NFTs and E-commerce: how digital ownership will change the way we buy and sell products
In 2009, the world changed forever with the invention of Bitcoin and the framework for blockchain technology. Bitcoin brought about a new age of groundbreaking innovation which opened doors for all different types of industries. For the average person, however, Bitcoin had no real impact on the way they lived their lives other than the occasional office conversation by the water cooler. To most, cryptocurrency was simply another techie buzz word. While Bitcoin has yet to truly change the world, the blockchain technology on which it was built, has the potential to radically shape and innovate the future of eCommerce. But how can cryptocurrency impact eComm? How can a virtual coin ever change the way people buy and sell products? The answer to that question would come 3 years later in the form of NFTs.
What is an NFT anyway?
An NFT stands for Non FungibleToken.
When something is fungible, it is considered to be “mutually interchangeable”. An example would be if someone were to trade a dollar bill in return for another dollar. They are the same currency and there is no difference between them so you would be okay with exchanging them. Conversely, Non-Fungibility depicts items that are not interchangeable. An example would be a car, house or piece of art. These items are unique and each has characteristics that distinguish it from others of its kind.
A token is simply the digital version of an item for the purpose of trade on the blockchain. The blockchain is a public ledger where all the transactions of cryptocurrencies occur.
Put them together and what have you got? Non-fungible tokens represent ownership of unique assets stored on the blockchain. These unique assets could be anything from a real world pair of designer sneakers to a piece of music or art. The possibilities are endless, and NFTs have opened the door to allow brands and consumers to own goods that were previously unownable.
After NFTs were created, their use cases began to grow and other forms of NFT technology began sprouting up, each with their own use cases and benefits. Ethereum emerged as the gold standard of the technology due to its wide user base and its ability to be traded freely.
How will NFTs change eCommerce landscape?
To understand how NFTs will impact the future of eCommerce, it is important to take a brief look at how much things have already changed in this space within the past year. Prior to Covid-19, many retail companies around the world had been mulling over plans to introduce online service offerings. However, only a select few treated it as an urgent need. The pandemic effectively forced many companies that previously relied on physical stores to explore online channels to ensure their survival.
As brands moved online, they could no longer differentiate their products through physical locations and in-person experiences alone. Instead, they found themselves competing against millions of online merchants while trying to find unique and creative ways to differentiate themselves.
Today, brands are constantly working to connect with their customers and build long term relationships. NFTs have come to the market at the perfect time as a new an innovative way to reach customers and build brands by turning customers into stakeholders.
What can NFTs be used for?
The eCommerce space is an industry where all sorts of assets (both physical and digital) are traded and tracked each day. NFT’s allow for any product to be digitized and tracked on the blockchain. Although they first gained mainstream popularity in the gaming and collectible space, the use cases for NFTs stretch far beyond that.
High price volatility and low market liquidity are challenges that have plagued the Art industry for decades. NFTs have provided an opportunity for art dealers to explore a new world of fractional ownership of artwork. Fine art is often considered too expensive for a lot of people who desire it.
Through Non-fungible Tokens (NFTs), art has now been brought within reach of millions of people. A fractional-ownership system now allows thousands of people to collectively purchase a piece of art in separate tradeable units.
By bringing the ownership of art from the physical world to the digital space, artists can now gain direct access to a limitless pool of buyers while also eliminating intermediaries. NFTs provide opportunities for artists to increase their profit margins and trade their works across borders. They also help avoid the risks of damage that may arise from transporting artworks from on auctioning location to another.
With all these advantages, it’s no surprise that NFTs have been quickly embraced by the art community. In fact, the biggest NFT sale to date is a digital artwork –"Everyday: The First 5000 Days," by Beeple. The artwork sold for a staggering sum of $69 million – the third-highest auction price by a living artist.
NFTs allow art creators to take back control and ownership of not only their creative process but the commercialization of their works too.
NFTs have taken the sports arena by storm by allowing fans the ability to own both pieces of the teams they love, and the moments they will never forget.
In the Basketball world, The NBA has led the way with the "NBA Top Shot" project. It is a crypto-based collectibles project designed to allow fans to trade tokenized video highlights in the same way they might trade rookie cards. They get to own famous moments of NBA history and some have been sold already for hundreds of thousands of dollars.
The NFT wave has also taken over Soccer. Some of the world’s leading soccer clubs, including Barcelona, AC Milan, PSG, Juventus, Real Madrid, to name a few, have launched NFT projects to offer fan tokens to their teeming supporters. Some of these tokens also come with voting rights attached to them to allow fans to feel closer to their teams than ever. Other projects like Sorare, allow fans to buy digital player cards and build fantasy lineups for real cash prizes.
Music is another industry that the NFT wave has taken by storm. The music industry has changed dramatically over the past 10 years, moving from CDs and digital downloads, to streaming services. With those services comes a long line of intermediaries, like the record labels, streaming platforms, and ad agencies that take huge chunks of that pie. This significantly reduces profit margins for the artists themselves.
NFTs allow for artists to sell music directly to their consumers in the form of fractionalized tokens. Deadmau5, Grimes, 3Lau, Jacques Greene, Tory Lanez and Kings of Leon have all sold NFTs relating to their works in the past year directly to their fan base. Some have sold entire tracks while others have created mini audio loops accompanied by art pieces or video clips.
With NFTs, artists are now taking back control of their branding and music in new ways while building stronger communities because of it.
Fashion Design Industry
The fashion space is another industry that benefited from the development blockchain technology. With NFTs, consumers are now able to digitally verify the authenticity of designer products by simply scanning a QR code attached to the internal label or sale tag.
Consumers can view the location of the factories and sources of raw materials used to create a certain piece of clothing.
NFTs also allow for a much more efficient way of reducing counterfeiting by verifying authenticity through the blockchain. Anyone can check to see where their luxury hand bag was made to avoid buying a knockoff.
Other use cases include fashion brands looking to create virtual 3D dressing rooms and using NFTs for digital garments and even fashion collectibles.
Digital items, skins, weapons, collectibles, maps, and so much more are already being sold to gamers every day on their favorite games. Some of these items even sell for hundreds of thousands of real dollars. The one issue with these items is that prior to the rise of blockchain technology, all data created, and in-game currency earned are confined to the game from which it originated. But what if you could own those in game items forever and take them with you to other games or even to a virtual collection room?
Likewise, ownership rights to such items are retained by the game developers. So if you stop playing a particular game, or if the games’ servers get compromised, or shut down by its developers, all in-game assets that you have collected while playing are lost forever.
The integration of NFTs into online gaming has created a decentralized gaming structure where items won or purchased in a certain game could be transferable and used in other games.
Perhaps the biggest benefit of NFTs are in their ability to build communities. NFT’s, at their core, represent ownership. They allow for every day consumers to own a piece of their favorite brands.
NFTs can also empower individuals with a common passion and interests to come together to contribute towards the development of certain projects. This has led to the deployment of NFTs towards the execution of social projects and charitable endeavors. NFTs contributed immensely to the development of several interest groups and virtual communities ranging from fan-pages, artisanal markets to political movements.
Some community projects happening today include Gary Vee’s “VeeFriends” which grants hundreds of NFT buyers access to Gary Vee in a variety of ways.
NFT distribution and how they are sold today
After understanding how NFTs can be used, what does it take to actually get started on an NFT project? The next step is to choose the right platform to market them to customers. There are two main ways to buy and sell NFTs today: marketplaces and direct-to-consumer.
NFT marketplaces are the most common and easiest way to get started on an NFT project. Similar to Ebay or Amazon, NFT marketplaces allow for thousands of creators and brands to mint their NFTs and list them for sale on the open market to millions of buyers. Examples of these include: Nifty Gateway, OpenSea, and Rarible.
The advantage of using a marketplace is that it allows you to quickly gain access to millions of potential buyers and makes it simple to get started. All you need is a crypto wallet and some Ethereum to mint your NFT and the marketplace takes care of the rest.
Direct to consumer
A direct to consumer sale is when a brand or creator chooses to sell their NFTs through their own website or storefront. These types of sales have been much less common due to the overall complexity of minting and transferring NFT’s to buyers. The cost and technical complexity of minting NFTs in-house has often only made this possible for larger brands with established followings. Examples of direct-to-consumer sales include Vee Friends and Crypto Kitties.
However, with the introduction of D2C minting platforms like Nifty Bridge, this form of sale is now much more accessible to brands and creators of all sizes. The advantages of selling directly to the customer include: ability to own the buying experience, more customization options, better brand building, and avoiding NFT saturation in marketplaces.
The future of NFTs in the Ecommerce Space
In the not-so-distant future, NFTs will change the way consumers buy and sell products forever. Below are a variety of ways that NFTs will dramatically change the ecommerce space for the better.
They eliminate fraud and counterfeiting in e-commerce.
Removes Trade Barriers
NFTs make it possible to trade assets digitally across borders, without the hassle and restrictions of real-world political regulations.
NFTs remove the additional costs added by intermediaries between buyers and sellers of an asset.
NFTs allow trades to be initiated and validated at unprecedented speeds. Trade requests and offers are validated by computer networks on the blockchain in real-time.
NFTs enable fractional-ownership of assets that may be deemed too expensive for average income earners. Crowd-ownership of the same asset allows producers and creatives to sell off their works much faster.
In the future, the physical and digital world will be one in the same through the use of NFT’s. People will be able to buy a physical shirt in the same place they order gaming character skins. They will be able to purchase luxury items from a stranger and be able to track its purchase history on the blockchain all the way back to the original manufacturer. They will even be able to own a small piece of the latest hit single from Taylor Swift. NFT’s will change how consumers shop forever, and it is only a matter of time before every eCommerce brand will begin leveraging their variety of use cases.