Understanding the world of NFTs

Do you have no clue about NFTs? Or, you know about NFTs, but you think it is all a big mumbo jumbo? Please keep on reading! Up to a few months ago I did not know either, but I dug deep and want to share here what I learnt.

A NFT (non-fungible token) is a digital asset that is verifiable on blockchain technology. Basically, they are two types of NFTs, utility NFTs and art NFTs. Utility NFTs are more than just a unique digital asset, they open to their owner’s access to privileges, rewards, or rights for which they would otherwise not have access to. NFT art is a digital asset that has a certain value and as such is collectable, unique, and non-transferable. They cannot be duplicated and are therefore limited. The value is created because only people who own the NFT can sell them.

NFTs, were first actively applied in digital art, but are increasingly gaining traction in the luxury industry, this is especially true for the fashion- and watch categories. Closely connected to NTFs is the development of the Metaverse. Many brands see the Web3 as experimental new space in which they can try almost everything. However, looking at the activities more closely, many of these efforts do not seem to have a clear long-term strategy.?I am convinced that experimental hyper activities in the Metaverse and with NFTs can be very dangerous, as in one way or the other it will affect the brand image. ?Just as I pointed out in an earlier article, to have credibility, brands must communicate coherent across all touchpoints, NFTs and the Metaverse make no difference to this rule.

Currently we see in the world of watches three different approaches with regards to NFTs. Firstly, there are physical watches, which are vetted or authenticated by either the brand, a pre-owned watch dealer or another specialist. Companies (e.g. Origyn - https://www.origyn.com/ ) take high-resolution pictures of products, which then will be converted into an anonymous token, which is an NFT. The NFT serves as a certificate of authenticity on the blockchain. The blockchain provides a digital ledger that documents every time an NFT watch exchanges owners, which provides greater transparency in the secondary market. I believe that if you cannot back up such an NFT with a physical product, the NFT itself will not retain its value, even though it is unique.?

Secondly there are digital, “creative watch NFTs” (e.g. Beyer X FTSY8 - Time Wrap Collection – https://beyer-ftsy8.com/ ) or an original prototype design by a brand with accompanying NFT (e.g. Royal Oak from AP – https://www.sothebys.com/en/buy/auction/2022/gerald-genta-icon-of-time-3 ). There are also brands selling digital pictures from existing watches (e.g. AP on OpenSea - https://opensea.io/assets/ethereum/0x495f947276749ce646f68ac8c248420045cb7b5e/67449392444379513319175548929294199602284387659159795530092800126848394592257 ). It gets a bit more tricky, especially with regards to copyright, when artists create NFTs of existing watches, by adding their own twist (e.g. Rolex/Rodex https://www.bloomberg.com/news/articles/2022-01-12/these-nft-watches-can-cost-more-than-a-real-life-rolex ).

Last but not least there is an interesting approach to start a product as an NFT and give the consumer the possibility to either trade the NFT (or parts of it) or to exchange it into a physical asset (e.g. Sato Movements). This approach is also used in China, where digital tokens are not allowed to be traded. Xiaohongshu launched for example NFT collectibles which have their “physical twin” for sale on R-Space. As such, customers can buy the physical versions of their digital collectibles to show them off online or eventually maybe in the Metaverse.

Despite challenges, the NFT world for watches will continue to develop in the coming months and years. However, the virtual space should not be used a lab for experimentation. Just as in the real world, a brand needs to know what they want to achieve and must make sure that it is coherent with the overall strategy and the positioning of the brand.

What do you think about NFTs? Do you believe in it or not? What do you think is great in Web3 or do you still consider it a lot of hot air? I am looking forward to hearing from you.