Over the past few weeks, virtually every industry has seen a high-profile non-fungible token (NFT) deal. There was musician Grimes’ sale of various digital works for roughly $6 million. The artist Beeple sold an NFT for $69 million in an auction at Christie’s. Twitter chief executive Jack Dorsey’s first tweet went for $2.9 million. The NBA’s digital products arm Top Shot collaborated with blockchain company Dapper Labs to sell virtual basketball cards, which has resulted in over $230 million worth of transactions so far.
Fashion’s own NFT headline came from a collaboration between design studio RTFKT and 18-year old digital artist Fewocious, with 621 pairs of shoes selling for roughly $3.1 million total, each pair priced from $3,000 to $10,000. The shoes were issued as NFTs, meaning that the buyers can’t wear — or even touch their purchases.
In this case, buyers will later be sent a pair of physical shoes from the RTFKT and Fewocious collaboration, but more as a thank you note for the digital purchase. The true asset, as those with faith in the market believe, is the digital product.
“It’s not just a trend or a new thing,” said RTFKT co-founder and co-chief executive Benoit Pagotto. “It’s a real change of power.”
In layman’s terms, NFTs are unique digital assets authenticated and minted using blockchain technology. The blockchain contains a digital ledger that codifies and shows a record of each transaction — like the purchase of an individual pair of shoes from the RTFKT and Fewocious collaboration — that cannot be altered, meaning any transaction relying on a blockchain shows verifiable evidence of the price and ownership of a good.
There are challenges and risks for brands to consider before issuing NFTs.
As the past few weeks have shown, almost anything can be issued as an NFT. Within the fashion industry, NFTs could expand beyond products to photos, shows, interviews and social media posts.
While the NFT market is still nascent, the potential for brands to capitalise on it through various digital garments, accessories and other products means it may continue to grow as a force within the industry. Still, however, there are challenges and risks for brands to consider before issuing NFTs.
Scarcity and value
NFTs are unique even in the world of digital assets. For example, while Gucci’s $12 virtual sneakers were fungible, meaning they didn’t rely on blockchain technology and lacked the encryption and unique asset issuance NFTs provide. For now, a single pair of virtual Gucci shoes is interchangeable with all of the other pairs Gucci issued on its app.
Each pair from the RTFKT and Fewocious collaboration, however, is a singular asset. Despite the initial appearance that brands are issuing NFTs of the same product, those digital items all contain unique properties and metadata that exists within the blockchain. Those qualities demonstrate ownership which make them a one-of-a-kind asset. NFTs, however, don’t insure intellectual property, meaning that artists, brands and designers still need to register copyrights for their products and collectables.
The secondary market for NFTs is also lucrative, allowing artists and brands to receive a cut — typically 10 percent — of all future sales. For brands that have spent years trying to control the resale and counterfeit market for their goods, NFTs offer complete authentication, along with the ability to permanently cash in on every future exchange of their products.
It’s a fashion item that’s already being treated as an asset.
Sneakers are a natural choice for brands testing out virtual products. With a community-driven market, virtual sneakers are compatible with gaming and other ventures. Sneaker buyers also view purchases as long-term investments or collectibles, and are used to exorbitant prices within the primary and secondary markets.
“It’s a fashion item that’s already being treated as an asset,” said Pagotto.
RTFKT has tried several points of distribution, auctioning shoes on crypto marketplaces, stores and galleries within “metaverses,” or virtual shared spaces that largely run on blockchain technology, as well as its own website. Its sneakers can be worn within metaverses like Decentraland, and tried on virtually through Snapchat.
Fad or fact?
Though the NFT craze is making headlines, there is still a long way to go before consumers are purchasing NFTs instead of Birkin bags. Few fashion companies have invested heavily in the necessary technology, and many aren’t a natural fit for the gaming and VR worlds where NFTs thrive.
Pagotto doesn’t see traditional fashion players doing well in the NFT space. Creating a digital product requires a similar level of craftsmanship and experience as physical pieces, which many brands will have to outsource to create digital products that rival their physical ones.
It’s also a matter of which consumers are participating the spheres in which NFTs exist, logging onto metaverses or building crypto wallets — activities LVMH’s typical consumer likely isn’t participating in anytime soon. If fashion brands want to embrace NFTs, they’ll have to start catering to a new demographic with a different set of preferences.
Because of these barriers, fashion companies will need to collaborate with more experienced players.
“We are the pioneers,” said Pagotto. “We are the ones that they are looking to replicate.”
Still, demand for high-end digital products exists in fashion, and marketplaces like Digitalax and Dematerialised have emerged to meet it, along with a series of virtual fashion players that supersede luxury brands within the gaming world. Digital fashion house Fabricant, for instance, collaborated with blockchain company Dapper Labs — the company behind the NBA’s NFT Top Shot venture — on an NFT dress in 2019 that sold for $9,500.
But there are larger concerns about the NFT market. Minting assets on blockchain requires significant energy use: the cryptocurrency Bitcoin, for example, uses more electricity in a year than the entire country of Argentina, according to a study from the University of Cambridge. Pagotto says the company is looking for ways to offset emissions to reduce the energy consumption from transactions.
And while NFT sales are secured through blockchain, hacking is a concern. In recent weeks, reports have emerged of attackers stealing NFT owners’ wallets and trading the assets to their own on blockchain auction site Nifty Gateway. After a recent drop on RTFKT’s site, the company was subject to a cyber attack. NFTs’ high-profile nature likely means those attacks won’t slow down anytime soon.
“We get attacked a lot,” said Pagotto. “There are some very smart people trying to find ways to get around the security.”
High prices and headlines have generated a mania around NFTs, and because consumers propelling prices are largely within the gaming community or are crypto investors with a vested interest in the market, there are questions about the market’s long term sustainability. Case in point: it was the founder of crypto fund Metapurse that paid $69 million for Beeple’s artwork at Christie’s.
But as competition increases within the space, prices may slow down. But that could mean a more mainstream future for NFTs: RTFKT is hoping to make its shoes more accessible to its younger fanbase through diversifying the editions and quantities, along with giveaways and quick drops. Lower prices or more options, in turn, will allow for a future where anyone can own, hold or flip a digital asset.
It’s perhaps for those reasons that despite the challenges, virtual product makers are confident in the market’s longevity.
“The old world is over,” said Pagotto. “There is a new world now.”