THIS ARTICLE IS WRITTEN BY MOURAD SEGHIR. MOURAD ([email protected]) IS A CONSULTANT IN THE BUSINESS CONSULTING TEAM OF RSM NETHERLANDS WITH A FOCUS ON EMERGING TECHNOLOGIES.

If social distancing habits meant staying six feet from the internet, these three seemingly random letters have taken over the mainstream media, and everyone wants a piece of the pie. Non-fungible tokens (NFTs) gained popularity with digital pictures of animated animals. Although it can seem silly to the casual observer, it is interesting to look closer at the purpose of NFTs. NFTs are digital tokens existing on the blockchain representing an “unique” asset which is non-fungible. ‘Non-fungible’ essentially indicates that it is distinct from other tokens like cryptocurrencies. For instance, a bitcoin can be exchanged for another bitcoin or can be divided in two. However, a unique trading card is non-fungible.

NFTs have the potential to reinvent and redefine activities, products and general practices across sectors. In an emerging digital world, NFTs offer holders the ability to prove authenticity and ownership, this is done by recording ownership on the blockchain. These tokens utilise blockchain technology (like cryptocurrencies) to give someone ownership. By viewing these assets, and the uniqueness, we may be able to introduce them into existing business models and consider how we will interact with blockchains in the future.

A business case for digital ownership: Royalty for Loyalty.

On September 12, 2022, Polygon (a blockchain protocol) announced that they partnered with Starbucks Coffee Company to provide blockchain technology to create a web3 experience called Starbucks Odyssey. This experience will grant members and employees exclusively earned digital tokens in the form of NFTs. This NFT program is powered by the Polygon network meaning they provide the infrastructure for this initiative. Loyal participants to the Starbucks Rewards gain access to coffee experiences varying from unique merchandise to artist collaborations and even invitations to exclusive events. These rewards are referred to as royalties and are meant for loyal customers in this context.

It is likely that when one thinks of loyalty programs today, they will conjure up images of their favourite fastfood restaurant app, their supermarket rewards card or perhaps their magazine membership. In most cases, they may provide passive benefits (such as free drinks) and they mainly serve to reward loyal users. But in recent years, a new type of loyalty program has emerged. With NFTs, anyone can join and everyone can earn. What would encourage businesses to replace these models with NFTs? Using the concept of gated content, companies such as Patreon, provide a framework for what NFT loyalty and subscription programs will look like. Patreon is a company that allows creators to have a gated/exclusive community where members must pay on a subscription basis. Meaning if you want to hear an exclusive song of an artist, they could make it available on Patreon for the members that are subscribed to the artist’s Patreon.

Since NFTs are built and stored on a blockchain, it means they are accessible for everyone. With a gated model of services like Patreon that dictates their own rules, companies are now able to build their own royalty program without using their centralised service. And they won’t have to pay service fees or take a risk where other companies dictate the rules.

NFTs are useful in this case because they thrive to take on the current closed content model. They help creators and companies retain customers in the future and those creators and companies can do this without ever worrying about the platform changing the rules of their services.

A business case for ESG & NFTs

An interesting example of a different NFT project that makes a positive contribution in the real world is Coorest Platform. They tokenise trees (hereafter: NFTrees) and that are planted in their own orchard and sell them. NFTrees are an example of how ESG-goals meet the use of NFT’s. Coorest is an initiative that aims to compensate for carbon emissions where physical trees are tied to NFTs. By tokenising these trees, holders of NFTrees can actively track the removal of CO2 from the atmosphere. For example, if you bought 750 NFTrees you compensate 300KGs CO2. These statistics are kept in a live dashboard on the Coorest Platform. Coorest aims to offer a solution that allows anyone to compensate their carbon footprint and track the amount of carbon compensation.

In this way, entities can be held accountable for achieving their ESG-goals in a way that is providing transparency about their environmental footprint. This holder’s information is stored on the blockchain in the form of an NFT so that it is easy for everyone to see how many NFTrees an entity has and how much carbon is compensated. Blockchain technology is well suited for this because the data is immutable meaning that data cannot be tampered with. Greenwashing can be prevented this way.

Increasing recognition for NFTs

Another interesting development is Apple joining the party. They are one of the biggest tech companies in the world and they will allow for more than just apps to be sold on the app store. NFTs can be bought with in-app purchases. These purchases however are subjected to a 30% commission fee. The acknowledgement of NFT’s by such a giant makes this an interesting development.

Many of the discussions in the NFT community have centred on how Apple's sizable cut will affect the development of this new technology. After all, standard NFT marketplaces like OpenSea typically only charge 2-3%. Even though Apple's action has largely drawn condemnation, others have a more upbeat perspective on the matter. Gabriel Leydon, CEO of Limit Break, for instance, said: "Apple has chosen to permit developers to sell NFTs within games and applications. Without anyone noticing it, every single mobile game with more than 1 billion players may have an Ethereum wallet because Apple wants a 30% cut of every transaction!”

The Web3 Experience

NFTs seek to enable a new perspective on how users interact with businesses, customers, and creators online by incentivizing ESG-friendly behaviour. More specifically, the relationship between businesses and customers, which is within the social component of ESG. That is why NFTs can inspire a new way of thinking about tokenization and business. Businesses can empower their client relationships by rewarding loyalty in exchange for royalty by using NFTs for ownership and access.

NFTs may also provide transparent accountability by tokenizing one's environmental impact, allowing for transparent, and accountable carbon compensation. Keeping track of carbon compensation may become more accessible by using NFTs. Businesses and individuals can be confident that they are contributing to environmental protection by using NFTs to track and verify carbon compensation. You now own the impact of your actions.

We believe that as more initiatives and organisations enter the world of NFTs, this way of tokenisation will have a significant market impact. These advancements pave the way for future adoption. In the upcoming years, the use of NFTs could become more prominent and the best opportunities often arise when markets are new. We are very excited about the new opportunities emerging technologies provide, which is why we keep a close eye on these developments and explore the options within our Emerging Technologies team for future opportunities.