An NFT is a unique digital asset that is stored on an unchangeable register that tracks current and past ownership, called a blockchain. NFTs cannot be copied or replicated as they are individual digital tokens that act as a digital certificate of ownership which verifies the holder of the digital asset. NFTs represent a form of modern-day collectible and can take the form of audio, video clips, artwork, or in the case of the retail industry, digital clothing.
NFTs are ‘created’ through a process known as minting, in which digital files such as images, audio, or video are converted into digital assets and stored on the blockchain. The digital items are then stored in a decentralised database where they cannot be modified, edited or deleted. NFTs are then bought and sold on the blockchain through cryptocurrency such as Bitcoin or Ethereum.
The popularity of NFTs has grown rapidly since the first known NFT was minted in 2014. NFT trading hit £8.1 billion during the third quarter of 2021 alone, and has been increasingly embraced by retailers. During the latter half of last year, brands including Adidas and boohooMAN released their own NFT collections which proved to be incredibly popular. Adidas’ inaugural NFT collection debuted in December of last year and made the company £16.6 million over the course of an afternoon, as all 30,000 of the NFTs were purchased within a matter of hours. The Adidas Originals NFT collection included a collaboration with established NFT specialist Bored Ape Yacht Club to provide access to virtual wearables for the blockchain-based metaverse The Sandbox.
BoohooMAN took a different approach in launching their digital collection, creating eight virtual clothing NFTs that were given away in January to randomly selected customers. Competitors took note of the popularity of these collections, and utilising NFTs has become the latest marketing tool to take the retail world by storm. McKinsey’s State of Fashion 2022 report concluded that NFTs are likely to make the move into the mainstream and become a regular part of a retailer’s marketing strategy this year, and we are inclined to agree.
Nike also stepped into the digital realm with the purchase of the virtual shoe company RTFKT (pronounced “artifact”). The acquisition came after a series of high profile NFT projects by RTFKT, including a collection of NFT virtual sneakers that sold for £2.4 million in just over seven minutes in February of 2021. Nike’s ownership of the digital retailer seems to be a giant leap into the metaverse, with the idea that when entering any form of virtual reality space, the blockchain will verify the ownership of your digital shoes and they will materialise. Digital clothing is still in its infancy but Nike is demonstrating its position at the forefront of the innovation, with metaverses soon to be populated by the recognisable ‘swoosh’.
Will Churchill, my colleague in the HDH Consultancy & Analytics team, offered comment on Nike’s acquisition of RTFKT stating that: “This is an exciting development for digital retail – and digital assets in general. Digital assets are the future and I foresee Nike’s step into the metaverse foreshadowing how the majority of major retailers will be venturing into digital clothing this year. At some point in the future, it is likely to be the norm for retailers to release digital copies of their clothing when consumers purchase the physical asset. I expect it won’t be long before nearly all retailers have a presence in the metaverse and are releasing NFT collections of their own.”
The concept of digital clothing collections has also permeated into the luxury fashion world. For example, Dolce & Gabbana exhibited its nine piece ‘Collezione Genesi’ NFT collection in one of its flagship stores. Five of the pieces included physical creations that were designed and executed by Dolce & Gabbana, with virtual iterations replicated by UNXD for the metaverse. The physical creations included two versions of The Dress from a Dream, The Glass Suit, and two gold-plated and gem-studded silver crowns, called The Lion Crown and The Doge Crown. The nine-piece collection collectively sold for 1,885.7 Ethe, or approximately £5.7 million, and the collection was said to be the most complex fashion NFTs ever created. The luxury NFT market is only just beginning but it is predicted to continue to develop to be worth £42 billion by 2030.
Despite NFTs garnering success amongst retailers, the question remains whether this model of success can translate into the property realm, and there are differing opinions about whether the world’s most illiquid asset class can be made available to a broad investor base in the digital realm. For some, the concept of NFTs becoming an integral part of the future of real estate is a natural evolution in property technology, and an inevitable consequence of the advancement of prop-tech. Prop-tech venture capitalist, Vik Chawla, believes that the integration of NFTs in real estate means that “future real estate transactions will take place in an entirely digital format where commercial and residential real estate purchases and sales are completed seamlessly” (Forbes, 2020).
New developments in the process of property transactions creates new business opportunities. Last month, a four-bedroom house in Gulfport, Florida, was auctioned for £494,735 online, signifying a first in the real estate industry as the home’s property rights were minted as an NFT. The NFT holder then owns the property via a limited liability company (LLC) that contains the crypto asset. This real estate-backed token can also be used as collateral for crypto borrowers and lenders. Property transactions via NFTs can therefore be markedly more efficient for future buyers, as the process significantly cuts down on the closing time.
There are also tremendous possibilities for landlords and property holders to use NFTs as a way of streamlining the current transaction process. Outside the realm of digital art and digital retail, NFTs can also be used in any form of transaction that requires some form of ownership. Instead of requiring physical copies of documents, property owners’ use of NFTs allows a more secure proof of ownership as it is encrypted and registered on the blockchain.
The use of NFTs in property and retail is an exciting emerging trend that offers opportunities for consumers, retailers and landlords – and HDH’s agents and consultants are well-placed to advise. In our next blog, we will explore in greater depth how metaverses could be the real estate of the future, and the seemingly endless possibilities of the virtual world.