This is not a pipe.
It’s a picture of a pipe.
In 1929, René Magritte, a prolific Belgian surrealist artist, unveiled one of his most famous paintings titled La Trahison des images (The treachery of images.) The painting introduced the idea that a picture of an object is not the object itself, which is nowadays a huge topic of discussion in philosophy classes. It has since become one of the most iconic works of art in the world.
NFTs are today’s Magritte-esque pipes.
They are digital images that are not exactly the objects they depict and yet still have a ton of value and generate a lot of discussions.
But is it really that simple?
In this article, we’ll take a look at what NFTs are as well as the pros and cons of using them for your brand. We will dissect some of the most frequent questions about them so that you can make an informed decision on whether your business should venture into this land of non-fungible tokens or not.
1. What Are NFTs?
An NFT is a “non-fungible token” that is minted and sold in an NFT marketplace via a blockchain and can be purchased with cryptocurrency.
If this sounds like a comically long math equation that activates your fight or flight response, you’re not alone.
But if there’s anything you and I know about math equations is that they are easier to understand once you break them down.
Let’s take a look at each term from the definition above one by one:
Non-fungible is a fancy term that economists use to say replaceable or interchangeable.
The easiest example of something fungible is money. If you have to pay $50 for a certain item, it doesn’t matter if you give the cashier five $50 bills, two $20 bills plus a $10 bill, or even fifty $1 bills—the value is the same.
When you go into a clothing store and see an entire row of leather jackets, all in the same color and size, you’re looking at fungible items. It doesn’t matter which one you grab, each one will look the same when you try it on.
Iconic works of art such as the Mona Lisa are non-fungible. The 77 cm x 53 cm oil painting currently sitting in the Louvre is one-of-a-kind. Leonardo da Vinci painted only one Mona Lisa. You can hire the most talented and widely recognized painter to recreate the Mona Lisa down to the smallest detail, and it still won’t value as much as the original version. Sure, it will be expensive, but not as expensive as da Vinci’s.
This part is tricky because if you want to understand what a token is, you need to first know what a coin is.
Bear with me for a second.
On one hand, crypto coins are part of a cryptocurrency, just like how a 5¢ coin is part of the USD. Coins are built on their own blockchain, which we will get to in a second, but for now, just remember that it is a place that stores a ton of data.
On the other hand, tokens do not have their own blockchain, and in order for them to exist, they need to be stored on another cryptocurrency’s blockchain.
In our physical world, minting is the process of manufacturing coins using a stamping metal.
In the NFT world, however, it is the term used for making NFTs—the whole chain of events from turning a digital file (JPG, PNG, MP3, MP4, GIF, WAV, etc.) into a digital asset and making it purchasable on an NFT marketplace is called minting.
- NFT marketplace
As the name suggests, an NFT marketplace is the place where you can mint, sell, purchase, or trade NFTs. The most popular one right now is OpenSea.
A blockchain is a place where all the crypto transactions take place. There are several blockchains available on the internet, the biggest one being Ethereum. They work similarly to how bank transactions do, with one major difference.
For example, when you pay $20 for your groceries using your credit card, the data about your transaction is recorded by your bank and then sent over to the store’s bank to confirm it. The fact that you successfully paid $20 to that specific store on that specific date is now recorded, and both you and your bank can access that information anytime.
The same thing happens on a blockchain. If you send a certain amount of crypto to another person, that information is stored and recorded on the blockchain. Except, it’s not just a bank that records, stores, and accesses that information—it’s everyone else. All users of said blockchain can see that transaction, and they have the power to block it, if it seems suspicious, or authorize it. This is what’s called decentralization.
Blockchains are decentralized, while banks are centralized.
The name of the technology comes from the way it stores data. Whenever new data comes in, a block is created, and once it’s filled, it attaches to the previous block, creating a chronological chain.
Cryptocurrency, or crypto for short, is a virtual currency. Just like how every country around the world has its own currency (USD, EUR, GBP, JPY, etc.), the internet has cryptocurrency.
The most widely used and most valuable cryptocurrency is Bitcoin, followed closely by Ethereum.
There are two types of NFTs, one-off visuals and collections (sometimes also called “projects”). Two famous examples of these two types are Everydays – The First 5000 Days by Beeple and Bored Ape Yacht Club (BAYC) from Yuga Labs. Beeple’s NFT is a single digital work of art that was auctioned off by Christie’s, a major auction house. The Bored Ape is an entire collection of NFTs, featuring numerous illustrations of bored apes in various outfits.
2. How Did NFTs Become So Popular?
NFTs have been around for quite some time, with the first NFT being created all the way back in 2014 by Kevin McCoy. But it wasn’t until last year when you really couldn’t open social media without seeing news about these curious digital tokens.
So what happened?
It started with Beeple’s Everydays mentioned in the beginning of the article.
In March 2021, Christie’s, one of the oldest and most reputable auction companies, known for selling historic works of art, sold an NFT titled Everydays – The First 5000 Days by Beeple for a whopping $69 million. It was the most expensive NFT ever sold. So expensive that, according to the auction house, this sale skyrocketed Beeple into the list of the top three most valuable living artists.
News of this successful auction triggered a chain reaction that created a whirlwind of brand curiosity, celebrity fascination, aspiration for a higher income, and general excitement for new things.
People quickly realized that you can make a lot of money with NFTs. Among these people were some savvy marketers and advertisers. They wanted to strike while the iron was hot, so brands began minting and selling NFTs left and right—they cleverly marketed their endeavors and shared their record sales across multiple channels, adding to the social media boom started by Beeple and Christie’s.
Celebrities also contributed to the rise of NFTs. Numerous musicians began selling them as a way to make up for the income they lost during the pandemic, when tours, festivals, and concerts were canceled. Kings of Leon were the first band to sell NFTs, according to Rolling Stone, and they were soon followed by other artists like Shawn Mendez, Grimes, BABYMETAL, and Doja Cat, to name a few.
It wasn’t just selling, though, many other celebrities ventured into buying NFTs, too. The Bored Ape Yacht Club collection, for example, garnered a long list of famous customers, including Paris Hilton, Eminem, Jimmy Fallon, Steph Curry, and more. With such big names being involved, it wasn’t long before the internet started paying attention.
Finally, although the idea of making big bucks had a huge impact on the sudden popularity of NFTs, another factor was the natural human excitement over something new. Technology is constantly evolving and we find new things to do with it every day. It makes sense that the discovery of NFTs triggered so many people’s curiosity (as well as their FOMO).
3. Are NFTs Basically Baseball Cards?
The simple answer is yes, but with a catch.
When we are talking about collectibles like baseball cards, Pokémon cards, Funko Pops, k-pop photocards, or even books, the basic rules are largely the same: an item’s rarity, condition, and demand of collectors determine its value. The rarity is determined by how many copies of it exist.
For example, in February this year, a Pikachu-Holo Illustrator in mint condition rang the cash register when it was auctioned off for $900,000. It became the most expensive Pokémon card ever sold. According to PSA, only 39 copies of it were released in 1998, when they were awarded as prizes for the Pokémon Card Game Illustrator Contest.
Funko Pop has also mastered the art of producing rare and valuable vinyl figures. One of their most expensive items is the glow-in-the-dark figure of Alex DeLarge from Stanley Kubrick’s 1971 adaptation of A Clockwork Orange. Only 12 pieces were produced.
In the case of NFT collections/projects, almost the same basic rules apply: the more rare and in-demand an NFT is, the more valuable it becomes. Notice that since NFTs are digital, you don’t have to worry about whether they are in mint condition or not.
The rarity of an NFT largely depends on each collection.
For example, in January of this year, Levi’s announced that they would be offering their customers the chance to win ten pairs of Circulose® 501® Original jeans which would be given out together with 10 Levi’s® 501® NFTs. Also this year, the Belvedere Museum of Vienna released 10,000 NFTs of Gustav Klimt’s The Kiss for Valentine’s Day.
In these two cases, you have several identical NFTs that you can access, which influences their rarity, and subsequently, their value.
But in the case of the Bored Ape Yacht Club (BAYC), no two Apes are identical. Few of them may share a couple of features, but they will never look exactly the same. Two or more apes can be holding a slice of pizza in their mouths, but they will not be wearing the same outfit.
So if you’re wondering what’s the difference between NFTs and baseball cards, know that it purely has to do with their mediums. NFTs are digital, while baseball cards are physical. This can be either a good or a bad thing, depending on how you look at it.
Because they are digital, you don’t have to worry about your NFTs deteriorating over time or your home not having enough space for them on your wall. It also means that when you want to buy and/or sell NFTs, you don’t have to pay extra attention to tears and discoloration. But you also can’t physically touch them, making them but simple pictures on your smartphone.
4. The Pros and Cons of NFTs
So you’re a marketer and you’re thinking of joining the NFT craze. Like all other practices in this field, this adventure has advantages and disadvantages.
Let’s look at the most important ones to keep in mind if you’re thinking of joining the NFT business.
Spoiler alert: a couple of their pros are also their cons.
The advantages of NFTs
- They can be very profitable.
Just by looking at The Bored Ape Yacht Club collection, it’s quite clear that if you play your cards (or NFTs) right, there is indeed a lot of money to be made.
- They encourage brand loyalty.
It’s no secret that loyal customers are the MVPs of your business, so you want to make them feel special every chance you get, and while discounts can definitely do the trick, it goes beyond that. You want to create a community, you want to make people feel like they are part of the cool kids’ club, and NFTs can help you with that. Whether you are e.l.f. Cosmetics or Mattel partnering with Balmain, there are all sorts of ways you can take advantage of non-fungible tokens.
- Each NFT is unique.
NFTs are non-fungible, meaning that every NFT contains a unique collection of data that cannot be replicated or exchanged like-for-like i.e. you cannot exchange one NFT for another NFT. This adds even more to the value, which translates to even more money.
- It’s all digital.
NFTs are not physical objects, so you do not have to worry about having enough space for them, and you do not have to use gloves when handling them. They’re conveniently in your phone, just a couple of clicks away, safe from deterioration.
The disadvantages of NFTs
- It’s all digital.
While not having to worry about space and deterioration is great, there are still some questions to be asked about the point of NFTs anyway. Is it really worth spending that much money on what is, essentially, a picture on your phone?
- Their value is unstable.
You might have already heard that investing in cryptocurrency is risky because its value fluctuates so much. NFTs are no different in this regard. Just because a certain NFT collection is valuable right now, things can change drastically tomorrow.
- They’re bad for the environment.
This is the elephant in the room and it needs to be addressed. According to The Renewable Energy Hub, Ethereum, the blockchain on which most NFTs are created and sold, a single transaction “uses as much power as the conventional household over a day and a half.” This is due to Ethereum’s PoW (proof of work) security, a complex algorithm that ensures the person who buys an NFT is the sole owner of that NFT.
Ethereum has taken the initiative to combat this by implementing Casper, a blockchain meant to minimize energy consumption. There is also PoS (proof of stake), a different algorithm that can verify transactions without spending as much energy as PoW. So there are ways to work around it, but how efficient these methods are remains to be seen.
- They’re not super easy to access.
Technically, anyone can mint and sell NFTs—but there are quite a few steps to it. Before anything, you need a crypto wallet, which can be a hardware wallet (or “cold wallet”) or a software wallet (or “hot wallet”), depending on your needs. Since most NFTs are on the Ethereum blockchain, you need to purchase Ethereum on a crypto exchange and transfer it to your wallet. Only after that can you connect your wallet to an NFT marketplace like OpenSea, and begin minting and buying. You’re not obligated to use Ethereum crypto and OpenSea. There are many other options you can go for, which can be great, but it also complicates the process.
5. Do NFTs Sabotage Art?
This question is and will be debated for quite some time. Your answer will be heavily dependent on your relationship with art and technology.
Those for and against NFTs both have their valid arguments.
On one hand, many NFT enthusiasts believe that this is a brand new way of consuming and making art with many benefits that should be embraced. As mentioned before, our world is changing, technology is evolving, and the digital space is growing more and more. It’s no longer a matter of if but when.
Therefore, it’s important to allow art to adapt to these changes if we want to keep it alive. Not to mention, this evolution that led to NFTs made it easier for artists to sell their work directly to consumers.
So why not be happy about a future that can benefit artists and consumers alike?
However, NFTs are still essentially pictures on your phone. Is the prospect of a shiny new future worth spending enormous amounts of money on a picture that you can simply look at and screenshot for free on a website?
On the other hand, many NFT skeptics believe that these digital goods provide no real value and are just a way to get more money from consumers. Buying an NFT of Klimt’s The Kiss isn’t any different from buying a postcard with a picture of the painting printed on it. Actually, buying the postcard might arguably be better because you can at least touch it, display it, or send it to someone dear to you.
Not to mention putting iconic works of art like the Mona Lisa in the digital space can devalue the experience of seeing them in real life, thus possibly cheapening art altogether.
But can it really?
Since the dawn of the internet, there have been pictures of the Mona Lisa posted everywhere, even on the official website of the Louvre. Before that, there were pictures of it in countless books. And yet none of this ever stopped thousands of people from visiting the Louvre every year to catch a glimpse of da Vinci’s work.
Not to mention that people who buy NFTs are aware that they are not actually buying the work of art itself. Klimt’s The Kiss is still at the Belvedere Museum. It’s still valuable, it’s still special—it’s still “the real deal.”
6. What’s the Future of NFTs?
The answer to what will happen to NFTs in the future is for us to guess and for tomorrow to tell.
There are chances of NFTs becoming a part of all of our daily lives just as much as there are chances of them falling off the pedestal.
At the time of writing this, Twitter has already announced that they have launched NFT profile pictures for iOS users on Twitter Blue. Just last month, Engadget reported that Mark Zuckerberg confirmed that NFTs are coming to Instagram. Yesterday, Decrypt announced that Samsung will be adding NFT functionality to their newest smart TV sets.
At the same time, Fortune reported that NFTs sales are already going down due to many factors such as inflation and regulatory scrutiny.
Although we cannot predict the future, we can certainly see the present—and it’s quite clear that whether they rise or dip in popularity, NFTs are here.
There are still many more things left to discover about NFTs. The questions will become longer, and the answers will be denser.
But there is clear enthusiasm among advertisers and marketers, so it’s worth keeping an eye on the land of the non-fungible tokens.
What do you think about the NFTs? Are you going to use them for your brand?