There are seven steps to consider for integrating NFTs successfully into a business. Having infrastructure partners that are flexible and able to support multiple use cases, marketplaces, and blockchains through these seven steps is important in considering NFTs. Many of the solutions today are vertically integrated; in the future, the expectation is that there will be more flexible enterprise solutions.
1. Define & Identify NFT use case
First and foremost, there should be alignment on how NFTs will be used. Depending on the use case, there are different mechanisms to design an NFT, like edition size and distribution. Some of the most prominent use cases seen to date include collectibles, art, gaming, and experiences.
Collectibles:
The digital scarcity that NFTs enable is a natural fit for collectibles or assets whose value is dependent on there being limited supply. Some of the earliest NFT use cases include CryptoKitties3 and CryptoPunks4 (10,000 unique pixelated characters), with individual CryptoPunk NFTs like Covid Alien selling for $11.75 million5. More recently, popular brands are creating NFT-based collectibles, like NBA Top Shot™6 moments, which are digital basketball cards, but instead of static images, these NFTs contain video highlight moments from NBA games.
Art:
NFTs enable artists to sell their work in its natural form factor as opposed to having to print and sell pieces of art. Additionally, unlike with physical art, the artist can receive revenue upon secondary sales or auctions, thereby ensuring they are recognized for their original creations in subsequent transactions. NFT marketplaces devoted to art-based NFTs, such as Nifty Gateway7 , sold/auctioned over $100M of digital art in March 2021 (Crypto Art, n.d.).
Gaming:
NFTs also provide significant opportunity for gaming thanks to the ownership opportunities they introduce. While people spend billions of dollars on digital gaming assets, like buying skins or costumes in Fortnite, the consumers do not necessarily own these assets. NFTs would allow gamers playing crypto-based games to own assets, earn assets in-game, port them out of the game, and sell the assets elsewhere, such as an open marketplace.
Experience:
Exclusive Member Clubs
Why NFT?
As an NFT, the membership becomes an asset to the token holder, which can later be sold, transferred or leased to others on the secondary market. By utilizing NFT’s, “Exclusive Member Club – ECM” is able to create a loyal, member-community that we can provide special experiences for. NFT’s create new modernistic financial models, which will allow ECM to deliver an exceptional and sustainable product for years to come.
2. Determine the appropriate blockchain
Selecting the appropriate blockchain requires evaluating tradeoffs across multiple dimensions including throughput, transaction cost, existing ecosystem of applications, and degree of decentralization. Additionally, while a business may start creating NFTs on one blockchain, there are likely to be many other blockchains that support NFTs in the future and they may want to create NFTs on multiple blockchains. The ideal infrastructure partner would support multiple blockchains and enable interoperability of assets between blockchains.
Ethereum is the blockchain with the most NFT activity, but there are other blockchains gaining traction with NFTs, like Flow
One of the greatest sources of value of a blockchain comes from attracting a broad set of users and developers. This helps to support and further decentralize the network by running the blockchain software on various computers and add value by building capabilities on the blockchain. Ethereum has an incredibly robust developer ecosystem, and blockchains like Flow are getting more third-party adoption. Although it would be possible to create proprietary blockchain software for the sole purpose of storing NFTs, doing so would limit the ability to realize these benefits.
3. Mint the NFTs
After determining what content to use, the NFT needs to be created, or minted. To mint an NFT, a cryptographic key is used to create a token on the blockchain that represents a piece of digital media. Important characteristics, like the name, description, and the edition size can be included within that token. Once an NFT is minted, it is immortalized on the blockchain. It is important to have a minting platform that gives flexibility and control over the features of the NFT.
There are several platforms that can help with the minting of NFTs. It is important to note that the ecosystem for this is in its infancy – the majority of platforms like OpenSea and Rarible are positioned for any creator, often including brand-new creators, but there are platforms focused on supporting brands and larger creators – Bitski has done drops with the likes of Adidas and Levi’s, while Gary Vaynerchuk’s VeeFriends drop was on Nameless – and many more are coming into the space. In creating NFTs, companies are well-advised to find providers who will mint NFTs according to custom smart contracts so that companies have as much control as possible over the parameters of the NFT, including provenance, attributes of the NFT, and storage of the underlying media asset.
https://www.nftboxes.io/ !!! ART Collectible Boxes of several pieces
NFT Provider. https://www.nft42.com/
Note: Why On Chain?
NFTs that store their metadata on-chain and redundantly will be around forever. NFTs whose metadata are stored off-chain are at the mercy of 3rd-parties that can and will sometimes go bust, which in turn dooms all the media involved.
nft42 thinks creators and collectors should have complete sovereignty and be able to rest easy knowing their NFTs will be around for the long run, not just the next few years. That’s why we’ve built our Avastars and nameless projects with on-chain minting at their cores: digital durability is key.
Case: FlyfishClub
Flyfish Club (FFC) is the world’s first member’s only private dining club where membership is purchased on the blockchain as a Non-Fungible-Token (NFT) and owned by the token-holder to gain access to our restaurant and various culinary, cultural and social experiences.
Membership Allocation
Presale: 350 Tokens
252 FLYFISH & 98 FLYFISH OMAKASE
Private sale on Dec. 15th, 2021 for investors, partners and contributors that have helped us along the way
Public Launch: 1,151 Tokens
948 FLYFISH & 203 FLYFISH OMAKASE
Allocated to public launch on Jan. 7th at 11 am, 2022
Reserves: 1,534 Tokens
1450 FLYFISH & 84 FLYFISH OMAKASE
Held back to VCR ownership to further build the brand, engage the NFT community, create partnerships and collaborations, or sell/gift to ensure the project is sustainable and scalable
4. Decide how to store digital assets in a long-term sustainable way
NFTs are either minted to contain the digital content file itself or to contain a reference to the digital content. Accordingly, it is important to understand how the digital content being distributed by the NFT is being stored. Many of the existing platforms that creators can use to create NFTs will host the media files through either decentralized or centralized storage methods described below:
Directly on the Blockchain
When this occurs, the token as well as the digital content is stored on the blockchain. Because the storage capacity allocated by the blockchain software can be limited, the file size allowed can be rather small. At least for now, many companies find storing digital content on the blockchain directly to be cost-prohibitive.
Decentralized Storage
When storage files are spread across a distributed network, there is no dependence on a single entity. Developers of these peer-to-peer storage protocols, such as Arweave, offer varying degrees of storage permanence for different price points.
Centralized Storage
There is also the option to use storage from a central provider like many wellknown cloud storage providers today. In this model, the NFT marketplace provides the service of storing the digital content through its relationships with its cloud providers. There is a dependency on the provider and the NFT creator to continue to host the asset – if the media is no longer hosted, the NFT will not point to anything.
5. Store and access NFTs securely and easily – custodial vs. non-custodial wallet
Similar to cryptocurrencies, NFTs are stored in a crypto wallet – the digital equivalent to an address. There are several crypto wallets available, including wallets from top exchanges that manage assets on the consumer’s behalf to wallets that give consumers direct control over their assets. To maximize the addressable market, it is important to be able to integrate with many of these wallets, so that NFTs can be deliver to a maximum number of digital addresses.
There are two primary models for wallets – ‘custodial’ or ‘non-custodial’. Consumers that interact with crypto often prefer the ‘non-custodial’ model, as it gives them full control over their assets. As an example, platforms like SuperRare10 and OpenSea11 integrate non-custodial wallets, which means the consumer is responsible for securely storing the private key that allows them to access and to trade their NFTs. Each of these platforms has connectivity to specific third-party crypto wallets that provide encryption and security to users.
There are two primary models for wallets – ‘custodial’ or ‘non-custodial’. Consumers that interact with crypto often prefer the ‘non-custodial’ model, as it gives them full control over their assets. As an example, platforms like SuperRare10 and OpenSea11 integrate non-custodial wallets, which means the consumer is responsible for securely storing the private key that allows them to access and to trade their NFTs. Each of these platforms has connectivity to specific third-party crypto wallets that provide encryption and security to users.
By contrast, including a custodial solution can help provide a broader audience easy access to a business’s platform. If using custodial solutions, it is important that the solution is from a trusted brand with strong security, as it will be responsible for safekeeping the NFTs on behalf of the consumer.
6. Distribute across an applicable marketplace
Another important consideration is how to distribute NFTs. Factors for evaluating NFT marketplaces include: flexibility and control over the branding of the user experience; whether the marketplace allows users to purchase NFTs with fiat currency (dollars) or requires users to use cryptocurrency for purchases (for mainstream appeal, it is important to accept card payments); and the general audience of the NFT marketplace.
Below are some common examples of NFT marketplaces in the ecosystem today (although the NFT economy is evolving rapidly and Visa expects the landscape of marketplaces to do so as well).
Open Marketplaces:
These are broad marketplaces where anyone can create and sell NFTs. These platforms require cryptocurrencies to buy and sell NFTs. These platforms are ‘non-custodial’, so consumers must hold and store the assets themselves.
Crypto Native Curated Marketplaces:
These platforms require contributors to be approved to create NFTs and sell them on the platform. Similar to the open marketplaces, they require cryptocurrencies for payment, and have consumers custody the assets themselves.
Existing Closed NFT Marketplaces:
These platforms use their own storefront and branding, but will custody the NFTs on behalf of the consumers. These marketplaces often have fiat currency on-and-off ramps and accept card payments and enable withdrawals via ACH or Wire.
White-Labeled NFT Marketplaces:
There’s a spectrum of white-label marketplaces, from those that will provide a white-label storefront to full back-end infrastructure that enables the development of a custody marketplace. Storefronts enable easier integration, although how fiat on-and-off ramps work and how the assets are custodied may be made default. On the flip side, back-end infrastructure providers will provide much more flexibility but will require more technological lift.
Lastly, when intellectual property concerns relating to the digital content stored in the NFT are paramount, companies have collaborated to establish their own marketplaces that allow them to control the initial sale of the NFT, secondary marketplace, and unique features to incentivize keeping the NFTs on this platform. Setting this kind of platform up requires engagement of specialized technology vendors who can help set up and run the platform, which can be very expensive.
7. NFT Use Case & Engage Fans
Today, selling art and collectibles is the primary use cases for NFTs. While these use cases can generate revenue, there are untapped strategic opportunities that may be realized.
For example, one exciting aspect of NFTs is their composability. As the ecosystem develops, NFTs can be designed in a way that spans multiple use cases. This longterm utility enables deeper fan engagement and ultimately creates more valuable NFTs that generate additional revenue on secondary sales or auctions. This area is rich for potential and can span multiple phases of the customer experience:
Loyalty and Gamification:
NFTs can be used as a reward or loyalty mechanism to incentivize certain behavior. A consumer could buy an NFT in the standard way, paying with a card, and receive the NFT in their wallet. Alternatively, an NFT can be earned by completing a task, such as making a purchase at a specific merchant.
Utility Across Metaverses:
There are opportunities to imbue NFTs with enhanced utility by building functionality that can be used across different applications within multiple metaverses. For example, a previously issued NFT can be turned into an asset in a game release or grant access to future NFTs and experiences, thereby increasing the utility and value of the NFT.
Ticketing
In addition to being collectables, NFTs can be combined with event tickets to provide access to an event. These tickets can provide verifiable authenticity, provide royalties upon secondary sales or auctions, and even turn digital tickets into unique commemorative assets.
Fan Governance and Decision-Making
NFTs can be used to enable fans to impact decisions and outcomes of the team or brand. Companies are starting to explore NFT assets that grant fans certain permissions, such as voting rights for team decisions, the ability to compete in games and leaderboards, and earning unique rewards and VIP experiences linked to their teams
Fan Data with Pseudo-Anonymity:
A fan’s crypto wallet and the assets they own reflect that fan. The transparency of public blockchains enables interested entities to know the NFTs that a public key holds, which paints a picture of that consumer without revealing their identity. This can help inform marketing strategies and how to engage with the consumer in an ongoing manner.
TO CONSIDER
Considerations Associated with Change
Innovation, particularly in cutting edge areas, is not something that can be achieved on autopilot. NFTs are no exception, with a range of strategic considerations:
Risk Management: Many NFTs have high monetary value and given their exchange velocity (digital assets can be exchanged much more quickly than physical assets), there is opportunity for fraudulent activity. To minimize this risk, NFT platforms should leverage KYC and AML procedures, as well as security best practices like two-factor authentication.
Environmental Impact: Ethereum, one of the main NFT blockchains, uses a Proof of Work mechanism whereby it maintains a secure record of NFT transactions through a process called mining, which is energy intensive. However, there are other blockchains that use a Proof of Stake mechanism, which significantly reduces the amount of energy required and is a greener solution. Blockchains like Flow, Polygon, and Solana already use this, and Ethereum is working on developing a Proof of Stake model to support NFTs on the Ethereum blockchain. This is a particularly important consideration for businesses focused on sustainability.
Licensing and T&Cs: It is important to be clear what rights are bestowed to owners of the NFTs, and whether these are the same or separate from the rights associated with the material object the NFT refers to. These terms are generally provided contractually in Terms and Conditions from the creator or the ecosystem operator’s platform rules. Brands with strong IP generally retain all the rights, allowing very limited rights for personal use, while newer crypto-native projects may provide owners greater commercial rights.
Legal and Regulatory: Because NFTs are new, there is limited legal and regulatory clarity on how existing laws may apply. Laws that may be implicated include contract, property rights, intellectual property, sweepstakes/promotions, privacy, and securities laws. Furthermore, adding to the complexity, since blockchains operate across jurisdictions, transactions involving NFTs can implicate laws outside the United States. Lawmakers, regulators, and courts are still in the process of evaluating how to treat NFTs under existing laws, and whether new laws are needed to protect collectors, artists, and other participants in the NFT ecosystem. Accordingly, it is highly recommended that businesses consult an attorney that has the relevant subject matter expertise. Due to the regulatory uncertainty, there is risk in any transaction involving NFTs.
Fees: There are several fees to consider when creating and purchasing NFTs. •
Blockchain Transaction Fees: When conducting transactions on blockchains, there is an associated transaction fee to compensate for the energy used to make changes to the blockchain. This means that there is a variable cost of creating or selling NFTs on the blockchain. “Proof of Work” blockchains like Ethereum have higher fees than “Proof of Stake” blockchains like Flow. •
Marketplace Fees: Existing NFT marketplaces often charge a fee when sales or auctions occur on their platform, usually ranging between 1% to 5%. •
Infrastructure Costs: Operating a proprietary marketplace rather than leveraging an existing marketplace can provide additional control over the assets, where the files are stored, and how they are consumed, but comes with additional costs. In addition to marketplace sale or auction fees and transaction costs, there are other infrastructure costs like payment acceptance and custody (if storing assets on behalf of consumers).