Simply put, NFTs (or “tokens”) are digital assets. Various examples include movies, drawings, music, and digital artwork.
By their very definition, NFTs are not fungible, meaning they cannot be exchanged for anything else. For example, the Da Vinci original mona-lisa is non-fungible; only one original version exists, and there will only ever be one. On the contrary, US dollars are fungible – trade one dollar for another dollar and you end up with the same thing.
To establish the uniqueness of a token, NFTs are “hit” meaning they are entered into a digital transaction ledger known as block chain. Once an NFT is struck, it becomes impossible to modify or delete it. Importantly, individual consumer rights to minted tokens are forever commemorated via smart contracts. A smart contract is computer code embedded in the blockchain to facilitate, verify, or negotiate a contractual agreement. This is the heart of NFTs: once a sale takes place, ownership rights become indisputable. Each NFT may feature a smart contract to define the rights of the parties involved, including the right to use, distribute or reproduce the underlying digital asset.
Undeniably, NFTs are becoming an integral part of business – perhaps even faster than the rate at which people choose to stop and try to understand them. Artists can expand their audience by creating their work as NFTs and posting it online. Companies such as Nike are beginning to use NFTs to connect consumers to their product. Nike recently patented its idea for Crypto Kicks, a platform where consumers could buy a real pair of shoes. Once a person purchases the shoes, a digital representation of the pair is generated via NFT, linking the shoes to the consumer. Additionally, the new animated show, Smoking cats, also uses NFTs functionally. The show stars Mila Kunis, Chris Rock and Jane Fonda. It uses NFT as a ticket system where users can purchase tokens to unlock and watch episodes in addition to receiving other benefits.
Why is NFT important?
The recent proliferation of NFTs offers companies new growth opportunities not seen since the genesis of the Internet age. Such opportunities are not limited to the tech elite – family business owners can also grow family businesses through NFTs. Brick-and-mortar art galleries no longer need to rely on their physical location to build a community around their art. Now they can create a digital marketplace to showcase their art. In addition, local hardware stores specializing in the sale of paint and building materials could issue NFTs to their loyal customers. This would give local stores a way to offer a discount rewards program to compete with large corporate hardware stores. The bottom line is that business owners can offer NFTs in different ways to build community among consumers.
For those just starting to learn about NFTs, the newness of the whole concept might be daunting. However, fear of the unknown is never a good excuse to turn your back on innovation. One thing is certain: business owners need competent legal advice to meet the challenges of establishing an NFT market.
The three keys to creating NFTs
- Start a business
If you already own a business, you have taken the first necessary step to creating an NFT marketplace. Bellas & Wachowski’s experienced attorneys are highly skilled in forming corporations that provide the strongest form of liability protection that allows business owners to protect their assets from business obligations.
2. Create Terms of Service (TOS)
3. Prioritize integrity to build your brand
A successful business requires strong values. Building a community is not possible without trust. At Bellas & Wachowski, we understand that trust is earned by doing things right. This requires strong protections for consumers regarding their privacy rights. Legally, your business is required to disclose its data collection practices. Transparency is the name of the game, but it’s not just about meeting legal requirements. Well-written privacy policies indicate that your business operates at a certain level of maturity, sophistication, and commitment to putting customers first.
Growth through NFTs
While NFTs have only recently become popular, forward-thinking business owners understand that NFTs unlock growth through marketing and innovation. After many years advising small businesses, the seasoned team at Bellas & Wachowski understands how to manage legal liability in dynamic situations. More importantly, we understand that a company’s reputation is paramount. For those who want to build an NFT marketplace and build a community, we’re here to help. As with anything new, the possibilities are only limited by the imagination.