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In 2021, non-fungible tokens (NFTs) came out of what seemed like nowhere to rack up almost $41 billion in sales. This explosive growth combined with its buzzy reputation might understandably lead startup leaders to wonder, is the NFT a smart growth opportunity for a young business, or just a flash in the pan that will only get you burned?
After that initial explosion of buzz around NFTs, the market suffered a sales volume decrease as Ethereum, the cryptocurrency many NFTs are based on, dropped in value. With the NFT market now beginning to stabilize as the outlook of Ethereum becoming cheaper to mine appears positive, it’s easier to get a real answer to the question of whether to delve into NFTs.
Meanwhile, one of the market’s major weak spots — its serious energy inefficiency — is also set to be fixed in the near future, removing one more obstacle to growth. In other words, strong indications point to NFTs continuing to flourish in the foreseeable future. But do they make sense for your fledgling brand?
The NFT marketplace opportunities are expanding
In many ways, NFTs are just getting started. New marketplaces will continue to pop up, making it easier to pay for NFTs with fiat currency. Metaverses and video games will start to take full advantage of NFTs, selling transferrable avatars and in-game items to players that they can truly call their own.
With the right approach, you have an opportunity to tap into a steadily growing, tech-savvy global audience that’s willing to purchase digital products that come with residual royalties built into the blockchain contract. However, that doesn’t mean entering the NFT market is an automatic slam dunk for every business.
Despite its trendy reputation, an NFT isn’t a magic money maker. Like any product, it requires proper marketing, a thorough business plan encompassing the costs and risks involved and a dependable team behind it all. Launching an NFT also requires a thorough understanding of where it fits into your overall company vision. Here are some considerations as you ponder your decision regarding NFTs:
1. Educate yourself on the behind-the-scenes aspects
Before you get involved in this space, you need to start with a solid understanding of blockchain technology and NFTs. Plenty of resources are available to help you learn the ins and outs of the technology. NFTNow is a solid place to start.
After you understand the process behind an NFT, you should also give yourself a practical education. Create a simple “test NFT” that you can sell to a friend or colleague for $1. Go through the entire process and see whether it’s something you can see yourself and your customers repeating enough to generate a viable business line. Having a basic understanding of the process, along with the knowledge of how and why NFTs increase and decrease in value, will help you determine whether getting involved in the NFT space is the right fit for you.
2. Decide if a potential NFT has actual value to your customers
In some ways, the popularity of the NFT isn’t all that different from the mobile app craze of the past decade. As a software engineer, I was approached by a lot of people who were under the impression that if they just had a mobile app, they could become the next Mark Zuckerberg overnight.
In most cases, the mobile apps they wanted to build would work just the same — or even better — on a mobile browser. For these entrepreneurs, building an app would just mean wasting money on something their business didn’t need and their users didn’t want. Today, plenty of entrepreneurs are making this same mistake with NFTs.
Don’t create NFTs in the hopes that you’ll generate buzz for your business; launch an NFT collection only if you’re serious about staying in the marketplace long-term and if you believe your collection has a unique value that NFT buyers will emotionally resonate with. Ask yourself whether you see a third party wanting to buy your NFT from a buyer as a resale. If the answer is no, then it doesn’t belong on the market.
3. Assess all the costs for launching an NFT
While it’s true that you might be able to mint and list an NFT at a cost of $100–$700, that doesn’t necessarily represent the true cost of launching a successful NFT.
If your current consumer base consists of people who love old-fashioned art and collectibles, for instance, you may have to enlist the help of experts to reach a new, younger demographic of NFT enthusiasts. This can easily turn into a marketing budget of up to $30,000 (or even more) just to get you started with proper brand creation, storytelling and creative direction. Make sure you’re factoring in all these costs when deciding whether your launch will be truly worth it.
4. Build a following and then launch an NFT — not the other way around
NFTs should not be viewed as an “if you build it, they will come” technology. You need to make sure you have a robust audience who will want to buy what you’re selling. NFTs are still in their relative infancy, and that means that entering this new market means taking on a certain amount of risk. But it means that there is still so much more room to grow.
While art has been the major focus of the NFT market thus far, plenty of other applications are only just being explored. Platforms such as Decentraland, for example, are using blockchain technology and NFTs to build a whole virtual world — all owned by the people using it.
NFTs offer a world of potential, and it will be forward-thinking entrepreneurs who help bring that potential to fruition. However, it’s not enough to want to be one of these entrepreneurs. You need to have a plan and a vision that makes sense within the market. Otherwise, you will end up getting burned after all.