NFTs 101: What are Non-Fungible Tokens (NFTs)?

NFTs 101: What are Non-Fungible Tokens (NFTs)?

Taylor Grenawalt

Director,  Research & Insights

January 24, 2023

6 Minutes

In the pursuit of identifying new and innovative means of building engaging technology ecosystems and enhancing brand presence, a new technology has emerged in recent years: non-fungible tokens (NFTs). The rise in popularity and adoption of decentralization and blockchain technology, alongside increasingly digital interactions and engagements, have both served as catalysts to this new technology that has the potential to revolutionize how we think about digital assets, as well as how enterprises effectively engage with audiences in the digital world.  

NFTs defined

NFTs are blockchain-based, cryptographic digital assets that are non-interchangeable and that cannot be divided into smaller units. They possess unique digital identifiers that provide for certified ownership and authenticity and can be utilized to represent a wide array of assets and a variety of purposes. Although NFTs can represent and derive value from their representation of intangible digital assets, they can also represent physical, real-world items, assets, and services as well. Through the tokenization process, any digital or real-world asset can be transformed into digital tokens that represent that asset’s digital identity, which can then be purchased and sold between entities and individuals.  

NFT Infographic

Why are NFTs important?  

NFT's underlying characteristics and attributes have served to propel the adoption of and engagement with NFTs, both from a consumer and an enterprise perspective.  

Through the use of blockchain technology and distributed ledger technology (DLT), NFTs confer issuers and holders the benefits of ownership immutability and tracking. With each minted asset receiving a unique digital identifier that is immutably recorded on a distributed blockchain, NFT issuers and holders are able to accurately validate asset authenticity, as well as track and verify the chain of ownership. This has been very appealing to digital artists, as they have better visibility into where their digital art and physical art is.

In addition to accurate authenticity and ownership verification, the incorporation of DLT can also serve to provide enhanced security and privacy. By virtue of being maintained through decentralized distribution across a network of users, rather than being centrally controlled by a single entity, NFT transactions are immutably recorded and lack any single point of failure or attack. As such, the absence of a centralized intermediary and the use of blockchain technologies yields greater security and privacy in transactional NFT activities.  

As a digitally represented asset, NFTs afford a wide range of development, deployment, and functionality approaches that can be tailored to an enterprise or brand’s specific purpose. Entities can craft NFTs for gaming purposes, such as providing in-game collectibles or virtual avatar accessories, as well as for marketing and brand awareness purposes. Creators and digital artists may use them to issue limited-edition NFT artwork and other digital assets and track and monetize consumption. They can even be used for fundraising purposes or to provide fractional ownership of real-world assets, such as real estate or media. Furthermore, the possession of certain NFTs can provide real-world benefits, such as redeemable reward points or exclusive event and product access.  

From an enterprise perspective, given the high degree of flexibility and functionality, NFTs can be employed for a large and diverse set of strategic purposes. In an increasingly digital social and business world, NFTs present new opportunities for customer acquisition and engagement, ecosystem and brand development, market and audience expansion, community and loyalty building, and revenue generation. Additionally, NFTs can incorporate smart contracts, which are self-executing agreements that can automate and govern activities between multiple parties. These capabilities serve to further not only operational efficiency and effectiveness, but also expand the application opportunity set available to enterprises.  

What are some popular NFT marketplaces?

Some popular NFT marketplaces include:

  • OpenSea: an open marketplace for buying and selling NFTs, including digital collectibles, artwork, and other unique digital assets
  • Rarible: allows creators to mint, buy and sell their own NFTs
  • SuperRare: a curated marketplace for digital art NFTs
  • KnownOrigin: a marketplace for digital art NFTs, with a focus on established and emerging artists
  • Foundation: A marketplace for digital art, music, and collectibles.

NFT marketplaces typically use blockchain technology to create unique, one-of-a-kind digital assets that can be bought, sold, and traded like physical assets. When someone buys an NFT, they are buying a unique digital file that is stored on a blockchain, and the ownership of that file is recorded on the blockchain as well. This means that NFTs can be bought, sold, and traded just like physical assets, and their ownership can be easily verified.

What are some enterprise examples of NFT adoption?  

Starbucks: The Starbucks Odyssey initiative represents an NFT rewards program extension. Reward members and company employees can complete interactive activities to earn collectible NFTs. As individuals collect NFTs and accrue reward points, they will have the ability to access real-world benefits and experiences.  

Nike: The .SWOOSH digital community launched by Nike will serve as a hub for users, collectors, and fans to learn about and gather digital collectibles such as sports goods, sneakers, and other related collectibles. These NFTs can be won and worn in digital form in immersive games and experiences, as well as provide for real-world access to products and events.   

Gucci: Fashion giant Gucci has been one of the more active and aggressive brands incorporating blockchain and NFT technology and embracing digital artwork. The company maintains an online marketplace containing rare vintage and novel Gucci creations by handpicked designers, an NFT digital art and fashion auction house, and a slew of other offerings aimed at producing a creative NFT and brand ecosystem to further engage and monetize customers.

NBA: The NBA’s Top Shots program allows fans to purchase digital trading cards containing GIFs of basketball players. Alongside these rare digital items, the program includes fan challenges to incentivize collection and participation, which can then reward users with additional NFT collections.  

What’s next for NFTs? 

NFTs certainly face their own set of challenges and hurdles to greater adoption and use, particularly as uncertainty and volatility weigh on cryptocurrency-related verticals and technologies. As a relatively nascent technology, NFTs and their applications will inevitably undergo changes and transformations. Nonetheless, as long as they continue to confer the advantages and opportunities previously described, willing and able enterprises are likely to continue to experiment with their effectiveness in expanding brand ecosystem reach and engagement, as well as in tapping into new profitable revenue streams.  

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