A Beginner's Guide to NFTs
At its core, marketing is about innovation. Marketing is about creativity. Marketing is a constant battle to capture your audience’s attention, and you can only do that if you are in tune with the most current methods to deliver an experience that stands out.
Right now, the application of blockchain technology to create branded NFTs (non-fungible tokens) is one of the most novel ways to deliver that experience.
While NFTs are still a relatively new venture for most companies, they have become incredibly popular. As of late, when companies put NFTs up for sale, they often sell out within a matter of minutes. When Rebecca Minkoff launched an NFT counterpart to its “I Love New York” collection, all 400 of the digital garments sold out within 10 minutes. Now, the company says it’s planning an even larger release for February.
Understandably, words like crypto and NFT can be intimidating for someone not familiar with newer advances in blockchain technology. That doesn’t mean brands should, or really can, opt out of participating, though. If you don’t capitalize on new technology to reach your target audience, your competitors will.
So, let’s talk about what NFTs are, how consumers can purchase them, and how brands can use them in marketing strategies.
What is an NFT? How Do They Work?
An NFT, or non-fungible token, is essentially a piece of digital artwork or proprietary content that can only be purchased using some form of cryptocurrency via the blockchain network. In simpler terms, NFTs are created solely for digital use and distribution. In most cases, they aren’t linked to tangible goods, and all NFTs are purchased via a network of decentralized computers that verify and complete the transactions.
There are several types of cryptocurrencies in circulation as well as several different digital marketplaces that can be used as a means to sell NFTs. At the moment, the most popular cryptocurrency traded for NFTs is Ethereum. However, there are many types of cryptocurrency consumers can use to purchase NFTs with their options being dependent on which marketplace the company is using to sell the NFT.
Each marketplace has its own features that can be pros or cons for sellers based on what their needs are. For example, if a brand’s priority is to have the most accessible means of purchase, they might use a marketplace that allows consumers to purchase NFTs with debit or credit cards in addition to cryptocurrency, such as Nifty Gateway. However, if the brand’s priority is to keep usage costs down, they might use something like OpenSea.
One of the key factors of crypto transactions that makes them so appealing is that there is virtually no opportunity for fraud. All transactions that take place on the blockchain are verified independently within the decentralized network, and verification is based solely on mathematics. There are three possible methods of verification: proof of work, proof of stake and proof of authority. Brands should choose which type of blockchain protocol and verification method they use based on their brand identity and values. (See explainer at end of article for definitions.)
How Should We Use Them?
Now that you have a better handle on what NFTs actually are, we can dive into some of the exciting ways to use them as tools for marketing.
It’s no secret that we live in a world where technology plays an integral role in our lives. So, it checks out that many consumers are willing to purchase entirely digital commodities. However, NFTs are still relatively new. In fact, according to a recent survey from Forrester, nearly half of U.S. online adults had never heard of them before.
There is still a significant portion of the market that needs an education about what NFTs are before they can be persuaded to purchase one. Therefore, campaigns to promote NFTs should not only convey the benefits of purchasing one specific token, but should include information about why purchasing goods that aren’t tied to any physical object is a good idea in general.
It’s all about finding something proprietary that you can digitize and package for consumption. Right now, many NFTs are still auctioned off as novelty art pieces, which is what they primarily started out as. Brands can use novelty-type NFTs to generate hype and draw attention to a campaign, like the McRib content that McDonald’s gave away in a sweepstakes to coincide with the return of the McRib sandwich. Thousands of people entered a contest to win a picture of a McRib. If that’s not a clear indication that NFTs can build hype for anything, I don’t know what is.
However, some NFTs have utility outside of their design aesthetic as well. For example, many luxury fashion brands have tapped into an entirely new area of the industry by creating digital clothing that people can buy for their avatars in virtual reality games and scenarios.
The functional aspect of an NFT can even be more basic than that, though. To raise money for charity, Stella Artois auctioned off celebrity chef Marcus Samuelson’s famed fried chicken recipe and a video of him offering tips and tricks for the best chicken. It’s just a matter of creating something unique.
Across the board, being successful with NFTs is about designing something that feels exclusive and special, which many brands accomplish by auctioning off their NFTs on a one-to-one basis or releasing them in limited quantities.
Plain and Simple: What are the Benefits?
Brands are always looking for new ways to demonstrate that they care, whether that be about the environment, people in crisis, small business, etc. Brands are also always looking for ways to strengthen their identity and build loyalty. NFTs are a great vehicle to facilitate charitable giving and generate publicity simultaneously.
Since NFTs are still relatively new, an NFT release from any brand will likely receive a decent amount of coverage. People are fascinated. So, like many brands have done, if you auction off NFTs and donate the proceeds to charity, you’ll generate positive buzz. Additionally, creating NFTs allows brands to commodify any message or campaign they’d like, which contributes to a stronger brand identity.
Bacardi recently did a release of purpose-driven NFTs surrounding their mission to highlight the underrepresentation of women in music production. Consumers were given the opportunity to purchase a mix tape recorded by one of three aspiring female musicians whose tracks were minted into NFTs. Bacardi also took the extra step of choosing a marketplace to sell the NFTs that was built for small artists so that sales from NFTs would benefit the musicians.
Evidently, there are many nuances as to how NFTs can be purchased that marketers really have to think about to make sure their overall strategy aligns with the brand. For example, if a brand that marketed itself as eco-friendly was to start selling NFTs via a network that operates on proof of work, they would likely be criticized for hypocrisy because proof of work is not considered an energy-efficient model. On the other hand, a brand could certainly win brownie points by choosing to operate on a network that runs on a more environmentally conscious verification system like proof of stake or proof of authority.
If a brand wants to structure their NFT marketing strategy to promote the sale of physical products, even that is a possibility. Clinique held a contest via social media for customers to win NFTs inspired by iconic Clinique products and early access to product launches. Not only did Clinique’s contest promote engagement with their social media, but it also incentivized consumers to shop their product launches.
Truly, the possibilities are endless when it comes to how NFTs can benefit brands. Start learning about the technology now and consider whether it might not be so scary after all.
Proof of work verification: Proof of work verification constitutes an ongoing race between all nodes, or computer clusters, within the network to verify transactions, with compensation awarded to the first node who is able to verify each transaction successfully. That decentralized, merit-based approach is meant to maintain the security of the blockchain, and it does. However, when so many computers are completing the same operations repeatedly, that takes up a fair amount of energy. Therefore, proof of work has been criticized for generating too much emissions.
Proof of Stake and Proof of Authority Verification: As alternatives to proof of work, proof of stake and proof of authority are newer, more energy-efficient options for verification. In both methods, only one node within the network is selected to verify each transaction, and a handful of others are selected to authenticate that verification. Nodes are selected based on either how much cryptocurrency they currently have invested in the network, proof of stake or their track record for correctly verifying transactions in the past, proof of authority.