What is an NFT?
At it’s most simple level an NFT is a digital file for which there is a record of ownership. This ownership, rather like a certificate of authenticity, is recoded as a simple entry on a public database, a blockchain. Anyone can verify who owns the NFT. Should it be sold or ownership changes hands then that transfer can be tracked. Most commonly an NFT is an image, a video or an audio recording but it could be any digital file such as a word document or a pdf.
David Hockney’s recent exhibition at the Royal Academy in London consisted of 116 works all painted on his ipad. The original is actually the digital file stored on his iPad but, for the exhibition, the works were printed onto paper and displayed. Hockney could have converted the original iPad file into an NFT and sold as if it were a physical pieces of art. It would certainly have value as a Hockney original!
People like collecting all sorts of objects: antique furniture, vinyl records, comic books, stamps, coins, trading cards, toys, etc. Rare items are traded for a higher price than more common ones. Some NFTs are no different except they are digital rather than physical assets.
For example, the Bored Ape Yacht Club (BAYC) consists of a series of 10,000 images. They are created by a computer and all based on the same template. However, each image has different attributes that make it unique – different fur types, facial expressions, clothing, accessories and more. Each attribute has a rarity component, which makes some much more valuable than others.
Bored Ape Yacht Club was launched in April 2021 and took 12 hours for all 10,000 to sell out at a floor price of $190 (0.08 ether). The floor price is now $340,000 (120 ether). But apes with rare traits can sell for much more. Many celebrities own a BAYC including Eminem, Paris Hilton, the footballer Neyman. Justin Bieber made headlines with his purchase of a $1.29 million Bored Ape Yacht Club NFT in February 2022.
What makes an NFT collection successful?
Not all collections will have celebrity involvement or become known in the mainstream. So utility and community appeal become very important.
Utility
The utility of a piece of physical art is obvious. You can put it on the wall and look at it! With some art NFT’s you might so just that – print it out and put it on the wall.
However, often NFTs will come with other benefits or utility.
Event access. Used as ticket giving access to member only events and meetings.
Priority access. Similar to event access, priority access includes being eligible for free mints, presale spots, and early admission opportunities (whitelists) to other projects.
Redeemability. The bearer of a redeemable NFT can exchange it for either physical or digital goods. For example RTFKT, a brand creating virtual sneakers, randomly allocated three NFT owners to receive exclusive physical sneakers, giving them two assets that would likely go up in value.
Airdrops. A project might offer free airdrops of NFTs as incentives for members to hold their NFTs long term.
Raising awareness. NFTs associated with a specific cause or project can raise awareness of the project.
Community
In general, community refers to the holders of an NFT project. Before an NFT drops (the NFT is released for sale), community is a broader term and refers to those engaging with the project on social media and those looking to mint (buy the NFT). Post mint, the community is the holders of an NFT project which often communicate via exclusive Discord chats. (Discord is the favoured chat app for NFT holders)
A strong community frequently is the result of the people within Discord being active, friendly, and holding a long-term view on the project. A community is strong if there are many long-term holders, not people looking to make a quick flip on the project.
Bored Ape Yacht Club, with its 10,000 members, is an example of people finding community through a shared experience. They’ve even begun to host real-life events and meet-ups.
