WTF IS AN NFT?

Non-fungible tokens have the potential to revolutionize pop culture.

by Madeleine Buckley, associate editor

NFT. That acronym seemed to appear in our online vernacular almost overnight, and then suddenly it was everywhere. Maybe you first saw those three letters in a headline from a major newspaper, a tweet from your favorite collectibles company, or that SNL sketch from March in which Pete Davidson rapped, “Can you please explain what’s an NFT? I said, what the hell’s an NFT?”

Especially for those in the fandom community, it may feel like every company is now offering exclusive, virtual items for fans, gamers, and collectors. However, NFTs (non-fungible tokens) didn’t actually arrive overnight. They have become more and more prevalent over the past few years and have the potential to permanently change fandom culture.

But to come back to the question that SNL so eloquently posed, what the hell is an NFT? If concepts like blockchain and bitcoin send your head spinning — as they did, and honestly still do, mine — you may be avoiding this new tech trend entirely. So, let’s start with the basics.

As Dan Crothers, COO and co-founder of virtual collectible company VeVe explains, every type of collectible you can own — from baseball cards and limited-edition sneakers to Funko Pop! figures and high-end cars — is non-fungible because each one is unique. “These collectibles derive their value by their utility or usefulness, the story behind the item (which often can be sentimental), and rarity,” Crothers says.

As with any collectible, owning an NFT is special because it’s yours, but the idea of actually owning a digital item is a fairly new concept. Over the past few decades, we have started to live in an increasingly digital world, which has spilled over into creativity, art, and design. Maybe, for example, you’ve bought a digital print from your favorite artist. However, unlike when you purchase a physical print (especially a numbered one), it can be hard to prove ownership of digital art. There’s really nothing stopping someone from copying that image file and passing it on to others, explains Jules Urbach, CEO of OTOY, a cloud graphics company that is currently curating the work of legendary comic book artist Alex Ross into an NFT archive.

“Amidst this explosion of digital content, there have been few ways to monetize or own digital content, which has limited its potential,” Urbach says. “NFTs are revolutionary because they provide the first way to own and monetize digital content, and this is profoundly empowering for creators and fans.”

And through a process called “minting,” which gives a digital item unique, trackable metadata, we are able to prove singular ownership of our virtual things.

A DIGITAL SHOWROOM

Exactly what those virtual things are can vary greatly. Some companies, such as VeVe, offer digital collectibles inspired by popular shows, movies, or characters, which fans can curate within an app and display using augmented reality (AR). VeVe has officially licensed digital collectibles, such as virtual versions of statues, 2D cover art, and more, from DC Comics, Ghostbusters, Cryptozoic’s Cryptkins, and more, which all have verifiable scarcity.

Once users own these digital items, they can create a showroom in the VeVe app, a process that Crothers says takes some fans hours to curate.

“Being able to display and show off your collectibles is an integral part of the collecting experience. The VeVe virtual Showrooms take this idea and reimagine it for the new digital world,” he says. “With our augmented reality integration, [fans] can drop their Showrooms into their real-world surroundings and literally walk through them. Once they have crafted the perfect digital space, users can also share them directly to the in-app social feed so that other collectors can enjoy them, too.”

Crothers’ personal favorite NFT is a virtual replica of the DeLorean Time Machine from Back to the Future, which collectors can place in their garage or driveway in 1:1 scale.

VeVe, which Crothers founded with David Yu in 2017, also specifically caters to fans who may not be well-versed in blockchain (which is, simply, a digital ledger of cryptocurrency transactions). The duo saw the complexities of blockchain as a barrier for many fans, and decided to keep those components in the background of the app.

VeVe isn’t alone as an entry point for consumers who can’t quite wrap their heads around blockchain or cryptocurrency. On Curio — another app-based digital collectibles platform in which fans can curate and display their digital collectibles inspired by American Gods, Scott Pilgrim Vs. The World, and more — users have the option to pay for NFTs with a credit card using U.S. dollars. Curio Co-Founder and Chief Risk Officer Ben Arnon recognizes that the cryptocurrency experience can be challenging or intimidating for new users.

“We don’t want the consumer to be concerned with what technology is powering this offering and this product,” he says. “We just want them to be delighted by the benefits and the experiences that

they receive from engaging with NFTs.” He likens the experience to using your credit card to pay for groceries. “I put my credit card in, I took it out, and I was able to leave the store with my groceries,” he says. “I’m fulfilled, I have the benefits of purchasing those goods, and I don’t need to know all the technology that’s sort of undergirding that transaction.”

YOU GET AN NFT, AND YOU GET AN NFT

Earlier this year, Godzilla vs. Kong made headlines as one of the first major theatrical movie releases following more than a year of COVID-19-induced film delays and theater closures. However, it also made headlines for another first: It was the first major movie to promote its release with an NFT collection. Film studio Legendary partnered with artist BossLogic and the MakersPlace platform for art NFTs inspired by the movie and worked with Terra Virtua to offer digital animated figures and artifacts from the film.

Legendary’s Executive Vice President of Franchise Management James Ngo says that, in many ways, developing these NFTs was similar to developing any other licensed item for a movie, such as action figures or apparel, noting that pricing strategy, launch timing, and marketing support were all familiar.

Overall, he considers the Godzilla Vs. Kong NFTs a success: “We were able to make a big splash with the program alongside the film’s marketing campaign and learned a lot along the way. Fans embraced the art and were excited to engage with the brand in a new and different way.”

While movie- and TV show-inspired items are a natural fit for developing digital collectibles, the NFT craze hasn’t been limited to entertainment brands. As part of the strategy for relaunching its popular ‘90s snack line, Dunkaroos, General Mills partnered with artists to develop 10 retro-inspired NFTs — animated art, jokingly called “New Frosting Tokens” — which it auctioned off on Rarible.

At first, this collaboration may seem like a less-obvious fit for NFTs, but Shannon Heine, brand experience manager at General Mills, explains how the nostalgia factor made it perfect for Dunkaroos’ target audience.

“NFTs are unique and built on scarcity and demand, just like Dunkaroos,” Heine says. “Our OG Dunkaroos audience is the ‘90s kid who has a knack for nostalgia and carefree times. We created our 10 digital Dunkaroos New Frosting Tokens to evoke those ‘90s feelings that fans associate with the brand.”

NFTS GO IRL

The most interesting detail from the Dunkaroos NFT drop, however, wasn’t the colorful, digital creations themselves. In addition to a “New Frosting Token,” each of the 10 winning bidders got packages of new Chocolate Dunkaroos before they officially hit store shelves. This idea — a real-world bonus for owning a digital item — is another facet of NFTs that will certainly impact the fan community.

The Curio team is already laying the foundation for this idea, offering rewards within its app for collectors who complete challenges, such as collecting a full set of NFTs for a certain brand. Arnon expects this to expand over time, with fans getting exclusive access to different types of real-life content through purchasing NFTs.

“By showing and having scanned my NFT on my phone, or three NFTs that I own, that unlocks an exclusive experience,” he explains. “Maybe it unlocks the experience for me to participate in a meet-and-greet with a creator I love. Maybe that unlocks the ability for me to purchase a piece of physical merchandise at a concert that only people who have that NFT can gain access to purchasing.”

For popular collectibles company Funko, these real-world tie-ins are far from hypothetical. In early April, Funko acquired a majority stake in TokenWave (developer of the NFT app TokenHead) and announced plans to release its first NFTs this summer. Bianca Calingo, senior manager of franchise and new business development at Funko, says that some of the company’s 3D-rendered Pop! figure NFTs will correspond with physical Pop! figures. “By linking the rarest NFTs to an exclusive, physical Pop! that fans otherwise wouldn’t be able to purchase, it adds a thrilling chase element to NFTs that only Funko can offer,” she says.

UPPING THE VIRTUAL GAME

While some companies prepare to expand the value of NFTs in the physical world, others see the potential that NFTs have to revolutionize online worlds, especially when it comes to gaming.

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A collection of Blankos in Blankos Block Party Source: Mythical Games

Scott Kaufman, CEO of Wizard World, says he sees NFTs as a way for fans to “differentiate themselves within the metaverse.” In addition to hosting live fan events, Wizard World offers an extensive selection of fandom memorabilia through its Wizard World Vault website. In June, the site relaunched to offer 2D images of these items as NFTs (mostly autographed photos), with plans to launch 3D image NFTs later in the summer. While Kaufman knows that fans could choose to display these NFTs like they do their physical collectibles — or do nothing with them — he expects that technology will soon allow fans to incorporate these images into their online presence.

“I think it’s a different perspective of looking at NFTs … We hope in the future fans can play Call of Duty and wear Michael J. Fox’s sneakers from Back to the Future, or use Hellboy’s gun, or wear a face mask that Jason wore in Halloween. Whatever they want to do, and everything in between,” he says. “We want to offer our fans the opportunity to have limitless capabilities with these images.”

This technology isn’t all that far off, either. Last year, gaming company Mythical Games published the open beta version of Blankos Block Party, a massively multiplayer online game in which players explore a virtual world as designer-art-toy-inspired characters called Blankos. There are many different Blanko designs to choose from, all designed by either the internal team or by artists from the world of toy design, such as Tara Mcpherson, James Groman, JPK, Junko Misuno, and Michael Lau. But the most important factor? Every Blanko design is limited, and every Blanko is an NFT.

At first, this may not seem all that different from any other in-game purchase that players make, using real money to customize their avatar or to add new, playable accessories to their virtual arsenal. However, as Mythical Games’ Co-Founder and Senior Vice President of Business Development Rudy Koch explains, the player doesn’t truly own those in-game items. “If you own something really rare or really valuable, there’s nothing you can do about it,” he explains. “Only the developer benefits because you’re locked into their economy.”

In fact, as Koch notes, players have been selling in-game items for decades, trading illegitimately in gray markets outside of the game ecosystem. (The 2018 Disney movie Ralph Breaks The Internet features an example of this when the main characters try to steal a valuable vehicle from a video game to sell it for real money.)

When the in-game items are NFTs, though, as they are in Blankos Block Party, players can increase their value by leveling them up, then legitimately reselling them.

“If you’ve been watching the NFT space, you might be asking why JPGs are selling for so much money when you can’t do anything with them. Game items have always had value, even before blockchain and NFTs,” Koch says. “The reason these items have value is because they have utility and rarity in the games they belong to. We are combining the intrinsic value of game items with the value of NFTs and true ownership and bringing this concept to the mass market.”

When players are ready to part with a Blanko, they can sell it within the game’s newly launched marketplace. And, as Mythical Games Chief Creative Officer and Co-Founder Jamie Jackson adds, players don’t need to understand blockchain or invest in cryptocurrency to participate in the marketplace.

“Our technology gives players the tools to legitimize behavior they’re already engaging in, and opens up that ecosystem to allow more people to earn money,” he says. “When you no longer want an item, it’s not a sunk cost — you can sell it on the marketplace and recoup your investment, potentially even making a profit.”

SELL, SELL, SELL

That secondary market (and the potential to turn a profit by reselling) is another major element of NFTs. In fact, many of the major NFT platforms have some sort of marketplace built in, allowing fans to buy and sell from each other. As with any limited collectible, be it physical or digital, some collectors will pay more for something that is hard

to find, or a certain NFT they may have missed when it first dropped.

Arnon believes that the majority of value in NFTs will come from this secondary market, not only because reselling is a big part of collecting and gives fans a chance to make money, but also because NFT resales bring more value to licensing partners. This is one of the most significant differences between traditional collectibles and NFTs: If a fan purchases a limited-edition Marvel action figure, for example, Marvel will get some money from that transaction. But if that fan sells the action figure on eBay for twice the original price, neither Marvel nor the action figure manufacturer will benefit from the resale. With NFTs and their smart contracts, which have the terms of the agreement written into lines of code, the owner of the IP that inspired that NFT and/or the artist who created it can continue to profit with each resale.

“I believe that the NFT space will look similar to the music publishing model, where a music publisher or a songwriter amasses hundreds, and then thousands, of copyrights of songs,” Arnon says. “I think major IP owners will have hundreds, and then thousands of NFTs in the marketplace, generating that same persistent royalty stream in perpetuity.”

BEING GREEN WHILE MAKING GREEN

One major concern that fans may still have about investing in NFTs is the potential environmental impact. This spring, major publications, including MSNBC and The New Yorker, published pieces discussing the copious amount of energy use that every Bitcoin transaction requires. Many of the digital collectible companies catering to fans are quick to note that this environmental impact is specific to NFTs that are minted using the Ethereum blockchain technology, which is not the only minting option. VeVe utilizes technology called the Immutable X Layer-2 solution, which is more than 99% more efficient than Ethereum, to effectively create carbon-neutral NFTs.

Mythical Markets uses EOSIO blockchain, which is another environmentally friendly “Proof of Authority” model and, as Koch notes, Blankos Block Party doesn’t require any crypto mining. Curio, too, has made specific strides to be environmentally conscious, inking a deal with financial services company Aspiration to ensure that all NFTs on the Curio platform will remove more carbon than they create.

" We do believe that the hype of NFTs has created somewhat of a gold rush mentality for some. However, digital collectibles with true value in the hearts of collectors will last the test of time." — Jules Urbach, OTOY CEO

SO, WHAT NOW?

Perhaps the biggest question that remains in this conversation about NFTs — and the hardest to answer — is, what does the future hold? Along with the headlines about massive NFT sales came industry commentators beginning to speculate whether these are simply a fad. By April, reports showed declining NFT sales numbers, even as major brands continue to announce new NFT plans and partnerships almost daily.

While no one can definitively predict the future, there is a lot of hope, and the individuals and companies investing heavily in NFTs insist that these digital collectibles are not going anywhere, especially as their many potential uses become more mainstream.

“We do believe that the hype of NFTs has created somewhat of a gold rush mentality for some,” OTOY’s Urbach says. “However, digital collectibles with true value in the hearts of collectors will last the test of time.” OTOY is currently exploring that value with its Alex Ross archive, painstakingly recreating the artist’s works and adding extra digital information and features, such as behind-thescenes content and AR capabilities.

Right now, Curio’s Arnon says the NFT market is changing so rapidly that it’s hard to make any definitive predictions or assumptions, but instead, he encourages brands to explore the space. “I think we sort of have some assumptions about whether or not certain genres work better or certain genders are more likely to consume. I would throw all that out the window,” he says. “It’s so nascent, I think it’s just time to learn from various different brands experimenting and innovating.”

Arnon also says that he has seen major studios and entertainment brands getting on board, with most of them forming NFT teams throughout the first half of this year.

Legendary’s Ngo gives a more cautious response when asked about the future of NFTs, saying “I don’t think NFT is going away per se, but the question is, what is the sustainable size and scale that the business will eventually settle at? … I would say that it is a rapidly changing space, and participants are constantly improving and iterating the business and technology. Although a wait-andsee approach may be right for more conservative organizations, I think to cautiously embrace is a better approach, since watching from the sidelines of a fast-moving game may leave the spectators in the dust.”

Ultimately, it’s unlikely that NFTs will continue to fetch six-figure payouts and make headlines every single day. Instead, NFTs may become another engrained element of the fan experience and our increasingly digital lives, providing verifiability and offering new ways to interact with both digital and real-world content.

“NFT’s are not that radical,” Jackson says. “In its simplest form, it is tech that proves and therefore allows for ownership. We all appreciate ownership IRL, so why not in the digital world? Most people do not realize they do not own most of the digital assets they have purchased. They can’t do anything with them. NFTs open the door to true ownership.”

In a not-so-short way of putting it, that’s WTF an NFT is. As collectors, fans, and consumers, there are so many ways to interact with NFTs. It’s up to us (and our dollars) to determine the long-term impact of this latest technology trend. ✪