Grishma Neupane
University of Denver
Introduction
To first understand NFTs, we should begin by understanding digital art and its emergence in the market. Digital art is anything of a visual nature created using computers, software, and electronic devices. It transformed human expressions by enhancing capacity and also giving rise to new possibilities.
Non-Fungible Tokens commonly referred to as NFTs, are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. An NFT is a digital asset that can be bought and sold online like cryptocurrency. The concept of NFTs was first introduced in 2014, but their rise to fame was because of recent exposure and popularity.
NFTs became popular because they’re a form of digital asset, as it allows the buyer to own the original item or the digital art. NFTs contain built-in authentication that serves as proof of ownership. NFTs use a similar type of programming as cryptocurrencies like Bitcoin. Despite being quite similar, NFTs differ from cryptocurrencies in the fact that the former is non-fungible – which means NFTs cannot be traded or exchanged for.
NFTs first reached their peak popularity in 2017 after CryptoKitties was created. CryptoKitties is a game built on Ethereum, which is a blockchain that typically holds the most NFTs. Since then, however, NFTs are created from any digital object, either tangible or intangible such as graphic art, music, videos, collectibles, virtual avatars, or game personas. All these items are digitally traded and the buyer of these NFTs receives a digital file instead of a tangible object.
Entrepreneurial Strategies Surrounding NFTs
In 2021, NFT technology boomed and became very popular, making talented creators worldwide follow the path of entrepreneurship. Many leading financial corporations have powerfully highlighted the potential of NFTs to fuel SMEs. Investors and top corporations believe that NFTs will play an important role in the future of retail, social media, entertainment, and commerce.
NFTs open new investment opportunities by allowing the owners to make profits, rather small, on every transaction in which it participates. This would not only expand the businesses and brands of users but also help the NFT industry to grow exponentially. New users coming into the NFT space would also make an easy transition into the entrepreneurial world of NFTs.
1 Brand Engagement
One of the most obvious ways entrepreneurs can use NFTs is for brand engagement. Brands look into using NFTs for the representation they get and NFTs have opened up new ways of brand storytelling and consumer interaction, which is a very effective marketing strategy for brands. This also includes the massive use of NFTs as a digital extension of their product line. NFTs can help the brand in creating a unique brand experience as well as creating interest in the brand and product which also drive revenues for the brand.
Along with providing potential revenue for brands, NFTs have also delivered a consistent connection to consumers. They also enable rewards and loyalty perks and hence provide NFT owners with added value to the ownership of the NFTs. Brands could also start providing customers with NFT-coded digital identifiers for making purchases, and joining events, which would allow customers to showcase their lives and create a sense of exclusivity.
Taco Bell integrated NFTs in their latest addition of selling taco-themed NFT GIFs to support the Live Mas Scholarship. All of the GIFs were sold within 30 minutes of putting them up on Rarible. A Chinese virtual sneaker brand, RTFKT, designed an NFT sneaker that sold for $28,000 in the Chinese New Year auction. The brand was barely two years old when it made this whopping sale. Another example is the sale of the collection of 10 NFTs made by Grimes Videos for $6 million dollars which sold out in just 20 minutes.
The takeaway from all of these examples is that customers are willing to pay for great experiences, therefore, brands should look into ways to capitalize on this by creating ads on NFTs. This will not just increase brand engagement, but also help the brands reach new audiences.
2 Retail
Another way NFTs can be used in the world of business and entrepreneurship is in retail. At the most basic level, NFTs are an excellent marketing tool. This was noticed with brands like Nike, Adidas, Walmart, and Gap entering the NFT market.
The retail industry also has embraced the world of NFTs. About $23 billion dollars was spent on NFTs in 2021 from the retail industry. Retailers are betting on NFTs as it’s a new locus of consumer attention. Thus, retailers are looking to tap the fast-growing NFT market.
For example, they’re using NFTs to boost brand awareness, build brand communities, create new brand experiences, and also drive new revenue streams. As technology evolves, retailers may also be able to tokenize real items and services through NFTs. This would directly benefit them by decreasing the overhead costs and arbitration risks as they would avoid giant middlemen like Amazon, eBay, or Alibaba.
Possible entrepreneurial strategies here also involve brand partnership and collaboration. For example, Nike acquired the large NFT sneaker brand RTFKT to tap into the NFT market. RTFKT was a lesser-known brand before the NFT sneaker sales. After that, its popularity boomed and Nike offered to acquire it.
The big brands are tapping into passionate audiences of NFT artists, creators, and influencers, which could be a dual benefit in terms of reach and revenue both for creators and retailers. For example, Adidas’ announcement of Metaverse NFTs and collaboration with NFT projects and influencers increased its visibility as well as boosted its hype around the market.
3 Social Media
Social media use cases have also arisen for NFTs, where popular platforms are now seeking to integrate NFTs into their platforms. 2022 seems to be a great year for NFTs to make their way into the mainstream social media world as almost every social media company is adding NFT features.
For example, Twitter introduced NFT profile picture verification at the beginning of this year, followed by Instagram launching an in-app NFT option in mid-May. Though NFTs are not created, bought, or sold on social media, it acts as the common ground between a buyer, seller, or mediator for the sale of NFTs primarily connecting a consumer to a brand.
Brands, marketers, influencers, and any social media user benefit from using NFTs because they allow content creators to monetize and sell their content. Several online platforms and marketplaces like SuperRare and WazirX were developed to support the selling of NFTs. NFTs provide a new way to engage with audiences as they serve as a kind of social graph.
4 Entertainment Industry
The entertainment industry has been particularly quick to implement NFTs into business, such as music concerts, music videos, advertisements, sports, and movies. NFTs in entertainment have a huge potential to completely transform the way movies are made, produced, and distributed.
Movie NFTs carve out a way to distribute part ownership of the movie to its viewers which also helps in raising funds for the movie allowing financial freedom to the makers and producers to create quality content. An example is the release of The Matrix Resurrections movie by Warner Bros, which was accompanied by a launch of 100,000 Matrix NFTs. The revenue netted over $5 million dollars.
NFTs can also be used to create digital assets that represent real-world objects, which opens up possibilities for creating immersive experiences in metaverse platforms.
In addition, the sports industry is not left untouched by the rise of NFTs. The National Basketball Association (NBA) in the US is an example of how the digital ownership utility of NFTs is being leveraged in the business world. NBA launched NBA Top Shot in March 2021, which allows fans to purchase NFTs that capture epic NBA moments. The Top Shot platform reportedly made more than $50 million dollars in sales during 30 days in early 2022.
NFTs have the potential to fundamentally alter the fan experience and provide a significant revenue opportunity for sports and entertainment organizations. Beyond attending live sporting events, fans can also directly interact with their favorite teams or athletes in the virtual environment. Individual athletes can use or issue their own NFT collections to engage with their fan base as well as receive royalty fees from NFTs.
5 Small Businesses (SMEs)
Small businesses, small-medium-sized enterprises (SMEs), and large multinational companies have also found use cases for NFTs, particularly as it relates to commerce, sales, and supply chain. The immutable feature of NFTs aids in helping SMEs by passing the ownership of an NFT from one person to another. Small businesses can link their physical products with NFTs and also use NFTs to build trust and authenticity. Customers build on the trust of the products as they get a digital certificate of authenticity secured on the blockchain.
For example, if some small business plans to teach and sell an online course, the businesses can keep it as an NFT and the users can subscribe to the courses very easily. They can also manage their supply chain as they can easily track their products using blockchain technology such as tracking product history from manufacturing to sales. It also helps track the supply chain and manage inventory effectively and efficiently.
6 Investment & Finance
Lastly, the investment and finance world has opened itself up to the profits that investing in popular NFT projects may bring. Though the NFT market is highly speculative and volatile, investors are putting a lot of money into the market. Investors find many reasons to buy assets tokenized into NFTs. NFTs being accessible to everyone is one of the major reasons why investors are into this asset ownership. Blockchain tech makes the ownership of assets more transparent and secure. These digital assets can be worthwhile for collectors. Investing in NFTs has increased the profit-making prospects of investors by understanding and learning about blockchain technology.
Summary: Why Businesses Should Consider Using NFTs?
At the core, NFTs are not only about buying and selling GIFs, but also about creating new business opportunities. In the business world, investors thinking of moving forward and getting ahead of their competitors by driving customer engagement, increasing customer loyalty, and of course having an additional revenue stream, should certainly look at NFTs. For example, NFT projects receive clickbait headlines in the media and recognition among the target audience and hence drive attention to the business brand. NFTs can be greatly incorporated by offering customers special promotions and vouchers to encourage more loyalty and engagement by creating blockchain QR codes for unique discount assets. NFTs can even replace traditional loyalty reward digital programs.
Businesses can utilize the power of NFTs to drive more engagement as well. Minting NFTs could be a possible method for businesses to establish patents in the industry in a faster and more reliable way. Businesses can also use NFTs for advanced licensing opportunities which work in controlling the use of their assets, tracking royalties, as well as simplifying payment terms across multiple territories. This helps businesses in fostering and prospering in a greater way than using traditional approaches.
One of the very recent and prime examples of the entrepreneurial aspect of NFTs is it’s a great tool for artists and creative designers to monetize their art/art collections.
Moreover, researchers from Baylor College of Medicine offer the idea of developing NFT digital contracts to help patients efficiently secure their data. Prior research about the common business challenges like the correct choice of blockchain, and testing quality assurance has to be kept in mind before introducing NFTs to businesses, only after which businesses would make tremendous growth.
How Are NFT Prices Determined?
Just like any other commodity in the free market economy, the NFT prices also depend on supply and demand. The initial prices are put forward by the creators by adhering to the market rates. The market rates often come through the interactions in the market and by analyzing the market and rates of other different assets. But for NFTs, the value is mostly dependent on the consumers’ willingness to pay, which also means the demand determines the price. NFT pricing comes down to understanding the costs of selling an NFT and the value created by the artwork. NFT pricing also relates to the speculative value of the NFT.
There are a few factors that determine the price of the NFT such as the creator’s reputation, the uniqueness of an asset, market demand, buyer’s emotion, investment potential, and also the creator’s popularity. Simply stated, it’s the hype around the NFT in the market that’s the driving force behind NFT prices.
So rather than talking about who decides the price of NFTs, the question or the focal point should be “what” is the driving factor for an NFT’s price. Again, the above-mentioned points come into play. For example, if the creator of an NFT has had a lot of successful projects in the past, if the buyers (or the market) have a positive outlook and faith in the future project, the prices of the future project will be higher. However, for a new creator in the market, coming up with a new piece of art or project, the market becomes a little skeptical – hence the price will be lower. The uniqueness of the asset is also another important factor that drives prices. The market and buyers are more intrigued by new projects and the application of techniques in the NFT market.
Even during the recent times when NFTs have been deflating, there are few popular NFT projects whose prices have not been affected. For example, the prices of CryptoPunks and EtherRocks have consistently increased even as of late. These two are among the most popular NFTs. The investors of these NFTs are quite happy with the performance of the NFTs. These NFT projects are quite old and started initially with modest prices, as well as with fewer risks. These projects had a fixed supply which means demand was the only factor that would affect the prices. When the popularity of these projects increased, the prices were deemed to go up. Fixing supply has been a popular approach among other NFT projects to support prices.
The concept of a price floor has also been introduced in the context of NFT trading and pricing. The price floor refers to a price limit on how low a price is accepted by a group for a certain commodity. It’s usually set through an organized consensus. An organized group can raise a price using a pre-determined floor. In the NFT marketplace, the floor price is the minimum price that needs to be paid to own the NFT and they’re usually set by those who mint and sell the NFTs for the first time. An increase in the floor price would mean that the NFT is in demand and is getting successful.
NFT Sales Tracking Tools
Similar to determining NFT prices, evaluating NFTs depends on various factors like ownership, utility, rarity, tangibility, interoperability, and social proof. NFT evaluation and rarity platforms help investors stay ahead in the NFT investing game. Below are a few evaluation tools investors can use.
1 DappRaddar
DappRadar is a feature-packed analytical tool that provides a global app store for decentralized applications. It’s been in the crypto and DeFi industry for a while now and has established its reputation. DappRadar allows users to track, analyze, and discover decentralized applications with a sectioned display showing key features such as Hot Topics, NFTs, DeFi, Exchanges, and Games. It has the key features of free-to-use, portfolio tracker, NFT value estimator, Token Swap enabled, and Ranked Dapp list and NFTs. The website uses a range of criteria to rank projects based on liquidity, capitalization, and prices. It’s a beginner-friendly website that shares insightful resources on crypto topics. The top NFT collections in DappRadar include projects like Don’t Panic, Fidenza #250, Bored Ape Yacht Club, Angry of Witch, and Gargamel Town.
(Source: DappRadar’s key features and a list of recent NFT collections along with the new upcoming ones. Using the search button in the NFT Explorer section, users can search for desired NFTs, in addition to looking into the recent market-trending NFTs)
(Source: NFT Rankings, users can use these features to compare and analyze existing NFTs, their prices, and sales volume, which would be useful for trading NFTs)
2 Rarity.Tools
RarityTools is another user-friendly, free-to-use website that’s used to determine NFT rarity. It uses real-time collected data for all NFTs. It ranks NFTs in order of rarity score and helps you find rare NFTs for sale using filter options. The application of filters also allows users to filter by the NFT's unique traits, market volume, and sale prices. One unique feature of RarityTools is that the new projects can be listed at a price of 2 ETH. Along with that, users can also get data and price charts for any currency by clicking on the NFT that interests them.
Rarity competes and ranks NFT arts in the order of their rarity and promotes new projects. The platform is designed with the aesthetics of a folk art market and has a nice appeal for the landing page, unlike other tools that are structured mainly in the form of graphics and lists. The list of NFT collections is filtered through their unique features, market volumes, and discount prices with free options. Users can click on any NFT, RarityTools' specific feature is that new projects can be listed in some simple steps at the cost of 2 ETH.
3 Dune Analytics
Dune Analytics is an Ethereum-based analytics platform and a community-based open-source data provider which allows users to utilize its free tools to monitor floor prices. It allows analysis and support for multiple blockchain platforms. It also supports instant data visualization and smart contract data support. It’s a favorite website among the crowd because it provides free tools and due to its functionality not being locked behind a paywall. It lets anyone publish and access crypto dashboards driven by blockchain data and has filled that gap. It’s quite a powerful tool for blockchain research.
4 Nansen
Nansen is a blockchain analytics platform that helps crypto investors perform due diligence and defend their portfolios with real-time alerts. Its features include premium market analytics, NFT rarity rankings, smart transaction history, and key metrics on wallet addresses. It’s the best value any investor can get for the money invested as it also ranks NFT's rarity across various collections and helps them decide which NFTs to watch out for. However, it’s not a free platform like RarityTools and DappRadar. Nansen also provides insight into the active address of the wallet. For any transaction and other activity, users will never lose their tag balance in daily and weekly reports.
5 Etherscan Token Tracker
Etherscan is a block explorer and analytics platform that provides access to all ERC-721 token contracts, and also access to details for any Ethereum blockchain transaction. The website allows users to search through transactions, blocks, wallet addresses, smart contracts, and other on-chain data. Using it helps users understand how to interact with the blockchain and other wallets, and also stay alert to any suspicious activity. Working through Etherscan looks and feels like working with a search engine like Google. This is because the interactions performed in Etherscan are public. It’s one of the most popular and trusted block explorers as it’s free to access and easy to use.
Recent & Future Trends In The NFT Market For 2022
NFTs are purchased with cryptocurrency and hence most people must buy tokens on a centralized exchange before they can buy NFTs. Hence, it gets intimidating for new investors to deal in NFTs. Yet the demand for NFTs over the last two years has been ever-increasing. For example, the search term “NFT Gallery” has increased by 4,900% in the last two years, also a leading cause behind the ravenous demand for NFTs.
Moreover, hopping onto the trend, many corporations have started exploring the NFT game industry quite seriously. With interest surging, buyers are flooding the market, incentivizing more digital artists to create and sell their art as NFTs. In addition, venture capitalists are also taking interest in cashing in on the NFT craze. VC investments in the NFT space have increased a lot in frequency as well as the amount invested. In the last year, notable investors and celebrities alike have made investments in these NFT marketplaces, as shown in the figure below.
In the next four years, the NFT market size is expected to grow by $147.24 billion dollars. NFTs are attracting companies like Meta and Linktree to provide power to give rise to new communities of creators, collectors, and social media influencers. NFTs have quickly become a favorite of the entertainment industry.
For example, very recently, a popular Netflix series called Stranger Things released NFTs ahead of the latest season.
Therefore, more and more brands are starting to explore opportunities that NFTs can bring them. Leading fashion and food industries such as Gucci, Louis Vuitton, McDonald’s, and Taco Bell have released their NFTs allowing them to build stronger brand awareness and increase customer engagement. For example, American band Kings of Leon’s eighth studio album, When You See Yourself, was released in March 2021 and generated over $2 million dollars in revenue.
Another sign proving that NFTs are going mainstream is that many social media companies have now started allowing users to post NFTs as their profile pictures, as we now see on Facebook and Instagram. In the future, NFTs will see a vast range of use cases in gaming, real estate, music, hyper-realistic VR, and DeFi. In gaming, NFT tokens are used for in-app purchases, and this could be a turning point for many NFT enthusiasts as well as gaming enthusiasts who will keep their passion and earn cryptocurrency out of it.
Real estate is another important field where NFTs could be used, and it would benefit both the buyer and seller – starting by making real estate ownership transparent. Both buyers and sellers will pay fewer transaction and administration fees because the blockchain will provide an opportunity to connect people looking to buy or sell a property without the presence of middlemen.
Similarly, in DeFi, the main purpose of NFTs would be to create composite NFTs which would allow small investors to own assets together in a combined and secure way.
Gartner predicts that the global metaverse market will nearly hit $42 billion by 2026, and 25% of people will spend an hour a day in the metaverse. Therefore, NFTs can prove to be game-changing in today’s world with a wider range of scope in almost all industries. Lastly, with increased regulations to make the market more secure and reliable, NFTs have the potential to do wonders.
