Non-fungible Tokens (NFTs) are cryptographic assets based on the blockchain that prove ownership of digital items. Currently, new innovative technology is taking over all businesses worldwide, which has led creative industry entrepreneurs to introduce the use of NFTs. The main aim of introducing NFTs in the creative industry is to generate new revenue streams and mode of stakeholder engagement because they offer more advanced marketing opportunities. Most of the artists who have been using NFTs to sell and market their products have been able to make a fortune due to their capabilities to increase revenues by over 704% (Bamakan et al., 2022). Although NFTs increase revenue, the common question that has been rising is what decides NFTs are valuable in the creative industry that uses digital assets.
When an artist decides to use NFTs, customers are the main determiner if their content is valuable or not. Using the 1000 true fans assumption, when an artist produces enough content annually and has 1000 true fans who will spend $150 on their content, $150 000 will be generated (Lamerichs, 2018). This indicates that true fans or superfans are the main determinant of the value of the content created. In addition, NFTs make it easy for the artist to reach the target of 1000 true fans. The NFTs help reach the fans because they are one click away as long as the person connects to the internet. Therefore, with more than 4 billion active internet users globally, content in NFTs form is likely to surpass the artist’s target. Generally, customers determine if the content is valuable to them, but the artist has to put effort into ensuring their work reaches the market.
Interaction between fans and the artist is another factor that determines the value of NFTs in the creative industry. NFTs usually offer the artist an opportunity to have a personal relationship with their fans. When an artist uses NFTs, they can know their fans because they will sell their content directly to them without using intermediaries such as labels, publishers, and producers. Since the artist will keep the amount generated from the sales using NFTs due to eliminating intermediaries, this is an added advantage of ensuring all the profit reaches them (Bao & Roubaud, 2021). In addition, having personal relationships and knowing your fans by their names helps the artist ensure that fans are always satisfied by sending the product requested in real-time. Therefore, close interaction with fans ensures attracting new and retaining new customers leading to an increase in the value of NFTs.
The utility is another factor that has emerged as a key parameter that determines the value of NFTs in the creative industry. Artists use NFTs to sell their products; they should have utility in a real application for it to carry value. For example, NFTs can be used to tokenize books, music, and even precious articles to represent virtual formats (Chevet, 2018). Although NFTs in the creative industry is still in the developing phase, new innovative use cases are expected to emerge as it matures. Immediately after minting, NFTs will generate value from their initial characteristics. As time passes, the value will accrue depending on the utility and the artist’s fan base. Therefore, decentralized NFTs, which refer to the virtual format of the contents, are perfect examples of tokens that will gain value due to utility.
Since NFTs in the creative industry are associated with a real-world object such as art, they generate an aspect of tangibility. In addition, it clubs with ownership immutability on blockchains to create immediate value intangibility (Trautman, 2021). This indicates that artists can effectively use NFTs to underline ownership rights of their contents and prevent any attempts of fraud. The practical use of NFTs in the creative industry will bear value on the content. NFTs that hold tangle value is perfect for long-term and short-term trading (Chohan, 2021). For example, NFTs representing a virtual format that can be sent to customers’ emails can earn more value over time with increased sales, while others, like tickets, have a specific expiry date. Therefore, tangibility is another factor that increases NFTs used in the creative industry.
The liquidity level of NFTs is another factor that determines the industry’s value. NTFS that are highly liquid have high values in the market. Secondary markets are the main providers of the platform to trade NFTs in a frictionless way that provides fans with immediate access (Dowling, 2022). Most artists should consider putting their NFTs in categories that have trading volumes because it will help them make profits. In addition, liquid NFTs can retain their value in case the venue has been closed. Therefore, liquidity level determines the value of NFTs by providing a high volume of their sales.
In conclusion, NFTs are believed to be assets used in the future. However, the future has reached earlier than expected because they have taken over the creative industry. The high number of active internet users in the world has made it easier for NFTs to be accessible to many people. Although there has been questioning about what determines the value of NFTs, many factors such as customer interaction, utility, and liquidity levels have shown what makes them valuable.
References
Bamakan, S., Nezhadsistani, N., Bodaghi, O., & Qu, Q. (2022). Patents and intellectual property assets as non-fungible tokens; key technologies and challenges.Scientific Reports, 12(1). Web.
Bao, H., & Roubaud, D. (2021). Recent development in Fintech: non-fungible token.Fintech, 1(1), 44-46. Web.
Chevet, S. (2018). Blockchain technology and non-fungible tokens: reshaping value chains in creative industries. SSRN Electronic Journal.
Chohan, U. (2021). Non-fungible tokens: blockchains, scarcity, and value. SSRN Electronic Journal.
Dowling, M. (2022). Fertile land: pricing non-fungible tokens.Finance Research Letters, 44, 102096. Web.
Lamerichs, N. (2018). The next wave in participatory culture: Mixing human and nonhuman entities in creative practices and fandom. Transformative Works and Cultures, 28.
Trautman, L. (2021). Virtual art and non-fungible tokens. SSRN Electronic Journal.