How can NFTs change the current state of business?

The first NFTs appeared around 2012; however, it was not until 2020 that the world of business started to pay attention. Stefan Erschwendner, the Managing Partner of Frontira, has given an introduction to the topic at the 19th WE ARE SO Talk hosted by Creative Region Linz & Upper Austria. The presentation, and this article, aim to tackle the essence of NFTs, their future impact on business, and their relevancy.

First of all, what is exactly an NFT?

An NFT is a certificate of ownership of a digital good that’s supposed to be made in a limited quantity. They can be attached to digital pictures or memes, video clips, or even something as abstract as the original source code for the World Wide Web. Simply put, you get a specialized link that proves your connection to that digital asset. This process is called ‘minting’ and it refers to the primary purchase of an NFT — done directly on the project’s website. On secondary markets, such as OpenSea, NFTs can be listed for sale and thus change owners. In April 2022, the volume of sales on OpenSea reached $3.5 billion.

How can NFTs be used in business?

There are five main types of NFTs enabling five different ways to exploit them.

• Art: people collect digital art similarly to how they collect physical art, fashion, baseball cards, etc., profile picture art like Bored Ape is a great example. A mixture of aesthetics, patronage, status, collecting and socializing plays a significant role.
• Music: usually containing links to images, audio, or both. They can be sold as one-of-one editions, where you can be the sole owner of a particular Whitney Houston NFT, or in editions of any size. Selling an NFT album means the artist receives a large portion of the proceeds rather than a record label.
• Game Objects: Web2 gamers spend about $40b/year on virtual goods, but users don’t really own those objects, the company does. NFTS allow users to genuinely own the objects, filling the polarity, games build around user-owned objects instead of users having to depend on the game.
• Access: NFTs make tickets low friction and widely interoperable, as they can be used for both live and virtual events, or even grant access to a community or special content. Digital wallets such as Metamask make any online purchasing more seamless.
• Redeemables: This is the model where a token could be redeemed for a physical good. This mechanism can be applied to lots of offline goods. It is possible to create a digital toke representing physical goods, letting them be showcased and traded digitally, to reduce friction and intermediaries, and expand the UX possibilities.

Businesses need to reconsider their offerings to see what could be enhanced with NFTs in a way that creates additional value. Let us illustrate what we mean. A football club that allows customers to purchase their seasonal tickets in the form of an NFT creates added value for the owners because holders will enjoy exclusive benefits through ownership and can sell the NFT later on. Evidently, this not only generates value for the token holders, but also for the company that issued the NFT. Through “smart contracts,” the companies benefit every time the NFT is passed on to a new owner (eg. through royalties).