March 23, 2023
Can digital items have value?
YES!
In fact, the biggest NFT sale was Beeple’s Everydays artwork, sold at Christie’s for $69.3 million, and at its peak, the total estimated NFT market cap was $19.1 billion1 in Feb of 2022.
If digital items are easy to copy and paste, how does a digital item have value? In this article, we will explain how blockchain enables the concept of true ownership, and how businesses can use blockchain-enabled digital collectibles to engage customers at an emotional level.
What are digital collectibles?
Digital collectibles, aka NFTs (non-fungible tokens), are digital files (image, video, text, music, etc) that leverage blockchain technology to create unique, one-of-a-kind digital assets.
NFTs use blockchain to establish authenticity and track provenance. Blockchain is a type of database that uses a large network of computers to record the creation, ownership, and transfer of digital items. The records are transparent and cannot be changed without agreement from everyone. We’ll dive into details about how blockchains work in a future article, but as a quick analogy, it is akin to hundreds of people all verifying and signing a certificate of authenticity and records of ownership. Anyone attempting to make a change would need to convince all parties to update their certificate of authenticity and ownership changes at the same time.
The fact that the records of an item's creation and ownership change is available and publicly available for anyone to verify means that we can create an unique digital signature and track the provenance of the digital item.
How Provenance Creates Scarce Digital Objects
Provenance refers to the history and origin of an artwork or collectible. It includes information such as the artist's name, the date of creation, and the ownership history. In the traditional art world, this information is verified, modified, and recorded by a central entity or organization. Provenance is critical in the art world, as it helps establish the authenticity of a work and establishes its value.
By recording the provenance information of digital items on the blockchain, we can establish verifiable authenticity for that item. To be clear, a copy of the digital collectible still results in the same image or music file, but the copy doesn’t inherit the provenance. One can still view the file or listen to the music, but the copy has no additional monetary value. This is analogous to making a print of the Mona Lisa, which creates a copy, but only the original Mona Lisa has value.
This results in a distinct, one-of-a-kind digital object that is provably different from any and all copies of the item. The provably unique feature gives the item value that can be bought, sold, and/or transferred. This is what gives us the ability to truly own an original digital item.
What is True Ownership?
As humans, we desire to own things. It is a fundamental aspect of our nature to acquire and possess material objects, whether they are necessities or luxuries. Our society is built around recording, tracking, and enforcing property rights, by rule of law and by force, if necessary. This is present across cultures and time periods, and is a very basic core of our humanness.
For most of our history, ownership is limited to mostly physical items such as land and personal items. In modern times, we’ve also begun to protect and enforce ownership of intangibles such as intellectual property or creative rights. Both require recording information with a centralized entity (such as government, patent office, etc) and enforcing protection, typically in a court of law or similar institutions.
Digital items, however, typically cannot be owned, because they can easily be copied. A copy of a music or photo file creates an exact replica, without any loss of information. There’s no way to reliably identify the original creator and track how ownership changed. One can argue that digital files are still protected by patents or copyright laws, but the fact is that the particular digital file itself is still indistinguishable from the original file or item.
As we discussed above, blockchain-enabled digital items are difference because their origin and provenance is recorded on a publicly available ledger, maintained by a network of computers. This is what enables true ownership of digital collectibles, such as NFTs.
The fact that we can own a scarce digital object taps into our emotional desire to own, which in turn, gives the NFT value.
What does this mean for Businesses
Today, most NFTs are bought and sold by individual collectors or investment entities. However, future use cases are emerging. We believe businesses can leverage the unique properties of NFTs to connect and engage their customers at a deeper level to improve retention and increase repeat purchase. We go into some of the use cases for businesses looking to add NFTs to their customer journey in a separate article linked here.
In conclusion
Before blockchain, digital items had very little value because they can be easily copied. However, with blockchain, digital items can become valuable collectibles because their provenance can be tracked and verified, giving them uniqueness and scarcity not present in other digital items.
As a result, digital collectibles such as NFTs offer businesses new and innovative ways to connect and create emotional connections with their customers, by tapping into our innate desire to own and collect. Businesses can use NFTs to create a sense of exclusivity and make customers feel special. As NFTs continue to gain popularity, brands that incorporate them into their customer engagement strategies will stand out from the competition and build stronger emotional connections with their customers.
