The easy, no-BS guide to crypto, blockchain and NFTs that you’ve been waiting for. Plus, what all of this means for brands.
By now, chances are you have heard just enough about cryptocurrencies, blockchain and NFTs to navigate a dinner conversation on the topic. You know a) someone who has made millions by savvy crypto investments, b) someone who is mining their own Ethereum or earning currency by playing an online game, c) that some people are selling weirdly unattractive digital pictures for millions of dollars and d) that you should be paying more attention to this whole thing but just find it all rather confusing and faintly repellent.
Well, here then is the primer you’ve been looking for.
Starting with the basics, this whole craze really got going with the invention of a distributed ledger: technology called a ‘blockchain’. It sounds fancy, but is actually just like a normal ledger that we used to write on paper or recently stored in a computer database (example: the deeds registry for a country’s property), which can now be written in one place and then copied into a huge digital file that is stored in countless places. It’s a clever idea because it removes the need for a central repository or “master record” and thus offers true decentralisation of information.
Kind of. I mean the truth is that most of the actual hosting of these files is still on the same servers with the same big server farms that everything else is on. But there is undeniably a shift in control here from traditional institutions – mainly governments and banks – to at least a much wider set of non-institutional players.
Digital currency, now largely just called cryptocurrency, is equally easy to understand. Any money is just a ‘token’ that represents value. What until recently was stacks of paper and is now mostly just database entries is an amount of buying power that you have to your name. Maybe it’s in your wallet; probably it’s just accessible to you via some kind of digital transaction.
Fiat currency, as it is called, is the money issued by a country’s central bank. It is a highly centralised system: the government knows (in principle) how much it has issued and where that money has gone to. By knowing this about every citizen and corporation, it can apply taxes, solve crimes, and generally try to control the value and movements in the economy.
Cryptocurrency differs from fiat not so much in that it’s digital (which most money is nowadays anyway) but in how it’s issued or ‘minted’. The clever innovation that Bitcoin heralded was the idea that crypto can be mined by having computers solve really difficult and unpredictable mathematical problems. Point a computer at the problem long enough and eventually a solution – or ‘coin’ – will be found.
There is nothing inherently meaningful about this method of creating scarcity, but it is convenient and can be trusted. The cryptocurrencies with the most trust from buyers, let’s say Bitcoin and Ethereum mainly, have a lot of countermeasures to ensure they cannot be forged or hacked. Okay, so far, so good. You have your computer set up and it’s busily solving maths problems, finding coins, and registering them in the blockchain ledger against your account. Hurrah, instant wealth!
True, but less and less true. A cunning feature of cryptocurrencies is that they become harder and harder to mine over time. This essentially makes them scarcer as they become more valuable. Cryptocurrency exchanges work just like any normal currency or stock exchange, the main difference being that you can freely move your money from one crypto to another unimpeded by a nation state (once your money is out of your own currency, that is). Exchanges have become increasingly scrutinised by governments and tax authorities for precisely this reason.
Okay, with me so far?
So one more concept to land here is the NFT: a non-fungible token. This is a super-confusing way of describing an object that cannot be duplicated. Money, both fiat and crypto, is fungible. One rand is one rand; one Ethereum is one Ethereum. It’s the quality that matters, not the individual coins.
An NFT is simply a ‘coin’ that is unique. You can think of it as a collector’s item. Art is a good analogy, although also too easily conflated with NFTs since they can be anything. They can be artworks but they can also be any rare digital item. It’s no wonder the gaming world has pounced on this so fast, because games where you can buy and sell ‘land’ or ‘gear’ have the easiest time of turning these in-game goods into NFTs and thus being able to confer a much more permanent ownership of these items to their players.
So why is everyone getting so rich?
The truth is (the truth always is thatonly a few people are getting rich, mainly:
- People who were fortunate enough to get in early: Someone you know was bound to have bought a bunch of Bitcoin five years ago and is now rolling in some cash.
- People who are already rich or famous: when Beyonce releases an NFT, suffice to say it’s in more demand than yours.
- People who own huge servers that can mine a lot of new coins (see ‘already rich’ above).
- People who spend a lot of time ‘playing the market’: It is possible, of course, to buy things that are in demand and sell them for a profit. But since there are few fundamentals to analyse here (listed companies, by contrast, have to release results and deliver some kind of performance), this is not something you can dip in and out of with anything more than luck
- Criminals: One of the huge beneficiaries of completely untraceable and anonymous transfers of large sums of money are (surprise!) people selling illegal goods. If you have a few hours to spare, install the Tor browser and spend an amusing afternoon browsing an e-commerce marketplace where you can buy cocaine, weapons, organs and hacking software. The payment method? One hundred percent cryptocurrency.
- Which brings us to the last group: People who are just plain lucky. Luck, I’m afraid to say, is a profoundly significant component of what makes this world tick – the world of crypto, and also the world in general. You can’t buy luck, sadly, or earn it or get a hot tip to conjure it. Statistically, some of us will be lucky some of the time.
This is not investment advice. If you think buying a highly volatile and thus potentially highly lucrative asset is for you, then it’s extremely easily done. But know that SARS will be watching and know that there is a strong chance you will lose it all or at least weather periods where you are completely wiped out.
So where do brands fit in?
By and large, the opportunities for brands (and artists) are in the NFT space. Being able to create unique, collectible things whose value may increase tremendously over time is actually a powerful tool in creating fan experiences and loyalty, incentivising behaviour, and adding value to purchases, repeat purchases and just about anything else.
The world’s most innovative brands have already offered unique NFT prizes and collectibles, bought virtual properties in popular games where they can promote themselves, and launched in-game merchandise and items. Remember, just because something isn’t ‘physical’ doesn’t mean it’s not real.
The NFT art stuff is making the headlines but the truth is there is much more general utility here. We live so much of our lives in a digital world that digital goods are, indeed, of essential importance to us. NFTs give you an excellent way to establish uniqueness, and it should be obvious that being unique, feeling special, and having something no one else does are key drivers in the digital economy (associated psychological problems aside).
I’m not going to try and spell out an NFT strategy checklist here. In my opinion, it’s best not to focus on the NFT, but rather to think about what value you could offer your customers if only you could make that value unique, rare and desirable.
Not only is this not a ‘fad’; it is a missing ingredient in the marketing mix that cannot but have a deep and abiding impact on the industry. It also could, might and probably will help artists, musicians, sports teams and others earn extra revenue from their fans, although this requires removal of the same middle-men we have been told from the dawn of the internet are going out of business. The recent purchases by huge labels of the catalogues of many classic musicians seems to point firmly in the other direction.
Is the future thus a blockchain Utopia?
Extraordinary claims, as Christopher Hitchens memorably said, require extraordinary evidence. The people who suggest blockchain will upend the entire property market or remove the need for lawyers or governments, and that cryptocurrencies will replace fiat currencies and central banks, are wrong. Probably.
The same kind of language hovered around the emergence of social media, which was going to make journalism democratic and fascist regimes impossible. Fifteen years on and the big winners in the social media revolution are not the ordinary guy or the population of China or Afghanistan; they’re Meta, Google and Twitter, companies that may well have been the decisive forces behind the fall of democracy in the US and elsewhere, along with Uber, Airbnb and Lyft, which may have created a whole new kind of benefits-free labour.
And 15 years before that, the visionaries and utopians of the early web imagined similar things. Which is not to say the internet didn’t entirely change the world, or that social media and services haven’t disrupted 1 000 industries, or that there aren’t mountains of good done by all of these technologies. But early adopters and enthusiasts never see the dark side and the downsides.
So I’m not being a naysayer, merely a stay-safer. This stuff is, if nothing else, a lot of fun. It will lead to some unimaginable and powerfully disruptive change: some good, some bad. But the hype in these things is almost always wrong and bereft of the necessary scepticism. As Elizabeth Holmes heads to prison, it’s worth remembering that things that sound too good to be true usually are, and can leave a wake of loss and damage behind them.
As the joint CEO of VMLY&R South Africa, Jarred Cinman co-leads the Johannesburg and Cape Town offices, overseeing the inner workings of the agency, and managing all departments from a business, HR and operational point of view. He previous served as co-chief operating officer of Y&R Africa Group, overseeing operations at Y&R South Africa and NATIVE VML.
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