These days it’s hard to ignore the buzz swirling around non-fungible tokens, or NFTs. In April Zoe Roth, the subject of a meme known as “Disaster Girl”, sold the photo that sparked the meme as an NFT for $500,000. Actually Zoe, who is all grown up now, sold the NFT for 180 ether, which is a cryptocurrency whose exchange value fluctuates like any other currency.
Roth’s father took the notorious photo of her standing before a house on fire (it was a planned burn as part of a training operation) when she was four years old. She’s now a senior in college. The Roth’s sold the NFT so Zoe could pay off her college debts, with the rest going to charities. A classic Gen-Z story if we’ve ever heard one.
The crypto coin being dropped on NFTs gets way sillier. The first purely digital art work to be auctioned off as an NFT in a traditional house — a collage of digital sketches created by the artist Beeple — sold at Christie’s for $69 million. Somehow I doubt Beeple will be putting the proceeds of his historic jpeg sale to such noble purposes.
Has the world lost its mind after a year of living on Zoom? What is it about NFTs that makes them such a hot commodity right now? And, to bring it down to earth for a moment, is there something about NFTs that may actually prove useful for digital marketers in the long term?
Manufacturing Scarcity for Digital Goods
Though they haven’t grabbed headlines like NFTs, digital goods have been around for a while in the video game world. Players of the popular game Fortnite can buy V-Bucks, in-game currency, which can be used to buy new outfits and weapons. It’s a hugely profitable business model. Fortnite, a free-to-play game, generated $4.2 billion for Epic in in-game purchases between 2018 and 2019 (until Apple and Google pulled the game from its app platforms, but that’s another story). Yet digital goods have not been seen as holding any value for collectors because they can be easily copied, until now.
All NFTs, including the “Disaster Girl” meme and Beeple’s digital mega-collage, are stamped with a unique bit of digital code that marks their authenticity and stored on the blockchain, a kind of ledger system that underlies bitcoin and other cryptocurrencies like ether. During the encryption process each NFT is assigned a digital signature setting it apart from every other NFT of its kind. This creates artificial scarcity, which in practice creates value.
The trade of NFTs marks the evolution of the blockchain technology that made bitcoin and ether viable currencies. If bitcoin tokens are like blockchain-verified dollar bills, then NFTs are like blockchain-verified works of art. The value of a dollar bill remains relatively static and interchangeable with all other dollar bills, but the value of a work of art can vary widely, depending on a number of factors, including who has owned it previously, how many works were made in the series, and how highly the culture rates the artist/work, all of which is subject to change.
We now live in a world where one-offs and limited editions of digital assets can be valued just like physical objects, from rare works of art to basketball highlights. Which brings us to the next NFT success story, NBA Top Shot. The software company Dapper Labs, partnering with the NBA and the NBA Players Association, was the first to really cash in on NFT technology with the wildly successful launch of Top Shot, a marketplace for buying and selling NFTs. But before we get into that, we have to talk about CryptoKitties. Yes, NBA Top Shot would not have been a breakout success without CryptoKitties having paved the way.
From CryptoKitties to NBA Top Shot: The Mainstreaming of NFTs
Cryptokitties was the first game to push blockchain technology into the mainstream, when traffic from its 1.5 million users flooded ethereum’s blockchain. The game, developed by Vancouver-based Dapper Labs, involves “breeding” and trading digital cats purchased using ether, ethereum’s native token. By 2018, with celebrities getting in on the action and sales of digital kitties exceeding $140 million, Dapper Labs began attracting major investors.
In a sense, Cryptokitties was a proof of concept that NFTs could acquire value. Silicon Valley investors pumped millions into the startup. By then the formula Dapper Labs would use to launch Top Shot was in place: create a line of digital products that are perceived to be scarce and gamify the experience of buying and trading them.
When collectors saw how quickly they could buy an NFT and watch it appreciate in value, the marketplace exploded.
Their next project was Top Shot, a marketplace for collectible digital basketball memorabilia in the form of video highlights, called “moments”. These moments are put into circulation in “pack drops,” which have become much anticipated events, attracting more buyers than there is supply. When collectors saw how quickly they could buy an NFT and watch it appreciate in value, the marketplace exploded. Superfans combined with speculators to flood the site with new users.
Analysts from the fantasy sports world, like our friends over at Add More Funds, jumped in to create tools to help Top Shot-ers keep an eye on the market. As of March 2021, Dapper Labs had moved $230 million in NBA Top Shot moments. The top-selling Top Shot, a LeBron James dunk, sold for $200,000 and has since increased in value by about $30,000. Not bad for what is essentially a basketball card.
The marketing geniuses at Dapper Labs and the NBA and the novelty of the technology played a big role in creating anticipation around pack drops. Like Cryptokitties, NBA Top Shot is a very gamified experience. But where Cryptokitties is more like a Sims Life experience, NBA Top Shot harnessed the logic of the limited edition sneaker release and translated that sense of getting in on an exclusive offering to the digital space.
There’s more that goes into creating value for a digital asset than just scarcity and gamification. For the NBA superfan/collector, as opposed to the speculator, the opportunity to own a piece of franchise history is part of what gives a moment its intrinsic value, and the marketing people behind Top Shot have seized on this, building brand loyalty in the process.
Flow, the open source blockchain platform Dapper Labs built to sell Top Shots, is a very valuable piece of digital infrastructure.
Whether or not Top Shot remains as hot as it is now, one thing is for certain. Flow, the open source blockchain platform Dapper Labs built to sell Top Shots, is a very valuable piece of digital infrastructure. After another round of capital-raising, Dapper Labs is now valued at $7.5 billion.
Smaller players are able to use Flow too, like the first cohort of artists who will soon have a new market for NFT works in Versus. These artists will be able to pocket a bigger cut of sales than they could currently in the gallery system, which typically takes half. At the same time buyers of unique digital-native works can buy with confidence that the works are indeed the originals, a win-win for artists and collectors.
Creating Memorable Digital Experiences
We’re bullish about NFTs, and not just because our friends are having a lot fun trading Top Shots. For marketers, the possibilities being opened up by NFTs are just starting to emerge. Dapper has already shown that NFTs can be used to create new ways for fans to interact with beloved brands, building brand loyalty, not to mention netting revenue for the league and the players.
The illusion of scarcity is a classic tool in the traditional marketer’s toolkit, as is the ability to create a sense of occasion, both of which have been difficult to pull off in online settings. NFT ticketing, which limits access to multimedia content to ticket-holders for a brief window, is another area where a sense of exclusivity and occasion can be created around a brand. The Kings of Leon, for example, just dropped an album that was only available on the website YellowHeart in a limited number of copies for a limited period of time.
Sure, it’s still easy for people who didn’t buy the Kings of Leon album on YellowHeart to acquire a pirated copy, but that’s missing the point. With NFTs you can create a sense of an album actually dropping in the digital space, with all the excitement that used to attend to such events, and this really wasn’t a possibility before. And who knows, the records that those select fans purchased could become collectibles some day. As with all things NFT and crypto, the value is all in the eye of the beholder. And the token-holder.
Far from a fad, NFTs and the blockchain technology they rely on are here to stay. But without the ability to easily cash out on NFT marketplaces like Top Shot, buying and trading is still a bit of a gamble. That said, NFTs are a great new way for marketing people to create a sense of occasion and exclusivity around digital experiences. We’re keeping our eye on the potential marketing applications of NFTs, so be sure to subscribe and check back for updates.