I may or may not have bought a couple of GME stocks last month. Not one to be left out of the zeitgeist, I have recently been swept away by NFTs (Non-Fungible Tokens). Part curiosity and part confusion, wrapping my mind around what they are, what they could be, and where they come from has been a long, deep trek into the web.
To set the stage, let’s address a few things:
What (the fuck) is an NFT? This primer from Decrypt is a great overview (with plenty of links to turn a short read into a many-tabbed adventure):
Non-fungible tokens (NFTs) are digital assets that are provably unique, creating digital scarcity. They can't be duplicated or divided.
They have many use cases, including for digital collectibles, music, artwork, and in-game tokens.
How does one buy an NFT?
NFTs are generally bought with Ethereum (ETH) so you need a digital wallet with cryptocurrency to purchase them. However, there are a few exceptions such as NBA Top Shot where you can purchase simply with your credit card. NFTs are primarily sold on marketplaces such as Zora and Super Rare although since cryptocurrency is decentralized, peer-to-peer buying and selling is an option too.
Where do NFTs come from?
The market on NFTs is really new but has gained massive traction in the past thirty-ish days. Anyone can turn their digital work, content, creation into an NFT by minting it. “Minting” creates a new coin on the blockchain that is attached to said digital content forever acting as a deed and contract of sorts.
Here’s how poppin’ the NFT world has been over the past 90 days:
What’s the environmental impact?
I’m far from understanding the complexities of mining cryptocurrency and minting NFTs but word is that NFTs (and cryptocurrency on the whole) are extremely damaging and unsustainable as they stand. I’ll point you to Everest Pipkin's explanation and Brian Kahn’s take for more in-depth.
Beyond that, I won’t get too into the weeds as there are folks who have written about NFTs extensively and much more intelligibly than I could. I am however still waiting for someone to spoof (and obviously mint) Schoolhouse Rock, “How Art Becomes an NFT.” In the meantime, for your enjoyment:
Now, let’s irresponsibly pretend that the environmental factors are figured out, and we move into an NFT world. There is A LOT to be excited about! Most use cases are art, music, and other digital collectibles such as gifs and video clips. One more thing, while NFTs are digital, what they represent doesn’t necessarily have to be. See socks and Kings of Leon.
Broadly NFTs represent things that are made by creators. As such, they can enable updates to the way we can authenticate, track, sell, and even fund creators. Identifying information about each NFT is coded into a smart contract, which includes basics such as the creator’s information, a record of sales and can also outline terms of the agreement such as where the proceeds from reselling go. Effectively, if included in the smart contract, an artist could continue to collect a percentage of profits from future sales in the secondary market - this is exciting!
While there are infinite possibilities as to how NFTs can and will be used in the near and far future, I’m currently interested in how they might be leveraged in the hype sneaker market. In fact, Nike has been in the crypto game since 2019 having filed a patent for CryptoKicks, a system that generates a digital asset for a physical shoe that can be traded.
If you’ve ever taken an L in the SNKRS app and then tried to nab your grail kicks on a resale marketplace, you’ve likely been shocked by the prices - and wondered how the hell everyone else is scoring sneakers. The resale market is extremely lucrative with industry leader StockX recently valued at $2.8 billion in a market projected to reach $6 billion by 2025. Sneakers have become an asset class unto themselves - just ask Josh Luber. But Nike isn’t seeing any of that resale profit, which can be literally 10x the retail price of some kicks. And on the flip side, even if you’re happy to buy on the secondary market, counterfeit sneakers are a $450 billion market and as much as resale marketplaces want to guarantee authenticity, they simply can’t. Everyone loses but the reseller.
Cue NFTs. If Nike generated NFTs for sneakers that were anticipated to resell, they could do a couple of things:
Guarantee authenticity: The creation of an NFT would act as a certificate of authenticity and would also track ownership and previous sale prices. Go on, purchase with confidence!
Dynamic smart contracts: Nike could create interesting clauses to control resale prices. They could cap the resale price or, similar to artist royalties, summon a percentage of profits back to Nike every time the sneaker exchanges hands. This would limit upside and discourage resellers (and thus, bots), making scoring sneakers more accessible to those who actually want to own and wear them! Would a move like this shift the current mindset of buying hype sneakers? If they were no longer treated as an investment first and sneakers second, would people be more mindful about their purchases and buy because they truly wanted to own or wear them? Or do people simply buy to brag and the future is digital sneakers and NFTs might best be used without a physical sneaker, period? I hope not and I think not. Sneakers have always held personal and cultural value beyond their price tag and a return to that would be quite fun.
Now let’s say Nike doesn’t care for price caps or about reaping secondary market profits. They could instead include clauses in the smart contract that route a percentage of resale profits to organizations they support, such as their Made to Play initiative. Or back to sneaker designers, such as Virgil Abloh whose Off White collabs with Nike have become instant grails items time and again. Abloh could decide to pocket the proceeds or use them to fund his own initiatives, such as the “Post-Modern” scholarship fund which offers tuition support for Black students in fashion. Efforts like these are an opportunity to support and elevate communities who often inspire fashion, design, and marketing but don’t have the opportunity to be a part of the creation process itself, much less reap the benefits. Using this platform to foster talent is a great way to support emerging designers and seed future collaborations. Remember, we are rapidly moving into the creator economy. Nike could become an incubator for next-generation talent. Imagine the brand equity that this would equally create.
With NFTs very much in their infancy, there’s no knowing what will come next. But isn’t that the exciting part?