assets that are stored on a blockchain, which is a digital ledger that records transactions. They can represent anything from art to collectibles to in-game items and, in some ways, they are like cryptocurrency, but they cannot be exchanged for other NFTs or cryptocurrencies since each of them is unique. That’s what makes them valuable.
NFTs were created in 2012 by a game developer who wanted to find a way to prove ownership of digital assets. However, they only started to gain mainstream attention in 2017 with the rise of crypto collectibles such as CryptoKitties.
Since then, NFTs have been used for a variety of purposes, from selling digital art to buying in-game items. And as the NFT market has grown, so too has the range of things that can be bought and sold as NFTs.
How to create an NFT
NFTs are created by businesses or individuals using blockchain technology. To create an NFT, a business or individual first needs to create a digital asset, such as an image, video, or piece of software.
Then, the long sequence of 0's and 1's representing the file's DNA is compressed into a shorter sequence, called hash. The hash is then recorded in the blockchain with a time stamp. At this point, the NFT can be bought, sold, or traded on NFT marketplaces. Since the hash registers all the transactions, it is possible to go back from sellers to buyers up to the creator of the NFT. This “memory” demonstrates authenticity and ownership.
What are the main features of NFTs?
NFTs have some interesting features. They are:
- Unique: each NFT is unique and cannot be exchanged for another NFT.
- Immutable: NFTs cannot be changed or tampered with once they have been created.
- Decentralised: Since the blockchain is not controlled by any one person or organisation, it ensure higher levels of transparency.
NFTs are still a relatively new technology and they are not well understood by the general public. This lack of understanding could lead to scams or fraudulent activities. Moreover, they are not regulated by any central authority. This means that the owner has no guarantee that an NFT will retain its value over time. Finally, they are subject to the same volatility as cryptocurrencies. The price of an NFT can fluctuate rapidly and this could lead to losses for investors.
Why are they becoming popular?
There are many reasons why NFTs are becoming popular.
First of all, they offer a proof of ownership. However, we should clarify what we mean for “ownership”. In fact, those who buy an NFT do not buy the asset to which it is related (that can be physical or digital), but the possibility of demonstrating a right to the asset through a smart contract.
Of course, when someone owns an NFT, they can sell it on NFT marketplaces, making money from the trade.
Finally, the owner can decide to collect and preserve NFTs as a form of financial investment, hoping to resell it in the future at a higher price.
But NFTs are interesting also for companies. have benefits for consumers.
The proof of ownership is particularly useful for companies that deal in digital products or services, but also for those that struggle with counterfeiting, or have less or no control over the second-hand market of their products, such as fashion brands.
NFTs can also be part of digital loyalty programs or can be used to reward customers for their patronage. For example, a fashion brand could offer an NFT to customers who purchase a certain number of items from their collection.
Moreover, NFTs can be used to ensure that only authorised users have access to digital content, and this is great also for the protection of intellectual property.
Finally, NFTs offer a way for businesses to raise money. Companies can sell them as standalone products or bundled with other products and services.
NFTs present and future
Halfway between collectibles and guarantee certificates, NFTs appear to be one of the most interesting digital innovations even for luxury brands.
In 2021, Louis Vuitton launched a game app to celebrate the 200th anniversary of the founder's birth. The game included 30 NFTs, ten of which were designed by digital artist Beeple.
The same year, Dapper Labs, the company behind the cryptocurrency NFT platform Flow, announced a partnership with luxury fashion brand Gucci. Under the partnership, Gucci created a line of NFT-based digital products, including an NFT-based fashion show, an NFT-based beauty collection, and an NFT-based sneaker. The partnership is part of Gucci's efforts to explore blockchain technology and its potential applications in the fashion industry.
Of course, it is difficult to predict how NFTs will be used in the future, but we are sure that their potential in terms of customer engagement, new markets and authenticity is undeniable. As a consequence, we think that they will enrich the phygital experience of consumers, making the line between the real world and the digital world even thinner.