By Joe Gagliese, co-founder & CEO of global digital and social innovation group Viral Nation.
I was recently the victim of NFT fraud. I lost a total of $3,400 through not one, but two, very similarly structured scams. I’ll spare you the minute details of how this happened, but it was not tremendously sophisticated. Imagine a scenario like in the early days of email, when clicking on an unassuming link could result in your computer getting struck down by a virus.
Meanwhile, in my day job, leaders of major brands are increasingly coming to me to discuss all things crypto. Many are buying into the hype of non-fungible tokens (NFTs) in particular, looking to be early entrants. It’s understandable. Last year alone, trading in NFTs hit $17.6 billion, up 21,000% from 2020. This is definitely a tremendously hot space right now. That said, my advice to some big brands is: Sure, dip your toes in the water, but you don’t need to dive fully in on NFTs quite yet. Here are the reasons why.
1. There’s a high level of risk.
Let’s back up to my NFT scam experience for a moment. I consider myself a futurist and tech is my passion. I’ve been running a social technology company for over eight years. So if I can so easily fall prey to a crypto scam, how at-risk are “regular” folks out there? What’s more, shortly after I’d lost my money, I learned that the exact same scammer that got me had also stolen a stunning $2.2 million from another NFT holder.
This is serious stuff. Many people are getting frauded out there. There are in fact numerous support groups on Discord—the group chatting app popular with the crypto community—where people are coming together to share information and console each other around this very problem.
I’m not as in the hole as that person who lost $2.2 million. But still, the frustrating part is that after this happened I could see the wallet that stole my money, right on the blockchain. And yet, there’s no one to report it to. For the time being, there’s simply no way for me to get that back. This is the current state of the space. Given what I experienced firsthand, it’s clear that a lot of education, consolidation and regulation need to happen in the space before it’s safe for a general consumer base.
Brands need to keep this in mind. If they are not fully aware of the risks, they may end up getting caught up in the clean-up when these types of scams inevitably happen in this exciting, but still uncharted world.
2. The crypto community is not your target buyer.
NYU business professor Arun Sundararajan may have said it best in his recent piece for HBR when he advises brands, “Your eventual audience is the entirety of your existing and future customers, not today’s crypto community.”
Indeed, according to a new report, there were approximately 360,000 NFT owners holding all of the world’s 2.7 million NFTs between them last year. Significantly, of those NFT holders, only 9% of them held 80% of the total market. This is only about 32,400 total users—literally the population of my awesome but tiny hometown. To top it off, this data focuses on counting the number of “wallets” connected to acquired NFTs. Since people can own multiple wallets, the real number of people actually buying and selling NFTs could be even far less.
Here is another way to think about it. According to one survey, it’s estimated that 2.8% of the U.S. population owns an NFT. Would you pay to put a huge banner up in a sports coliseum that has only sold 2.8% of its seats? Exactly.
3. Far bigger payoffs are still to come.
An argument can be made that big brands are already seeing notable success with NFTs. At this year’s Super Bowl, Miller Lite, Wrangler and Kia made waves by incorporating the technology into ads for the event. Others like Campbells, White Castle, the NBA and Dolce & Gabbana have entered the foray, too. Certainly, for those who want to spend the time and money now, NFTs can be a fun way to test the tech and potentially create some buzz along the way. But the true potential for brands in the future NFT space is far more expansive and, frankly, thrilling to consider.
The enormous value to come lies not on the art side (which is what we are predominantly seeing now with art-oriented collectibles) but in the utility of NFTs. We are only realizing the very tip of the iceberg currently in terms of capability from a marketing standpoint. Once the utility of NFTs begins to blossom—and I would estimate it will happen in the next three years max—what will emerge is an entirely new and robust marketing channel and ecosystem, which will surpass email and social media in its capacity to attract, engage, surprise and delight.
Imagine membership-type communities that allow a plethora of connection points to various tiers of NFT-owning customers, providing early access to products, VIP attendance to major events, real-time feedback surveys and much more. Importantly, in this scenario, brands will have the ability to develop and manage first-party data from customers in an ever-changing privacy climate. Another major opportunity lies in decentralized autonomous organizations (DAOs), which could shift big brand ownership away from the corporate structures we know today, toward new collective, cost-effective and fair business models.
Of course, there are exceptions. For brands and SMBs whose audiences are early adopters, now is probably an optimal time to jump on the NFT train. The same goes for companies who’d benefit from the PR in appearing as an edgy and innovative brand.
But for the rest, now presents an opportune moment to take heed of the old “patience is a virtue” proverb, to observe what others are doing right (and wrong), get properly prepared and put strategies in place. And when the imminent NFT tipping point starts, they can jump right on the express train toward bigger results.