Buzzwords like "NFT" and "metaverse" have been making waves in the US for quite a while now. By now the wave has washed over to Europe, and companies have discovered the trend for themselves too. What's behind it all?
Digital pictures of apes trading for hundreds of thousands of dollars: it's one of those stories that fills some people with sheer enthusiasm, and simply leaves others shaking their heads. The "Bored Ape Yacht Club," a collection of 10,000 such images, has been attracting a lot of attention since April 2021. You gain membership in the digital club by buying one of the limited-edition ape graphics. These show apes dressed in various outfits and distinguished by special features. Each picture is unique, and ownership of it is documented digitally through so-called non-fungible tokens (NFTs).
The "Bored Ape Yacht Club" is just one of the many phenomena of a growing spread of NFTs. What generates media presence in particular are NFT ventures by stars from sport and the entertainment industry, such as pop star Justin Bieber and basketball legend Shaquille O'Neal. Football world champion Toni Kroos also recently launched an NFT collection.
The appeal of the one-of-a-kind
"Non-fungible" essentially means "not interchangeable." To explain, here's an example: anyone who withdraws 50 euros from an ATM expects a certain amount of money, but not a specific banknote with a particular serial number. Anyone who buys a work of art, however, wants precisely that one. The NFT is not the work itself, but a kind of digital certificate of entitlement. NFTs can relate to all kinds of objects; they don't have to be digital images. Those, however, can be turned into one-of-a-kind items especially easily through slight variation.
NFTs also cause a stir because they are closely tied to blockchain technology and to crypto assets. The blockchain makes it possible to record transactions and titles of ownership, right down to contractual obligations, in a tamper-proof way within a decentrally organized network. NFTs are entered into the blockchain and traded in cryptocurrencies.
The next stage in the evolution of e-commerce?
Is this development pure hype, or is it paving the way into the commercial worlds of the future? People are already speculating wildly about it. If you believe the fans, NFTs could be a pillar of the "metaverse." The term became popular after a science-fiction novel published by Neal Stephenson in 1992, in which people interact with one another as virtual avatars in a digital space. Some may still remember the Second Life platform, which took up this idea in 2003 and, during its boom phase, grew to several million "residents." But they often didn't come back after a trial visit: the platform failed to catch on. Today, among others, Facebook, since renamed Meta, is attempting to revive the underlying idea. The vision: more than a billion users worldwide within ten years.
Forecasts like these are carried by hopes for further technological development and presuppose a growing willingness among consumers to immerse themselves in virtual worlds. Not least during the coronavirus pandemic, it became clear just how quickly demand for virtual encounters can spread.
Companies discover the trend
A whole series of companies around the world are now taking an interest in the link between NFTs and the metaverse. NFTs can be used as a marketing tool, for example for special customer clubs and customer-loyalty offers, but also as a sales market in their own right for virtual products. From digital clothing and jewelry for avatars to digital events and virtual store locations: many are exploring the possibilities. Digital platforms such as Decentraland and Sandbox, which market virtual plots of land in their "worlds," are already reporting "real-estate deals" worth millions.
In the long term, Meta anticipates hundreds of billions of dollars in revenue potential for e-commerce in virtual worlds. No wonder companies in the consumer-goods sector are following the trend particularly closely. Sporting-goods manufacturers such as Adidas and Nike, or luxury-goods providers such as Prada, have already set up NFT projects or taken stakes in specialized service providers. According to media reports, US retail giant Walmart has also already registered several new brands, pointing to concrete preparations for offering NFTs and virtual goods.
NFTs as an investment?
NFTs mostly make the headlines, though, when they fetch high prices on specialized trading platforms such as OpenSea. According to data from Chainalysis, the trading volume of NFTs settled via the Ethereum blockchain, the one most commonly used for these purposes, came to a considerable 44 billion US dollars in 2021. But prices are highly volatile and follow the logic of collecting rarities rather than that of investing.
In any case, speculating on profits from trading NFTs is highly risky for several reasons. Much like with real-world collector's items, the valuation is subjective. Settling the trades in volatile cryptocurrencies also brings its own risks. A stable investment is certainly not to be found there. That said, the developments surrounding blockchain, crypto assets, and new forms of digitalization remain exciting. When the first iPhone was unveiled in 2007, after all, hardly anyone foresaw the subsequent development of the mobile internet and its economic significance either.
