How well do you understand NFTs? If you run a business with real P+Ls, you may have dismissed these voguish “non-fungible tokens” after seeing an animated cat meme sell for $600K. But the splashy headlines are more an indicator of asset frothiness than an indictment of the technology that makes them possible.
In eCommerce, where most retail growth lives, some companies are already putting NFTs to practical use. And tech giants like Meta are incorporating NFTs into their foundational plans for Web3. If you’ve barely heard of NFTs, here’s the TL;DR: An NFT is a smart, unique digital token that lives on the blockchain. NFTs can be used to confer ownership, create digital scarcity, or automatically execute agreements. And they provide public-facing records of purchase, imbuing the assets they’re attached to with a transparent provenance.
Think of an NFT as a kind of supercharged deed, bill of sale, and contract all rolled into one, but with no lawyers--or any third party oversight--required for their management.
Now that you’re studied up, here are 4 practical examples of NFTs in eCommerce.
Appreciate it. Wine investing & high capital growth assets
Over the last few decades, wine was a 4.5x better investment than the stock market. But while it’s easy to hold stocks in a digital portfolio, holding wine can be a logistical nightmare. Upstart wine producers like HelloFam are minting NFTs for future deliveries of wine, giving token holders a way to digitally invest in wine futures without having to take delivery or manage their own storage solutions.
Instead, investors simply buy the NFT, and the wine stays put in a temperature-controlled warehouse. The token holder can do whatever they want with it–redeem the token when the time is right and drink the wine, or sell the token down the line and reap a handsome return.
This model also opens the door for average investors to buy fractional amounts of wine, like you might with a crowdfunded Real Estate Investment Trust. Don’t have $550,000 on hand for that 1945 bottle of Romanée-Conti? Theoretically, you could buy an NFT that represents a share of the bottle, then profit when the bottle is resold by its controlling interests, or sell your own shares as they appreciate. The major caveat here is that we still don’t know whether (or which) NFTs will be classed as securities, and this determination will have major implications regarding taxes on profit taking.
Own (or sell) a piece of history
Upstart retailers aren’t the only players in the NFT space. A few all star brands are leveraging their history in the form of memorabilia NFTs. Last July, The Chicago Bulls teamed up with ecommerce giant Shopify to issue limited-edition NFT versions of all six of their championship rings. The rings came in three tiers of scarcity (rare, iconic, and legendary), and initially sold at price points as low as $49. As a sweetener, the Bulls gamified the collection process, offering experiential prizes to collectors who bought all six rings within the first few months of release. As a result, the value of these NFTs has risen more than 10x on the Bulls’ purpose-built NFT marketplace. But as successful as this early foray has proven for both the franchise and investors, the tokenomics aren’t nearly as interesting as the tech supporting them.
See, one drawback of NFTs is how difficult they can be to sell. Right now, NFT merchants typically use dedicated 3rd party marketplaces like OpenSea, and that means ceding a portion of the customer relationship and integrating with yet another payment system. Everyone wants to keep payments streamlined, secure, and simple. That’s hard to do using a 3rd party platform. Not to mention that buying NFTs is far more complex than using a credit card. But Shopify’s entrance into the space, and the intuitive marketplace they built for the Bulls, signals a commitment to reducing the friction to sale–just as their payment technology, Shop Pay, did with traditional online purchasing. We can expect to see more initiatives like this one soon.
Can this be real? Marketplace authentication
If you’re an online merchant, fraud is always on your mind. In the sneaker industry alone, counterfeiting is a $450 billion enterprise. That’s a major reason Nike stopped selling on Amazon in 2019. Can NFTs help?
Companies like SUKU think so. In February 2021, the traceability solutions specialist launched INFINITE, a sneaker app that authenticates real shoes using a physical NFT tag embedded in the toe. These “tamper proof” tags give each shoe a unique identifier and provide a full history of sale, so that their provenance can be traced by prospective buyers. This technology is a potential watershed in the fight against knockoffs, and has special implications for the $36 billion fashion resale market, which is projected to double in size by 2025.
NFT authentication is also coming to digital media, which is particularly riven with fraud. It remains to be seen whether NFTs are a part of the solution, or the problem. But in November, visual software giant Adobe rolled out a button that lets users mint NFTs right on their flagship platform, Photoshop. As with digital watermarking, the idea is to help ensure that creators are compensated and credited for their work, wherever it appears. Unlike traditional digital watermarking however, art created natively as an NFT will always point directly back to the artist who created it. Even if that art is reminted as a new NFT by thieves later on, the new NFTs will lack this essential quality, thus making frauds (theoretically) easier to distinguish.
Let’s get phygital. The metaverse and digital crossovers
You may have heard that Facebook's parent company, Meta, is betting billions on the “metaverse,” a virtual version of the internet built for social interaction that seems almost copy/pasted from Ready Player One. Meanwhile, Activision Blizzard, which was acquired in January by Microsoft for $67.8 billion, has begun unveiling their first NFT-driven video games. These developments point the way to a new digital economy in which gamers can buy or rent in-game items with special value. For example, since NFTs confer uniqueness, gamers will eventually be able to pay a premium for, say, a suit of armor previously used by their favorite influencer.
Forward-thinking companies are already spinning up physical products with digital, NFT-based counterparts that have value to buyers in both realms. A company called Blanksoles is selling “blank” NFTs that can be redeemed later for a pair of limited edition kicks designed by a famous artist. The shoes can be delivered as physical items, digital NFTs, or both.
This model gives sneakerheads the speculative opportunity to buy low on future design projects and receive two assets from a single NFT purchase. At the same time, selling blank NFTs allows Blanksoles to raise capital up front for giving their users first dibs on later product deliveries. This potentially solves a cash flow issue faced by many startups, especially with global supply chain issues making it difficult to ensure timely delivery of physical goods. And if the NFT versions of these shoes can eventually be worn in a version of the metaverse, their value proposition will only grow stronger.
NFTs are still in their nascence, and the transaction fees on NFTs minted on Ethereum can be exorbitant, up to 66% of the value of the token in one example. Trading NFTs is also a relatively complex process that the vast majority of consumers don’t yet understand. But these are issues of scale rather than viability, and NFTs are a potential pillar of Web3, the decentralized, blockchain-based iteration of the internet that Google, Meta, and Twitter are already investing billions to bring to fruition. If Meta succeeds in creating their metaverse, NFTs will become the lifeblood of a new all-digital economy. Just as in real life, metaverse denizens will want their kicks, their curios, their digital cars and houses, even their land. The question is, who will have inventory to sell?