Are NFTs the future of eCommerce?
We’ve heard a lot of chat in the tech space about NFTs lately – and it got us thinking – are they just a fad, or could they be part of the future of eCommerce?
So we did a little research, and here’s what we think…
What is an NFT and how are they relevant to eCommerce?
NFT stands for Non-Fungible Token. No, it’s nothing to do with mushrooms – in the simplest terms, it’s a piece of data on a digital ledger – the Blockchain, which you probably have heard of – that represents a digital file, which could include digital artwork, music or video files, or items within a game.
While it’s still pretty new to most of us, there have already been some wide-ranging applications of the NFT technology. Kings of Leon released an NFT album; you can buy one-of-a-kind luxury digital sneakers designed by AI (although these will actually be made for you); and in the art world, it’s been touted as a way for artists to make money selling digital-only artwork.
While the actual physical digital file is infinitely reproducible – the NFT created of it isn’t, and functions as proof of ownership for whoever decided to buy it. It’s different to Bitcoin and other cryptocurrencies as it can’t be directly traded – although it can be bought or sold with other currencies – but the general idea is that it turns owning a digital asset into a tangible, trackable, tradable format.
Are you still with us? We know that was kind of technical.
Where do NFTs come from?
An NFT can be created by uploading a digital file – artwork, video, screenshots – to an NFT auction marketplace, like KnownOrigin, Rarible, or OpenSea. Anyone can upload a file, not just the creator (which has created controversies when copyright owners have discovered their work sold as an NFT without their knowledge) which will create a digital copy of the file – the NFT. This NFT can then be bought and sold with cryptocurrency.
The buyer of an NFT does not gain access to the original digital file – nor do they own the copyright of the work. They also don’t necessarily own the only NFT, as multiple unique NFTs can be created of a single digital work, but creators can create single or limited NFTs of works to create scarcity of them – much like brands might in the ‘real world’.
Further controversy around NFTs comes from the high energy use associated with blockchain transactions – all those computers and servers running complex high-powered calculations use a lot of power to keep them from overheating! While some of the electricity comes from renewable sources, some studies have shown that yearly, NFTs generate greenhouse gas emissions comparable to the entire country of Sweden. There are plans to move to a less energy-intensive system by 2022, which would use around 1% of the energy compared to the current process, but for now you can track energy consumption of the overall bitcoin index thanks to this interesting project from Cambridge University.
Who’s selling NFTs in eCommerce?
Even though this is a relatively new technology, it’s already made its way into the mainstream – especially in the luxury end of the retail market!
The famous art auction house, Christie’s, made history in March 2021 by being the first major auction house to sell a fully digital artwork. Beeple’s Everydays: The First 500 Days sold for over $69 million, making it the most valuable crypto art sale in history and catapulting Beeple to be the 3rd most valuable living artist – just above David Hockney. Other major art auction houses are poised to join the NFT trend too, with Sotheby’s and others lining up NFT auctions in the near future.
Although not on the blockchain (so maybe not strictly an NFT), Gucci recently released digital-only sneakers on their app, and are working on trading platforms so consumers can trade releases in the near future. They’d already experimented with virtual try-ons, so a digital-only release seems like a logical next step; and at only $11.99 a pair, it’s a much more affordable way to get your (digital) hands on some collectable Gucci sneaks. As the trading capabilities roll out, the value of limited releases is likely to go up (just like they do for real-world designer clobber), so this is definitely one to watch – both for investors and merchants who are intrigued by the idea. Gucci have also said on the record – along with several other luxury fashion brands – that they are exploring NFTs and plan to release some in the near future.
NBA Top Shot
It’s not all million-dollar artworks or designer clothing – there are NFTs for ‘regular’ people too. Fans of the NBA can collect and trade Top Shot Moments through their dedicated online platform – Moments are video clips that can be bought, sold and traded online. More than 250,000 NBA fans have joined the platform, which is reminiscent of a digital version of trading cards. Moments are bought in packs, are limited releases with different levels of rarity, can be traded with other players on the Top Shot Marketplace, and all are registered on the Blockchain. Players are encouraged to collect Moments including their favourite players or teams. The slick website purports sales of over $400 million, so it looks like the project has been a smart move for the NBA.
What does the future look like for NFTs in eCommerce?
At first glance, the idea of wanting to own something that isn’t a tangible physical object might seem a bit… well, bonkers.
But you could argue that culturally, we’ve already shifted towards this idea. Take music – over the last 50 years we’ve transitioned from vinyl, to tapes, to CDs, to digital downloads, and now to pay-monthly streaming services where you never actually own the music at all – though it might almost feel that way, when you have access to your custom playlists and personal libraries.
And it doesn’t stop at music, either. Consumers can buy or rent TV box sets and films digitally too – an idea that might have seemed bananas back in the heydays of HMV and Blockbusters. Many illustrators have long been offering print-at-home digital download artwork as a way to make their work more accessible, and many modern video games have incorporated in-game purchases for exclusive items, upgrades and new levels, missions or areas to explore.
So is it really that much of a reach to extend digital ownership to fashion, collectibles, artwork, and even digital content?
It’s unlikely we’ll ever see NFTs completely replace their physical counterparts – indeed, vinyl collecting is still fiercely popular despite the existence of Spotify and Apple Music – but we can definitely imagine a world where NFTs (or something like them) become a must-have across several different product categories, especially in luxury markets.
And it’s worth remembering that just like the crypto market – and indeed the stock market – NFTs can be volatile. We’ve already seen prices shoot up and down; scammers are likely to be rife; controversy and fraud have already made their way into the market.
How can eCommerce brands capitalise on NFTs?
Time to start recruiting for your own internal crypto team? Well… Maybe.
Look, NFTs are still pretty new in eCommerce, and because of this, they’re arguably pretty volatile. Unless you’ve already got a deep understanding of crypto, a big experimentation budget, or really think this could be a game-changer for your business – it might not be the time to dive headlong into building an entire NFT strategy with your eCommerce product development team… at least just not yet.
But exploring how you could take your products into the digital space? That’s not such a bad idea.
Home and living brands could start offering digital-only artwork alongside prints and paintings – with high-end TVs moonlighting as wall art, customers are likely to want to curate what they display just like they do with physical products. As our homes become ever more filled with tech, there’s other digital-only opportunities too – everything from colour-changing lightbulbs to voice activated assistants could inspire an innovative digital product. Or how about selling a digital interior design service, where a customer pays a one-time fee to have the bedroom of their dreams planned out for them in a 360-degree view on their computer screen? We’ve seen consumer drive to personalise every aspect of their homes grow exponentially over the last few years, and the brands that help them do so will be the real winners going forward.
For brands who produce a lot of digital content as part of their marketing, there’s options to monetise that, too – on-demand educational videos, downloadable workbooks, and e-magazines could be an additional revenue stream (and marketing tool) for art, craft and hobby eCommerce stores to explore. Or how about selling digital line art for colouring, vintage ephemera for scrapbooking, or paint swatch templates for artists – all for customers to download and print at home?
And for companies that deal in games, movies and TV – digital collectibles are definitely an exciting avenue to take a look at. How about digital guides to game tactics, fantasy world lore anthologies, or a series of strategy guides? Not only are these types of products already a proven hit with gaming and movie fans, the initial outlay is minimal for a digital product, meaning it’s a great way to trial something new without investing in 1000s of printed copies.
No matter the sector you’re in, a product that doesn’t need a physical fulfilment, or even to actually exist in the physical realm… That’s definitely an interesting concept to explore.
And as our world becomes ever blended with the digital one, it makes sense that there would be new opportunities for digital products. We’ve already seen theatre, music and business events go digital over the last couple of years – a concept we never would have imagined would work before the Covid pandemic – what’s next?
Could your product be the next must-have digital only collectible? It’s up to you to find out.