Introduction
“Money is probably the most successful story ever told. It has no objective value... but then you have these master storytellers: the big bankers, the finance ministers... and they come, and they tell a very convincing story. Money is the most universal and most efficient system of mutual trust ever devised.” Yuval Noah Harari, Sapiens: A Brief History of Humankind
Where there are humans there will be transactions, be it real or virtual world. According to Gartner, Top Strategic Technology Trends for 2023: Metaverse, “Transaction” is one of the three core experiences in the Metaverse that will enable a multitude of use cases centered around activities like play, shop, learn, create, socialize, entertain, and govern. And what better way to enable these transactions than by leveraging the concept of “Money” the most successful story ever told, the most universal, efficient system of mutual trust ever devised.
Metaverse and Its Many "Monies" (Tokens)
Just like in the real world, in the Metaverse, “Money” takes many forms and can be primarily divided into four categories:
- Fiat (Actual currency or real money)
- Crypto Currency (Bitcoin)
- Fungible Tokens: The fungible tokens function in a similar way to real money and have 1:1 value. Different dApps or platforms have their own fungible tokens that can be bought with fiat or cryptocurrency or can be earned through completing tasks or challenges in the dApp or Platform. Fungible tokens can be used as Utility Tokens (in app purchases), Governance Tokens (voting and governance power on the platform roadmap), or Security tokens (Ownership). Examples of fungible tokens include “Sand” on Sandbox, “Mana” on Decentraland, “Robux” on Roblox, and so on.
- Non-Fungible Tokens (NFT): Non-Fungible Tokens or NFTs are unique digital assets (digital art, virtual land piece, movie clip, unique digital version of clothing or accessories) whose authenticity and ownership are recorded on the blockchain. No two NFTs are identical. Uniqueness, ownership, and scarcity are the three key characteristics of NFT.
NFTs are the key drivers of the Metaverse economy, even though they are not “currency”. They, however, can be leveraged to generate currency/revenue in the Metaverse. NFTs can be bought on open marketplaces (digital platforms for buying and selling NFTs) such as Opensea, Rarible, and Binance, by using fiat or cryptocurrency, or fungible tokens.
NFT Genesis and Popularization
The world’s first NFT was minted by Kevin McCoy on Namecoin in 2014. It was called “Quantum,” and was sold in 2021 via Sotheby’s for $1.47 million. Post Quantum, several NFTs like Spells of Genesis (2015), Rare Pepes (2016) were launched on pre-Ethereum blockchains but their popularity was limited to people who were well-versed in cryptocurrencies and blockchain technologies because these blockchains made trading and transferring ownership of these NFTs very difficult.
In 2017, one of the first NFT collections CryptoPunks was launched on the Ethereum blockchain. The Ethereum network and its smart contracts functionality enabled token creation, programming, storage, and trading built directly into the blockchain itself. These new features eased the onboarding process and led to NFTs gaining mainstream momentum.
NFTs really caught the attention of the masses in March 2021, when Mike Winklemann (aka Beeple) an artist and NFT Pioneer, sold his digital art titled “Everydays — The First 5000 Days”, at Christie’s auction for a colossal USD 69 million. Thereafter, several NFTs were sold by famous people like Julian Assange, Edward Snowden, Beeple, Dimitri Cherniak, and NFT Platforms like Xcopy and CryptoPunks in the range of USD 5.5 million to USD 57.2 million. Bored Ape Yacht Club (BAYC) NFTs created in April 2021, is another collectible NFT platform that is credited for making NFTs a part of pop culture. BAYC is a collection of 10,000 unique bored apes NFTs priced at hundreds of thousands of dollars with celebrities being its primary buyers.
NFT Usage Besides Collectible
“NFTs really started initially with the digital art side. But it's going to be a lot more powerful. It will be the tool that represents any digital type of assets in virtual worlds going forward. So, the applications are tremendous.” says Eric Anziani, COO of Crypto.com.
NFT started as this unique, quirky, piece of digital art valued primarily as a collectible whose value was driven by its exclusivity and scarcity. But in the last 2-3 years, many brands across the realms of fashion, sports, retail, food & beverage, and finance industries harnessed NFTs in many ways to further their brand stories with their customers both existing and potential.
Profile Picture (PFP) NFT
Profile Picture NFT on social media also known as PFP NFT is one of the primary use cases of NFT that catapults NFT adoption and usage by different industries. PFPs, Profile Picture NFTs are digital collectibles, often static, 2-dimensional images created by computers through a generative algorithm, although hand-drawn PFP NFT collections are also now quite common. This trend started with CryptoPunks (thousands of pixel art images of stylized humanoid figures dubbed punks) in 2017 where people started using these images as their profile pictures, especially on platforms like Twitter and Discord. The PFP NFT concept gained popularity when celebrities started using it.
The current popular PFP NFT is Bored Apes Yacht Club (BAYC). Other popular ones are Cool Cats, Doodles, and Moonbirds.
NFT in the World of Fashion and Luxury Brands
‘Haute Couture’ in fashion and NFTs both share a common ground in the context of their value directly being linked to exclusivity or rarity and scarcity. So, the fashion and luxury goods industry were one of the early adopters of NFTs.
Adoption of NFT by ‘The French Fashion and Haute Couture Federation’ for the Paris Fashion Week last year, was the ultimate proof of NFTs becoming one of the popular digital vehicles with the fashion and high-end luxury brands to engage with their niche customer base. The Haute Couture Paris Fashion Week is a 150-year-old think tank of fashion trends and forecasts. It is the most prestigious event in the fashion world accessible only to the top designers, influencers, and voices of the fashion world. La Fédération de la Haute Couture et de la Mode (FHCM) — the governing body of the French fashion industry established in 1868, which also organizes Paris Fashion Week collaborated with French NFT platform arianee to give away NFTs to selected attendees, buyers, and journalists during Paris Fashion Week Men and Haute Couture Week in 2022. The NFTs given away contained two assets, a press accreditation and a second asset that was an exclusive digital artwork by iconic fashion illustrator Richard Haines.
Through these NFTs, all accredited members had access to exclusive content, Augmented Reality experiences, and press accreditation for Paris Fashion Week. The NFTs were also used by the event organizers to digitalize the accreditation process. Instead of sharing their personal data at the entrance gate, guests could just prove their ownership of the NFT to access all Fashion Week events. Thus, NFTs are being leveraged by the Fashion industry to give customers access to exclusive and unique experiences and privileges both in the physical and digital world.
Prada, the well-known Italian fashion label, launched Timecapsules NFTs with its apparel (each physical item has a serial number linked to a unique digital collectible) in May 2022. Buyers of the apparel got a free airdrop of white or black capsule GIF NFTs. The NFTs featured utilities, including early access to the future mints (To publish a unique digital asset on a blockchain so that it can be bought, sold, and traded) and a VIP experience and other exclusive experiences and privileges announced on Prada’s Discord channel, Prada Crypted. Prada is now set to drop(a digital event where an NFT collection is released to the public for the purpose of sale and/or promotion) its tenth Timecapsule NFT collection in February 2023.
Fake fashion/luxury products have been a cause of continuous concern for fashion and luxury brands and genuine buyers; thus, product authentication and ownership have become one of the prime use cases of NFT in the fashion and luxury goods world. Through the issuance of NFTs, the consumers have proof of product authenticity and a record of the purchase of the product. The VeChain project is another way of authenticating a product by directly integrating the NFT into the product with an RFID chip or a QR Code. This product and NFT association also allow the brands to follow a buyer’s consumer behavior, particularly in the world of second-hand luxury.
NFT wearables (digital clothing & accessories) saw their genesis during the pandemic when brands like Louis Vuitton, Dolce & Gabbana, Gucci, H&M, Burberry, and Nike released their products as digital assets on virtual worlds like Roblox, Fortnite, Decentraland, and Sandbox to engage with their customers. Digital Fashion in the form of wearable NFTs in the virtual world is now one of the key channels for the brands to launch their latest collections, both phygital and digital. These wearable NFTs not only provide the customers with the opportunity to dress their avatars but also provide them with many special privileges and rights in the real world from the brands like access to special collections, events, and opportunities to personalize products. Digital fashion companies like “The Fabricant” and “RTFKT” are enabling both the brand and the customers to co-create digital fashion assets.
NFT and Loyalty Programs
Loyalty programs have now been around for a couple of decades where brands reward their loyal customers with special benefits like discounts, advance access to the latest collections, and personalization. Adam Brotman, co-CEO and co-founder of Forum3, in an interview with TechCrunch said, “But what if these digital points, or royalty rewards, could be owned by customers? That’s where NFTs, or true digital ownership, come into play — and provide a much more immersive loyalty layer. It allows customers to receive points and digital collectibles that they own and could use in ways beyond what a typical rewards program allows today.”
NFTs are gaining popularity with major brands across industries to enhance their existing loyalty programs and strengthen their relationship with their customers. In the context of loyalty programs, the NFTs are mostly being presented as “Digital Collectibles” that customers can easily buy in marketplaces with their credit cards or acquire through quests and challenges in virtual games/worlds or through real-world brand-related shopping or promotional activities. Customers can then freely trade these collectibles on the brand-specific marketplace or other open marketplaces. These digital collectibles also entitle the customers to special privileges and access to unique virtual and real-world experiences.
Starbucks launched “Starbuck Odyssey,” an NFT-based loyalty program in collaboration with Polygon, a blockchain platform, in December 2022 as an extension to its existing loyalty program. Odyssey introduced a virtual platform to the existing Starbucks loyal customers where they can participate in “Journeys (interactive activities)” to collect “Journey Stamps (coffee themed NFTs).” The Journeys are designed to promote the Starbucks brand and teach customers about coffee and the company’s history. The Journey Stamps or NFTs also earn the customers points which unlock different levels of special benefits and experiences. At the end of the year, the points reset but the customers retain their ownership of Journey Stamps(NFTs) and can sell or buy them on Odyssey marketplace.
airBaltic, the Latvian airline, known as one of the most innovative airlines among the global aviation industry, launched its NFT-based loyalty program “Planies” in October 2022. It launched a collection of 10,000 NFTs called Planies, which are digital images consisting of a unique cartoon artwork of an aircraft with different traits (mouth, eyes, wings, etc.) on its special Planies website. The Planies NFTs provide its owners with special airBaltic frequent flyer points and privileges and allow the owners to trade them on Opensea marketplace as well. Martin Gauss, President, and CEO of airBaltic say that Planies is the first step towards crypto tokenization of their loyalty program.
NFT in the Entertainment Industry
Entertainment companies are now setting up new business models where they are leveraging NFTs to empower the fan community with special voting rights, IP ownership, and other unique privileges to intervene in the creative development process of a music artist, album, films, and so on. Warner Records’ Web3 label sold 5,555 NFTs last October to its fans as “Access-Passes” with different rarities and roles (scouts, managers, label heads) in collaboration with web3 platform Probably Nothing. The Access-Passes (NFTs) allow the holders voting rights related to several key decisions in the creative process of the making of a music album starting from the creation of the virtual artist. The holders will contribute towards the development of artists, share credit for any future awards like a Grammy, and eventually hold the Intellectual Property rights in some projects.
After hosting the Grammy Week in partnership with the Recording Academy on Roblox in March of 2022, Mastercard in early January 2023 announced the launch of its Web3 focused “Artist Accelerator” incubator, an exclusive development program that will harness Web3 and blockchain technologies to mentor and guide five emerging artists with the tools, skills, and access to forge their own paths in the digital economy from minting NFTs on the blockchain to representing themselves in virtual worlds. It is a unique program that enables the creative community with the skills to create and monetize their own NFTs. With the launch of the artist incubator, Mastercard furthers its foray into the web3 and blockchain-enabled digital asset world.
In Conclusion
The many use cases across industries that NFT enables and its unique ability to generate the “want to possess” in the users, with its perception as an asset with appreciating value, the NFT saga in both the virtual and real world will continue to grow. It will remain one of the key “gamifications” and “user engagement” tools in our "phyigital" world. With “interoperability” enhancements in the future, NFT will be one of the most successful stories of the virtual worlds and the most universal system for the plethora of future transactions in the Metaverse.
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