Since their launch in 2015, NFTs have been growing in popularity and interest level. However, many are still confused about what NFTs really are! While we’re hearing a lot about art NFTs these days, how do you use NFTs in retail and eCommerce? We cover a few ways in this article.
What is an NFT?
‘NFT’ expands to ‘Non-Fungible Token’, and, as many know, requires the blockchain to be created, maintained and validated. But many are still unclear about this kind of tech, how it works, and why it’s going viral.
NFTs are exclusive, unique, non-interchangeable digital pieces that are validated and tracked using the blockchain. The blockchain is a decentralized ledger used to record transactions. The blockchain is the backbone of the virtual financial world, as it is the tech that makes cryptocurrencies and NFTs possible.
Since the NFTs are exclusive and unique, they are not mutually interchangeable. This is what makes it fundamentally different from cryptocurrencies. One bitcoin is exactly the same in function as any other, but one NFT is not the same as another and cannot be exchanged.
NFTs are “no passing fad”, says Shopify. “In 2021, users sent more than $44.2 billion of cryptocurrency through NFT marketplaces, up from just $106 million in 2020” (emphasis added).
NFTs in the Retail Industry
Thanks to their virality, most people have now heard of NFTs, even if they don’t fully understand them yet. That means that tech early adopters are excited and enthusiastic about purchasing NFTs, to ride that wave. Unlike cryptocurrencies, NFTs are non-fungible, and so they can be purchaseable or tradeable products sold or distributed by brands. They have a particular fixed value in traditional or cryptocurrencies, making it possible to trade or buy them.
NFTs are primarily being engaged with by millennials (3X more likely than Gen-Z to buy) who are tech-native and have available disposable income, as well as “a strong desire to ‘collect’. Around one-third of all individuals in the United States claim to have a hobby of collecting tangible objects. Around 42% of millennials also have a substantial collection, making them a part of the current NFT trends,” says Coin Monk, who also found that “15% of male respondents said they collected NFTs [as against] 4% of female respondents.”
These demographic inputs make it clear that any retail brand seeking to attract a trendy millennial male audience must begin to use NFTs to remain relevant and engaging.
How can NFTs influence the trajectory of the eCommerce industry?
We’re increasingly seeing digital art sales in the form of NFTs, including a large number of sales by some of the world’s greatest auction houses, and often at astronomical prices. Can ‘regular’ eCommerce companies use NFTs?
Every brand needs to create an NFT strategy that works for them, but broadly, the answer is YES. NFTs, like most kinds of content, are useful if you use them to drive customer utility and customer value. Those who use NFTs simply because everyone else is are those doomed to always chase the next shiny new object! NFT-based strategies will require companies to pivot and become even more customer-oriented.
When leveraging NFTs, one of the most important benefits and requirements is the creation of a user community. Shopify’s 2022 Future of Commerce report “revealed that 40% of brands are looking to create more ways for customers to interact with them in 2022 and beyond.” When you use NFTs to create experiences for your customer community, they are more likely to stay engaged in the long-term.
By their nature, NFTs offer exclusivity. Using the first-hand data that you gain from NFT purchases, you can also push personalization, delivering bragging rights and a sense of being seen by the brand. This creates an emotional bond.
Loyalty programs are another way that NFTs can be leveraged to provide a competitive advantage for eCommerce brands. Since NFTs are used to engage with the community, they can also be used to deliver early acces to “products, discounts, admission to exclusive events and private communities, and much more.”
And finally, of course, the way that NFTs are changing the future of eCommerce is by offering new lines of business and revenue streams by selling digital products. This could be anything from purely digital collectibles to providing a virtual layer to your traditional physical product. This could be, for example, a virtual version of your physical sneakers for use by your digital avatar in the metaverse.
NFTs on eCommerce platforms
The signs are clear that NFTs are the future of eCommerce. That’s why, when developing your eCommerce portal, you need to ensure that NFT implementations are possible through the online store. Since NFTs result in the availability of new revenue streams, it’s important to ensure that your eCommerce site is set up to sell purely digital collectibles and mixed physical/virtual products, as well as leverage NFTs for loyalty.
Types of NFTs
On a broad level, there are five kinds of NFTs:
- Digital collectibles
- Tickets and access vouchers, including never-ending tickets
- Virtual real estate in the metaverse
- Digital art, music and video
- Virtual tokenization of physical assets for use online and in the metaverse
NFTs and the Metaverse
Gartner found that by 2026, “25% of people will spend at least one hour a day in the metaverse for work, shopping, education, social and/or entertainment”. Many brands are therefore opting to enter the metaverse with NFTs that are relevant to the immersive virtual world.
For example, Zara launched an NFT collection that allows their AZ Collection customers to “dress their avatars with the brand’s characteristic garments.” The virtual clothes are priced at the same rates as the ‘real’ versions.
The Metaverse and eCommerce
A few more examples: Nike partnered with Roblox to create NIKELAND, using which customers can play a number of games and buy virtual sneakers in the form of NFTs. Flowers for Society is a “new metaverse for collectors, sneaker heads and the NFT community”. Adidas has also recently made its first NFT collection, “Into the Metaverse”. By launching an eight-piece collection of free NFT apparel, menswear brand BoohooMan became the first accessible fashion brand to launch a digital collection.
The disadvantages of using NFTs
Intellectual property rights
How do you protect the NFT buyer and your own brand usage? The buyer has made a purchase for the sake of exclusivity, and your brand demands restriction of usage. Digital collectibles are simply files, which can in theory be shared extensively online, with or without due authorization. In addition, as these NFTs are a form of art, the IP rights of each stakeholder involved – the original designer, the digital artist, musician, coder, brand and customer – needs to be considered.
By documenting clear and comprehensive policies for each of these points early in the process, many of these pitfalls can be circumvented.
Regulations
Since the NFTs are logged on the blockchain, which does not allow the deletion of transactions, this may be in conflict with the General Data Protection Regulation (GDPR). Consider taking a technolegal opinion to ensure that your NFT program (and your online store generally) meet all local, national and international laws pertaining to data protection and security.
Another issue with NFTs is that they are perceived to be vulnerable to financial crime and money laundering. Since it is an emerging space, financial regulations are also evolving and varied.
Sustainability and the environment
Maintaining the blockchain for NFTs is a very highly energy-intensive process. Since NFTs are “most commonly minted on the Ethereum blockchain”, the transactions consume a huge amount of energy. “Analysts estimate that the average NFT consumes 75 kWh in its lifetime (with all transactions taken into account).”
Ethereum is moving toward a different method of validation, but that is still a long way to go. Think seriously about whether or not NFTs work for your brand right now, especially if environmental sustainability is one of your core brand values.
In the very near future, NFTs are going to be an integral part of eCommerce. Stay on the cutting edge with NFT implementation as part of your online store and on your eCommerce platform, even if you do not have a current NFT strategy.
Work with an experienced development, integration and implementation partner, like Ziffity, for the best results.
