NFTs – Non Fungible Tokens – are big news, but what are they? Neil Dillon explains how they work and how they can be used by SMEs
AUTHOR: Neil Dillon
Unless you’ve been hiding under a rock for the last few years, you will have heard of NFTs. And unless you are already in the world of cryptocurrencies and fintech, you might be confused about what they are and how relevant they are to your business. If NFTs are a mystery to you, this article will outline what they are and how you might be able to use them in your own business.
Let’s start with what an NFT or ‘Non-Fungible Token’ is: it is often described as a digital artwork, but it can be any digital asset, such as a song, document or piece of software, with a distinct signature.
Imagine a painting comes up for sale: you’re told it’s a Picasso, it looks like a Picasso and it even has Picasso’s signature on the bottom. Unfortunately, it is identical to one hanging in a gallery. Which is the real one? With a real painting, you might find you have to do a lot of work to prove which is the fake. With an NFT, the artwork has a digital signature to prove authenticity.
“But,” you might ask, “can’t someone just copy the property and claim it for themselves?” The short answer is that digital properties often can be copied easily, but they are not the original. How does one prove something is original? Enter blockchain.
Blockchain is a ledger of these artworks (as well as transactions) which are secured and authenticated by a network of computers, which creates a digital signature for NFTs. Effectively, the blockchain is like a chain of custody which can reassure you that the digital property is original, not a copy. You can copy the content, but you cannot copy the blockchain, because it is being held on several different computers and a discrepancy shows that fakery has taken place.
While this is a superficial explanation of NFTs, we can use it as the basis for understanding how to use them. If you would like to know more, here is a dummies’ guide to NFTs.
NFTs are going mainstream: they are culturally relevant, fun, and useful. Let’s explore some of the mainstream uses of NFTs and some companies leading the way.
You have bought a ticket to see your favourite act live. But imagine that it does more than simply get you into the venue: it could be memorabilia and be worth something in the future. Using smart contracts, the revenues can be split between Ariana Grande, front of house, lighting crew and cleaners without having to use a payments company and pay them fees. It could also provide security on backstage passes, give the ticket holder early access to future ticket sales or further digital content.
Seatlab are creating a marketplace for NFT ticketing which can reward fans and restrict the exploitation of the secondary market.
Your company has invested in building a machine. Profitability depends upon the customer using only authentic replacement parts from your company, but another company is making cheap copies overseas. Through the tokenisation of physical goods and services, your customer can prove that they own an original of that product or prove that they received a specific service.
Open for Vintage are creating NFTs with every purchase of their luxury second hand products. Picture a digital version of your Birkin bag that proves its authenticity. Never get hoodwinked again!
Community and social
NFTs derive their value from people’s willingness to pay for them. These people are often part of a community who have similar interests and find value in similar things. Hence why the price of some NFTs have skyrocketed.
ExPopulus are some of the best creators of collectibles in the industry. They have experience designing for Pixar and creating games for Threadbare Games. While the ‘coolness’ of their NFTs is a big draw, it’s the community that will make or break the success of this venture.
NFTs might sound esoteric, but they are becoming more mainstream and will become an ever-more important part of businesses hanging onto the value of their goods and services in an increasingly digital world. Whether your business creates goods, services or experiences for customers, there are likely applications of NFTs that could make your business more profitable and enhance your relationship with your customers.
For more thought leadership on technology and SMEs, check the Swoop blog where you’ll find further information on how digital transformation can benefit your business.