Sequel: NFT Analysis — Definitive Guide to Selling Digital Data as NFT (Experiment Project — Open Report)
First of all, we would like to take this opportunity to thank everyone for the positive response and feedback we received on our previous post: ‘NFT Analysis — Definitive Guide to Selling Digital Data as NFT (Experiment Project — Open Report)’.
NFT Analysis — Definitive Guide to Selling Digital Data as NFT (Experiment Project — Open Report)
Unlike our usual posts, this time we have written a report that is based on the results of the ‘100 Limited Edition…
As a sequel to the previous post, we will share some new information and findings which includes:
Issues and Solutions when Selling NFTs
Adding Value to NFTs
Cost of Selling NFTs
Required Tasks Before Selling NFTs
Continuity of NFTs
Environmental Issues and NFTs
Laws and Regulations of NFTs
Issues and Solutions Selling NFTs
The NFT technology we used on Ethereum for our experiment is still in the development stages and needs time to improve. Even if sellers were able to generate NFTs and sell them on a platform, there are still issues that first-time NFT buyers might struggle with before getting to the point of buying NFTs, such as the concept of a Wallet and acquisition of Ethereum which will be needed throughout the NFT buying process.
On the other hand, there are some users with high levels of technology literacy, who already own a Wallet and Ethereum, and have a good command of NFTs and cryptocurrency as well. Therefore, when dealing with NFTs it is not always assured that the targeted users match the method.
When selling NFTs, we have to be aware of both ‘veteran fans’ and ‘new fans’. Also, there is a possibility for ‘veteran fans’ who are originally fans of the character to feel frustrated and concerned with the sudden entry of ‘new fans’ into the community.
Considering this, we decided to take the following measures with our ‘Tohoku Zunko and Friends Special Limited NFT’ project:
For ‘veteran fans’
We made a video that explains how to use Wallet, how to buy cryptocurrency, and how to use NFT sale sites.
(External embed tags for this video can be used freely by the creators and companies interested in selling NFTs. However, please beware that we won’t take responsibility for any losses or damages that may incur throughout buying the NFTs).
For ‘new fans’
Introducing the charm and history of the character as much as possible.
#154: Get your hands on limited edition NFTs of the 3 Tohoku Sisters!
This new project from the Otaku Coin Association will be the world’s first fusion of NFTs and the Metaverse!
We approached both ‘veteran fans’ and ‘new fans’ 1 week ahead of the release. As a result, we were able to avoid having any major problems and received a positive response that exceeded our expectations.
Adding Value to NFTs
When selling NFTs this time, we struggled with finding the most effective way to share the value of NFTs with buyers.
One factor that could be difficult for NFT beginners is understanding that NFT is not a technology that can prevent copies of digital data from being made. It is possible to make a copy of digital data of the images and videos on NFT sale sites. This is very similar to the relationship between an elaborate art replica and the original artwork.
With NFT, it is possible to have the same data for a replica and the original artwork (precisely speaking, it is possible to use the data with lower resolution for publication and make the original data with high resolution confidential), so there is no difference in terms of the digital data itself.
The difference is the idea of ‘digital ownership’, which proves and gives recognition to the owner and the creator of digital data. Understandably, some might not get why an NFT that is worth over 100M Japanese Yen can be sold just for ‘digital ownership’.
The value of items can be changed anytime according to supply and demand. A Japanese traditional painting that is nothing special to us can get popular overseas all of a sudden and result in a rise in value. Things like this can happen to anything in our society. What is happening to NFT is also the same as this phenomenon. It is just that digital data has been undervalued as even digital data with high demand and popularity are copyable. This leads to a limitless supply, therefore the lowering of value.
The invention of NFT has allowed us to restrict the supply of digital data and resulted in balancing the value of data on the internet. Actually, NFT is a technology with a value that can be reproduced on the internet, not just a technology that raises the value. It seems like the prices for NFTs have skyrocketed because it is new, just like the price of the first tuna on the Japanese fish market of the year goes incredibly high.
It is natural for people, who are used to tangible things, to question if ‘digital ownership’ of NFT, which is neither touchable nor olfactible, really has value for us.
We believe that people will gradually overcome those doubts as we get used to digital data and start to acknowledge its value. The reason why we think this is because most present illustrations and movies are made by spending time and effort on computer software, and the value of work belongs to the digital data itself. Essentially, it should be unnatural if an artwork on paper can be sold for 100M Japanese Yen whereas a digital artwork that took the same amount of time and effort gets undervalued.
As a way to subdue these doubts, we implemented the following countermeasure in our most recent Tohoku Zunko and Friends Special Limited NFT’ project.
We prepared a special offer only for the NFT buyers at this time — the right to enter the Metaverse theater and watch a special animation video that is not open to the public. This method is to provide a special experience to the buyers as an additional value, and it is similar to when a musical artist encloses a raffle ticket to buy a live concert ticket.
We believe that the structure we have made for the experiment project this time can be used versatilely with any kind of content such as anime, manga, video games, and VTubers when selling digital data as NTFs in the future. Giving a special offer such as a ticket for an advance screening, access to a side story or a sequel, an interview of a director/voice actor, a backstage documentary, or access to a music event/live streaming would be some examples.
We will be sharing more about the experience in the Metaverse Theater on social media, so please follow the Otaku Coin Official Twitter account if you are interested.
Cost of Selling NFTs
The question we were asked the most throughout this project was about ‘the cost of selling NFTs’. We are simply going to share the cost details in this section. The prices for Ethereum we have here, which is essential when generating NFTs, are the prices at the time of the experiment and may differ as it fluctuates all the time.
Experiment Project 1: [100 Limited Edition Otaku Coins] NFT
Generating Unique Contract: approx. 80,000 JPY
NFT Batch Mint (100 Kinds) : approx. 200,000 JPY
Testing: 30,000 JPY
Sending to Lottery Winners (3 Winners) : 15,000 JPY
Experiment Project 2: [Tohoku Zunko and Friends Special Limited NFT]
Generating Unique Contract: approx. 100,000 JPY
NFT Batch Mint (104 Kinds) : approx. 250,000 JPY
Sending to Lottery Winners (3 Buyers) : (Not Complete)
* The details above are processed with the unique batch contract method by CryptoGames that generates a contract NFT (1 data, 1 unit).
We were originally estimating about 8,000 JPY × 100 kinds = 800,000 JPY with a regular NFT creation without batch Mint. However, we were able to save a considerable amount of costs by proceeding with the unique batch contract.
The expenses shown above are production costs throughout NFT creation, in which development and operating expenses are excluded. Also, other costs such as marketing and sales promotion expenses to maximize the sale of NFTs need to be estimated separately. We will talk more about it in detail later on in this report. Unless you are a very well-known company or a creator, it is difficult to sell NFTs just by posting about them on social media. Some kind of sales promotion will be essential just the same as when selling physical items.
Required Tasks Before Selling NFTs
In this section, we would like to share the task list we made for the parties that participated in Experiment Project 2: ‘Tohoku Zunko and Friends Special Limited NFT.
In the case of multiple companies cooperating for sales promotion on social media including a lottery, the creation of over 100 kinds of NFTs, and making special offers such as Metaverse, the sale of the NFTs will only succeed after making a task list like below. At Otaku Coin, we designated a team of 3–4 per project that was in charge of the running and support of NFT projects. Therefore there are running costs such as labor, video and creative designs, etc.
Goal-Setting Related Tasks
Schedule Related Tasks
Contract Related Tasks
Communication Related Tasks
NFT Sale Method Related Tasks
Marketplace Related Tasks
NFT Creation Related Tasks
Special Bonus Footage Related Tasks
Lottery Related Tasks
Press Release Related Tasks
Blog Post Related Tasks
Mail Magazine Related Tasks
App Related Tasks
Social Media Related Tasks (Twitter etc)
Metaverse Related Tasks
Sales Promotion Related Tasks
Final Check Before Release Related Tasks
Tasks on the Release Day
We hope that the task list will help you get a grasp of what needs to be done before the release. Please have a look at the link below to see the public Google Spreadsheet (template) that has the tasks above organized. Please feel free to copy and use it.
Continuity of NFTs
In our previous post, we shared the fact that NFT has multiple methods of creation on different chains. This time, we would like to talk more in-depth about the continual operation of the NFT you sell, digital data, and the data called Meta information.
What we share in this section is the creation of NFT operated in the most decentralized way and also focusing on the blockchains on Ethereum that can be linked with DeFi and DApps as of April 2021.
When it comes to the creation of NFT, there are 2 kinds of digital data.
- Original Work Data (a video, an image, etc)
- Meta Information Data (JSON file)
With №1, for example, in the case of using a platform-dependent contract, there is a possibility for the data of the original work to be uploaded on the server that is only on the platform. In this case, the continuity of the NFT is not guaranteed if the platform stops for some reason in the future.
On the other hand, with a unique contract, it is said that the guarantee for data continuity is more certain because the seller can specify where to upload decentralized data such as IPFS. However, we have to be aware of the fact that the data is not guaranteed for eternity.
With №2, it is possible to upload the data onto decentralized servers such as IPFS. There are also other methods of adding flexibility to the data such as uploading it to a centralized server like AWS and leaving some edits, such as description and property wording, for later. Though this method, also, does not guarantee the continuity of the data for eternity just because it is IPFS.
As of right now, our best practices are:
1. Having the Meta information data (JSON file) on a server that has a contract with the NFT issuer and supporting companies
2. Having the original work data (a video, an image, etc) on IFPS
3. Moving the data in case of risks to the Meta information (JSON file)
4. If the data’s continuity is difficult to be guaranteed with neither №1 or №2, regenerate the NFT and send it to the addresses of the owners
Ultimately speaking, whether the server is centralized or not, there is no guarantee for the retention of the data. №4 leaves a way to continue the project even when the continuity of the data happens to seem doubtful, which is the worst case if even one person is willing to keep going. It can be said that it is an advantage with a publicly-run blockchain where the addresses of NFT owners are open to the public.
If you want to create a decentralized project in a more certain way, you can make a strong message by using a decentralized server such as IFPS (though it requires an extensive amount of costs). However, there is also a disadvantage in that there is no way to make it flexible by specifying the title, property, and hidden link.
Although we understand that this content could be too technical for most fans, we think it is crucial to know about this kind of information as a seller when choosing what kind of NFT specifications you plan to choose.
Environmental Issues and NFTs
Whereas NFT is becoming a trend in the world, we also have to understand that there are also critical points of view when looking at it, especially overseas, in environment and energy consumption contexts. Simply put, Proof of Work (PoW), the algorithm of blockchain adopted on Bitcoin and Ethereum, is a 24/7 monitoring system that keeps computers all around the world running to make sure the data on the blockchain doesn’t get tampered with.
The more computers to monitor there are, the bigger energy consumption it becomes. Some studies estimate the energy consumption made by the maintenance of Bitcoin is equivalent to the energy consumption of all of Norway. Ethereum, which generates NFT, also consumes quite an amount of energy.
However, it is not always the case that Bitcoin and Ethereum consume an enormous amount of energy and are harmful to the environment because there are cases using surplus power and non-fossil fuel.
Furthermore, it is confirmed that the algorithm of Ethereum will switch from PoW, which consumes a certain amount of energy, over to Proof of Stake (PoS), which minimizes energy consumption. The road map from Ethereum 1.0 to Ethereum 2.0 has also been disclosed.
Having said this, it is still true Ethereum results in a certain amount of energy consumption and has an impact on the environment. When selling NFTs, especially to companies and creators proactively engaging with SDGs to make society more sustainable, it is essential to learn about the environmental aspects of NFTs like above. Please note that there is a chance of receiving negative responses especially with projects focusing on overseas markets.
Laws and Regulations of NFTs
It is notable for companies and creators considering selling NFTs that NFTs, which allow us to add value to digital data, may be regulated at some point.
If the Financial Action Task Force (FATF) stretches the meaning of the Travel Rule in accordance with the Measures against Money Laundering and Terrorism Funding, the regulation may apply to NFTs as well. In fact, there has been a submission of public comments to FATF.
Source (Financial Services Agency): https://www.fsa.go.jp/inter/etc/20210322.html
Currently, we are suggesting to stretch the meaning of Virtual Asset (VA, also defined as “cryptocurrency” in Japan) and VA service providers (VASP, defined as “cryptocurrency traders” in Japan). According to this stretch of the meaning, owners of secret keys, companies involved with the development/operation of smart contract and Dapps, and node operators of the Lightning Network, may be included as VASP and applied as subjects to the regulation in case of using Multi Signature. Also, VA may include stablecoins and NFT.
It is disclosed that Japan Virtual and Crypto assets Exchange Association (JVCEA) is aiming to adopt self-regulation on travel rules by April 2022. However, with the Financial Service Agency requesting an immediate implementation of the Travel Rule, we can foresee that those rules will be likely going under active development.
Thank you for reading to the end. This report is co-written by the Otaku Coin Association, SSS LLC, Crypto Games Inc., and BeyondConcept Inc. We hope that you continue to support our projects in the future.
Please feel free to contact us if you have any struggles throughout the process of planning a project regarding anime, manga, video games, and Vtubers. We will be happy to share more detailed information with you.
Otaku Coin Association: https://otakucoin.typeform.com/to/t0ht7i
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