Dalgona coffees, TikTok videos, virtual parties, Clubhouse invites… these were just some of the harmless products of the lockdown and subsequent boredom combined with increased time spent on the internet. However, something else took the digital world by storm this year and it wasn’t just an innocent trend that the common man could jump on. Why? Because it involved millions of dollars and is turning out to be an active part of the crypto-economy.
Non-fungible tokens (NFTs) became all the rage earlier this year especially after a digital artwork was sold at the Christie’s auction for $69 million. However, the concept of NFTs isn’t new at all, just its value reached record highs this year as more people spending time on the internet with disposable income available in their hands and nowhere to spend it, started investing in it.
But what is an NFT and how does it work? Simply put, an NFT is a unique asset that can’t be replaced with anything else, unlike cash or gold. For instance, an AED 10 bill can be exchanged for two AED 5 bills, but NFTs work or scarcity or exclusivity, so there is only one-of-a-kind (quite literally). This is particularly valuable for digital creators, whose work can easily be replicated in the online space and change hands without any record of it. NFTs, on the other hand, are part of a blockchain (a digital ledger), which records all the important details including the identities of the creator and owner(s) of the piece.
All collectibles from digital artworks to memorabilia, event tickets and even memes and gifs can become an NFT. Again, scarcity and exclusivity are what makes NFTs so attractive that it is mobilizing millions of dollars. Another industry that is fueled by scarcity and exclusivity is luxury. Today, digital fashion is gaining prominence globally and in the world where the ongoing rivalry between fast fashion and haute couture keeps surfacing, NFTs could well play a role.
Globally, brands like Louis Vuitton and Burberry have designed and released outfits – or skins, as they are called – for video games. Gamers have been willingly shelling dollars in buying these luxury outfits to dress up their characters. Clearly, the potential for NFTs is ripe there. In fact, Gucci even released its Gucci Ghost gif up for sale.
In a world where Instagram takes over the real world and the obsession over one’s online/social media appearance is only growing, brands and retailers have a clear opportunity that they can capitalise on. Digital clothing trends are booming for reasons ranging from ecological sustainability to endless possibilities for creative expression to reduced manufacturing costs and wastage. In May 2019, the world’s first digital couture dress was sold on the Ethereum blockchain by The Fabricant; DressX has been overlaying fashion pieces onto customer’s pictures; and Nike has been merging the physical and digital worlds with CryptoKicks, a patent for its blockchain-compatible sneakers.
Come to think of it, NFTs create opportunities with less logistical headaches for the retail sellers – no storing, no handling, no shipping, supporting the creator and minimizing middlemen.
The first artist from the region to launch an NFT artwork, Kristel Bechara, believes that there is an opportunity for the luxury market that retailers need to seize.
“I think luxury products and collectibles such as watches will start sending NFTs instead of certificates and licenses. Luxury fashion too such as Hermes, Birkins, will start issuing NFTs instead of papers and license that you lose. Especially because these luxury products are resold, with NFTS you have a clear provenance of the history,” she said.
While Middle Eastern fashion retailers trading NFTs hasn’t become commonplace yet, artists like Bechara are attempting to make tokenized digital art series the norm.
“As a digital artist, I would love for NFTs to go mainstream. Finally, digital art will get some recognition. Earlier, I had to sit and explain to people at art fairs that digital art is no less valuable than traditional art. Digital art, media creators, music creators, gamers, are all going to benefit from NFTs,” she said noting that she is an artist that creates both traditional as well as digital artwork.
NFTs are like certificates or smart contracts that can’t be replicated. When a piece of art gets listed on the blockchain, it shows the creator and once it gets sold, it shows the owner and if it gets resold, it will show all the previous owners as well as the current owner.
“You need to have a wallet first so people can transfer crypto money. There are platforms where you can list your work – I do it on the Ethereum blockchain. The smart contract is a description of your work. The last thing you do is put the reserve price. You mint it and then it gets listed for people to view/buy/bid,” she explained.
For Bechara, one of the properties that enticed her the most is its resale transparency. Not only can the creator’s work not get duplicated, but easy traceability ensures that the creator gets the due royalty fee every time it changes hands.
“It’s great for the resale market as well, as now we can get a royalty fee (anywhere between 5-10%) when it changes hands. We usually don’t have power over that – It’s just resold and we don’t have a record of where it is going,” she said.
Dubai-based, global sport event company, CoreSports is another company, that announced its limited-edition cards for the Strongman sport, under its World’s Ultimate Strongman brand.
“World’s Ultimate Strongman comes in at a point where traditional collectibles in sports meet their digital form. The WUS NFTs released on April 14, 2021, from the Bahrain 2021 collection is just the tip of the iceberg on what can be achieved,” said Zeynap Zarbun from CoreSports.
“It needs to be understood that collectibles – NFTs or traditional forms, increase in value based on rarity, just like any other product. With creating these limited first print runs we are giving people the chance to own a one-of-a-kind product that will never be reproduced in the same serial number, hence creating a valued product that can only rise over time,” she added.
NFTs are digital answers to collectibles and are already extremely popular in the digital sphere, where the likes of musician Grimes and Twitter’s founder, Jack Dorsey have sold NFTs for millions of dollars. But how can NFT’s help in driving engagement and revenue at events?
“Events play an integral part in how we connect with our audience. So, using NFTs as an extra tool to further strengthen the engagement of your audience definitely is a big possibility. Just imagine if Rihanna were to create backstage NFTs as an access method where you needed to purchase one to be granted entrance. Probably the entire Ethereum network will collapse momentarily. Obviously, this is meant to be a joke to show how appealing NFTs can be for engagement,” she quipped.
“For us, our future plan also includes to have unlockable perks if someone to own our NFTs- such as a ticket to an upcoming event, having the chance to meet an athlete, upgraded subscriptions to our live stream platform and more,” she added.
While the opportunities of this newfound world of digital tokens are many it comes with its own set of challenges and unknowns. First, the technology itself is foreign. Although it’s been around since 2017, people are still figuring it out and realizing that the process isn’t as simple as storing cash. Second, with the sudden surge this year, there is a sea of NFTs and platforms today and it is easy for your work to get lost in the pool. Third, its volatility is almost unpredictable at this point. Market research site reported that the average sale price for crypto art has dropped over 60% from a February high. Fourth, environmental challenges as crypto-art are blamed to be responsible for the millions of tons of planet-heating carbon dioxide emissions generated by the cryptocurrencies used to buy and sell them. And finally, if you thought that physical art can be stolen and NFTs can’t, that’s not completely true. Users of the digital art marketplace Nifty Gateway reported hackers had taken over their accounts and stolen artwork worth thousands of dollars.
And then there are questions like “will there be a consistent demand for tokenized collectibles?” “Is there an actual use-case?” “Are NFTs really worth the big bucks?” that no one really has answers to.
People are even talking about the NFT bubble, but the dot-com bubble was a thing too in the early 2000s. But come 2021, economies can’t run without the internet. NFTs may or may not be such a phenomenon, but today its essence lies in ownership, transparency, and supporting creators.
As Zarbun concluded, “Imagine a world where you can directly be supporting the next Jackson Pollock or Van Gogh and influence their livelihood in a positive way instead of their painting being worth millions of dollars after they pass, and the artist never sees a dime. In the essence buying an NFT means supporting a creator where it may not happen in traditional ways all the time. In our case we are doing the same for our athletes, discovering the possibilities in what we call a new renaissance.”
Words by Katie Streten Experiential Strategy Director, VMLY&R COMMERCE Throughout the last year,June 13, 2021 | By Shruthi Nair
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