What is an NFT?
NFTs are unique tokenized representations of digital files that are exchanged on public blockchains. Like cryptocurrencies, NFTs are used to designate ownership of a certain asset. Each NFT is tied to some unique data, typically a digital content file of some kind and governed by a “smart contract.”* The process of converting a media file into a non-fungible token is referred to as “minting” an NFT, and, like cryptocurrency, the NFT and its ownership are written to the applicable blockchain database.
Unlike cryptocurrency, NFTs are not fungible, meaning each NFT is unique and not interchangeable with another NFT.
*Smart contracts are not the same as legal contracts. Smart contracts are computer code that execute simple if/then functions.
For the first time, content on the internet in the form of an NFT can be definitively owned by a specific person independent of a centralized intermediary, and this is unlocking exciting opportunities for digital commerce and engagement. Because NFTs are new, there is limited information on how existing laws and regulations apply to them.
Unlocking New Commerce and Engagement Opportunities
NFTs appeal to merchants, collectors, customers, and talent, particularly in industries like music, gaming, art and sports. They have become a great way for individuals and businesses to capitalize on unique assets, engage customers and potentially generate revenue.
“NFTs have the potential to become a powerful accelerator for the creator economy and lower the barrier to entry for individual creatives to earn a living through digital commerce. NFTs are ushering in a new form of social commerce that empowers both creators and collectors,” says Cuy Sheffield, Head of Crypto, Visa.
Because the opportunities for growth with NFTs are still evolving, businesses should define what their end goals are around NFTs. Some of the common ways brands are using NFTs to grow their business include:
- Customer engagement – NFTs can be much more than a collectible or piece of art, and savvy brands are recognizing that the most successful and long-term-relevant NFTs will have ongoing value and utility. For example, NFTs can better connect fans to their favorite teams or brands by offering voting rights to team decisions or the ability to earn rewards.
- Customer relationship management – Unlike physical goods, NFTs are trackable so it can be possible to see what wallet address they reside in. NFTs can open unique customer engagement strategies based on trackable factors related to the NFTs owned/purchased.
- New potential revenue streams — Unlike physical goods, NFTs can include a smart contract that codes in a royalty percentage designated by the content creator. As such, subsequent sales of the NFT can generate revenue for the original NFT creator, providing an ongoing potential revenue stream as it is sold or auctioned.