Op-Ed | Notes From an NFT Sceptic

The buzz and hype about non-fungible tokens (NFTs) and the metaverse has gotten even buzzier and hype-ier lately. With sports footwear and apparel powerhouses, Adidas and Nike, recently staking their own claims in this emerging and often misunderstood arena, it’s clear that other companies won’t be far behind. When it comes to subjects that combine next-generation technology and commerce, nobody wants to get left behind.

I am frankly sceptical of the commercial opportunity for NFTs and the metaverse. Time and again we’ve seen new apps that are supposed to upend the natural order of things. I’m old enough to remember when Clubhouse changed everything …

But What Are NFTs, Really?

An NFT is a type of cryptocurrency. By way of comparison, the US dollar and other currencies are typically fungible: they are indistinguishable and transposable with one another. In other words, a nickel holds the same value as another nickel, so it doesn’t matter which nickel you have. “Non-fungible,” on the other hand, means the currency is unique and cannot be exchanged with another. Every NFT is inimitable and unchangeable, existing virtually in blockchain and tied to a digital object. In fact, an NFT can only exist on the internet.

NFTs have no value in and of themselves. Rather, value is created when two parties decide to trade and thereby create value. Unlike paper currency, which is backed by assets and is universally accepted, cryptocurrency and NFT value is agreed upon by a small and volatile subset. In addition, blockchain is a distributed software platform that enables NFTs to be traded, because it allows the origin and provenance of a product to be traced, guaranteeing its authenticity. Authenticity is the secret sauce that makes the resale platforms successful. But the platforms have found a less expensive (and more environmentally sound) way of proving the authenticity of a product.

It’s also important to keep in mind that there is currently no regulation of the NFT market or, for that matter, for cryptocurrency overall. Unscrupulous players could defraud the innocent. That’s why cryptocurrency is also a perfect tool for grift and money laundering.

The Next Get-Rich-Quick Scheme

One of the weirdest social phenomena to come out of the pandemic have been vast get-rich-quick schemes. These schemes have likely been driven by people with bank accounts bulging with stimulus money, as well as a consequence of working from home (or “the Great Resignation”), which has resulted in folks with too much time on their hands.

This is a potent combination.

Like pyramid schemes and other money-for-nothing ventures, the premise is that anybody and everyone can profit. Of course, nothing could be further from the truth. In any pyramid scheme, the first ones in make big money, while the last ones pay everyone else. NFTs are not inherently fraudulent, but they share some aspects of pyramid schemes when they are bought and sold primarily as tradable and collectible items.

This might be part of the reason why Nike and Adidas are getting in early. Not to defraud or trick customers, but to protect themselves from potential losses later. Brands have spent millions protecting their intellectual property in the physical world. I see some of their efforts around NFTs as an attempt to protect their IP in a virtual world. Still, it’s important to keep in mind that, while some NFTs have sold for outrageous values, most are measured in the hundreds of dollars — not millions. And some have no value at all. Caveat emptor, indeed!

The Latest NFT Frontier

The market for NFTs, like limited-edition sneakers or streetwear, is based on scarcity and unrequited demand. The rarer an item, the higher its perceived value. But “rare” is not “better” or “useful” — it’s simply “rare.”

At the end of the day, NFTs have no intrinsic value, and they do not benefit society in any way. They cannot be used for anything except “bragging rights” to others who believe (or pretend) there is value. And, truth be told, the technology backbone that allows them to exist eats up a tremendous amount of real-world energy, too. There is a clear parallel between collectible NFTs and the collectible sneaker market. Neither have intrinsic value, but rather are priced due to their scarcity.

Why Big Brands Love the Metaverse

First off, brands want to relate to their consumers. If the fans of your product are into an activity, be it NFTs, gaming, gambling, and so on, brands want to show that they’re part of the action. So just saying “we’ve entered the metaverse” is a great way to tell your best customers that you “get them,” as well.

In recent years, brands have spent vast sums to protect their intellectual property (IP) in the physical world. Moving into the metaverse can be viewed as an effort to protect the same IP in the virtual world. Whether or not this is necessary remains to be seen. But until what’s unknown is known, it makes sense for companies to stake their claims early.

Some brands appear to be saying, “there is something going on here … we don’t know what it is or what it will mean, so let’s get involved and not be left behind.” I hope they find that this defensive approach bears some reward.

But I remain sceptical.

-Matt Powell is Senior Industry Advisor, Sports for The NPD Group

The views expressed in Op-Ed pieces are those of the author and do not necessarily reflect the views of The Business of Fashion.

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