By Nilesh Khandelwal, Principal, Global Telecommunications, Information Technology, Media & Electronics (TIME) practice, Arthur D. Little
As the capabilities of blockchain expand, NFTs, or non-fungible tokens, have emerged as not only a revolutionary and innovative technology but one that is widely popular and ‘catchy’ to the public. NFTs are immutable, verified representations of a unique object that has value. Non-fungible assets, ones that are not interchangeable such as your degree or the Mona Lisa, have existed for some time. What makes NFTs different is the certificate of authenticity for these digital assets that can be maintained without a central intermediary or authority. This is only possible because these assets live on the blockchain, which is a decentralized network of data. These attributes, along with the accessibility of the NFT market where users simply need to set up a compatible wallet, have contributed greatly to the growth of NFTs.
Although the first NFTs were created in 2014, they didn’t pick up much traction. It wasn’t until people realized they wanted to trade assets and collectibles other than Bitcoin that the popularity of NFTs began to explode and the market growth in early 2021 was unlike anything seen before. Weekly NFT sales went from around 11,000 units in January 2020 to over 600,000 in 2021. This growth is tied to several factors, such as insane runs in cryptocurrencies like Bitcoin and Ethereum, the emergence and success of popular marketplaces such as NBA TopShot and CryptoKitties, as well as the growing digital collectibles market, which advanced further due to the COVID-19 Pandemic.
Another major reason for the recent attention and growth in NFTs is the emergence of marketplaces that can be labeled as ‘hype generators’. These marketplaces and auctions function with significant attention drawn to a select few users bidding very highly for certain collectibles. NFT art auctions are most commonly hosted by traditional auction house giants such as Sotheby’s and Christie’s. These auctions often generate both extremely high NFT transactions, with one particular moment that resulted in a media frenzy over a ‘world record’ sale. This was seen in March 2021 when digital artist Beeple sold his piece “Everydays” in a Christies auction for $69.5 million, making it the most expensive digital piece ever sold. Almost equally as intriguing, 91% of “Everydays” bidders had never participated in a Christie’s auction previously.
NBA TopShot is an online marketplace where users can buy, sell, and trade virtual sports cards of highlights or “moments”. Developed by DapperLabs, TopShot quickly became one of the most popular NFT marketplaces, largely for its immediate scalability and access to the already existing market of basketball fans. TopShot is organized on a ‘pack drop’ based system, where collections of common, rare, and legend tier moments are released together, and then users can buy, sell, and trade them individually. TopShot’s immediate popularity resulted in over $639 million in sales to date since the platform’s launch in October 2020 and ranks as the fourth-highest volume of any marketplace and the second-highest number of total users (DappRadar). Despite being a shining model for initial success in the NFT realm, NBA TopShot’s trading volume has decreased greatly since its peak earlier this year, as it has in essentially every marketplace.
The truth is, NFTs and the market for NFTs are not sustainable and cannot rely long-term on extreme hype. Christie’s sale of an NFT artwork for millions of dollars is extremely useful in spawning media buzz, but the pool of potential buyers is extremely limited. At what point will these million-dollar purchases dissipate from mainstream media? NBA TopShot was more successful in targeting a larger market, but still, significantly more attention was brought by the Lebron James dunk sold for $208,000 in February than the trials of the common user trying to turn a profit or build their collection. The question remains whether the top percentage of sales will power TopShot to survive and thrive beyond the so-called ‘collectible craze’.
WWE provides a very promising model for the mass market, combining ‘TopShot like’ collectibles with other physical and digital selections such as events, celebrities, and merchandise into a variety of tiers and offerings. Pairing a limited Undertaker Token with a perk-filled trip to Wrestlemania 38 in Dallas and a personalized video from the Undertaker himself provides WWE an aspect of survivability and uniqueness through these experiences, one which NBA TopShot lacks.
Separate from marketplaces like those mentioned above, encouraging opportunities to alter and improve current functions with NFTs have risen across many industries. Concepts for NFT ticketing and proof of attendance in sports have already attracted interest from teams and organizations, with some even beginning to roll out. Ukrainian soccer giant, Dynamo Kyiv, announced that the club will sell 25% of its ticket sales through NFTs. A move that will not only allow their fans to cherish these assets digitally for as long as they live but also raise the club’s credibility as a technological leader in European football.
Many other NFT platforms’ growth plans include innovating already existing patterns and practices. GameOn lets fans connect, make predictions, track live scores, and be rewarded during every moment of their favorite sports, TV shows, and live events. It exemplifies how wide-ranging gamification can extend in the future of superfan engagement and the adoption of NFT collection. Sweet.io, another growing company, offers retailers flexible distribution and minting options for branded NFTs across multiple marketplaces, making digital assets easier to acquire without much crypto knowledge or expertise.
Stretching from proof of attendance and fan engagement to media consumption, the opportunities for similar NFT uses are encouraging. The real potential and future of NFTs lives in this realm, beyond the hype of blockbuster transactions dealing strictly over collectibles. WWE and Dynamo Kyiv present just two examples of the many emerging NFT implementations that provide a positive uniqueness to offerings that attach themselves to already existing fanbases and markets. The impact from the combination of these traits will allow these platforms and services to outlast those built only on the principle of collection. The potential NFTs have here to transform and disrupt functions and industries goes far beyond the effect of the initial boom in the NFT hype.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.