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What to Know About NFTs: Three Key Considerations for Businesses

“If you’re a business, you need to be thinking of ways to leverage NFTs.”

What do fast food, art, and sports have in common? In recent years, companies in each of these industries have embraced a technology known as non-fungible tokens, or NFTs.

An NFT is a unique digital asset that represents ownership of a limited instance of a piece of content that is authenticated through blockchain technology.

“NFTs are basically smart contracts,” said V&E Technology Transactions and Intellectual Property partner Devika Kornbacher.

The content linked to NFTs is typically digital, too. Many of the most famous NFTs are associated with digital artwork, but NFTs are providing unprecedented opportunities to businesses outside of the arts as well, Kornbacher explained.

“If you’re a business, you need to be thinking of ways to leverage NFTs,” she said. “If business leaders think long and hard enough, they can probably identify a way to leverage NFTs to monetize content that they previously couldn’t monetize. And companies that don’t think this way are going to fall behind.”

One example of businesses monetizing content through NFTs is the NBA’s Top Shot: virtual trading cards sold as NFTs on an e-commerce site. Kornbacher, a basketball fan herself, owns a couple of “packs” of Top Shot Moments. Each virtual pack features a set of NFTs, the NBA’s virtual answer to traditional sports trading card packs.

Each NFT “card” is a virtual cube that includes a player’s picture and an exciting video clip from an NBA game. To date, more than half a million people own Top Shot Moments, according to the NBA’s Top Shot website.

“The NBA is at the cutting edge,” Kornbacher said. “I probably wouldn’t purchase an NBA video clip that I saw on YouTube, but the packaging of this content, these NFTs, makes it attractive and makes it work. Even though it’s all electronic, it intentionally is giving you the feel of a physical, tangible item that you own.”

What Top Shot NFTs also have in common with traditional trading cards is that various cards are relatively scarce, making them a hot commodity among collectors. Scarcity is one of the keys to success in selling NFTs, Kornbacher said.

“Anytime you’ve got demand and scarcity, you’re going to be able to make money,” she said.

In addition to the NBA, other notable corporate entrants in the NFT space include Taco Bell, which has sold taco-themed GIFs as NFTs, and IBM, which announced earlier this year that it plans to store patents as NFTs for easier trading and selling.

As businesses explore their own forays into the world of NFTs, there are a few things they should keep in mind:

Choose your marketplace wisely

Businesses can set up their own NFT marketplaces like the NBA did, or they can choose to participate in independent marketplaces. It’s critical, Kornbacher said, to ensure the marketplace is well run and has secured the trust of its buyers and sellers. (Marketplaces that accidentally host scammers can shake the confidence of their users; see the next section.) Once a marketplace has established a respected reputation, online communities tend to spring up alongside it. Community members often trade NFTs among themselves after buying them through the marketplace, creating a secondary market.

NFT authentication is automatic but not foolproof

Because the provenance of NFTs is stored in the public blockchain, NFT buyers and sellers don’t need to invest in expensive authentication techniques (as a dealer of oil paintings might have to, for instance). However, there is a chance of fraud, depending on who has created the NFT linked to the content in question. In several cases, scammers have impersonated artists, uploaded the artists’ (real) work to an online marketplace and sold it for profit, cutting the original creators out of the transaction, according to TheVerge.com. To avoid doing business with an NFT scammer, Kornbacher recommends that buyers “spend time verifying that the properties of the NFT are listed and that the seller of the NFT is who they say they are. Look out for fake NFT sites that impersonate legitimate marketplaces like OpenSea. If the price seems too good to be true, it is probably a scam. Only use marketplaces that you know are run or used by the content creators.”

Pay attention to NFT patents

Creating an NFT for a piece of content can be a relatively straightforward endeavor, but that won’t necessarily always be the case. In 2019, Nike made headlines for its patent for a specific system to create virtual shoes attached to NFTs. Nike has yet to actually market virtual shoe NFTs, according to The Wall Street Journal. But its patent, in theory, could create headaches for other shoemakers seeking to create a system similar to “Cyrptokicks.”

“More businesses could seek patents on ways to leverage NFTs or create tokens,” Kornbacher said. “While software patents aren’t as easy to get as they used to be, the fact that NFTs are inherently digital could result in more patents being issued in the space, creating future ‘patent wars’ similar to the smartphone wars of the last decade.”

While the future of NFT-related patents remains uncertain, Kornbacher said it’s clear that, unlike some other buzzy tech trends, NFTs are more than a fad.

“The problems that non-fungible tokens solve and the monetization opportunities they present make me believe that they’re here for the long term,” she said.