NFTs are all the rage right now. Maybe you've been asleep for a few weeks, or perhaps not in some of the corners of the internet I frequent, but at least in my world it seems that everyone is talking about non-fungible tokens. Simply put they're a way of representing digital ownership over something—a piece of art, a collectible "card", a piece of music, etc. But what's unique about these things is that they're…unique. Built on blockchain technology, you're able to verifiably prove that these objects are in fact, unique, or at least have a truly limited supply. Some of these objects are selling at a truly eye-popping amounts, such as Nyan Cat, a flying cat with a pop tart body followed by a trail of rainbows, fetching $600k.
As evidenced by the tweet above (sent two years ago), the ideas of NFTs have been around for a while, but they've become incredibly pouplar recently with the advent of NBA Top Shot, and big sales from digital artists like Beeple. If you want a primer on NFTs, you can find out more on them here.
While they're an obvious monetization path for creative works, I think that they also might just represent a revolution for membership programs, subscriptions, and software licenses. WTF, right? Let's dive in…
A few years back before I got to work on my previous startup, I was gobbling up as much information as I could on the world of crypto, ICOs, and all the other rage at the moment. A buddy of mine and I were contemplating building a tool in the crypto space, but were trying to think of clever and creative ways to monetize. We were a bit inspired after seeing the Brave ICO run a pretty successful raise. No doubt it was the wild west at the time, but there as a weird idea I had then that's come back around to me in recent weeks.
While this idea never came to fruition, I'm sharing something I wrote to a friend who was an investor and will connect why it's relevant today:
What the hell does all that jargon mean? Let's break this down:
While nowadays almost everything is subscription-based, back in the day paid software used to require licenses to work. A handful of companies that had extremely expensive software, with pirates always seeking to crack them, found a clever (if also incredibly annoying) solution: USB dongles.
AVID's iLok was one example. Your license key was stored on the thumb drive itself, and you'd have to have one of these suckers plugged into your machine for the software to work at all. Thankfully with subscriptions we've moved past the need for such archaic things, but the idea that there was a physical object that contained the license has always remained interesting to me.
When we used to watch television that was piped in through a copper coaxial cable, TiVo was a pretty dang popular with its enabling of timeshifted content. They too had a subscription service, but with one interesting twist:
In the early days you could purchase a lifetime membership which meant no more monthly payments—just service forever (or at least as long as TiVo was in business 💀).
Initially the lifetime service cost around $199, but before it was discontinued grew all the way to $399. Through that time the value of the service increased (who knows if at a 2x rate), so it makes sense that the price of the lifetime membership increased as well.
Digging in a bit more into non-fungible tokens, (see ERC-721 or ERC-1155 for specific tech), the biggest thing you need to know is that it's possible to make digital objects that are scarce and can't be divided (unlike bitcoin, which is fungible). Tokens can be stored in wallets, like the very wonderful Rainbow Ethereum Wallet, what I use to mess with this stuff.
Because the wallet itself is actually "stored" on the Ethereum blockchain and I retain the secret key, it's something that I own outright and no one else can lay claim over it. Furthermore, it's possible to "authenticate" with that wallet among many different services, and allow those services to recognize the things that I own. What's cool about that is whether I'm collecting digital art, music, virtual land, or domain names, they're all stored in the same wallet regardless of their origin.
Putting it all together
Let's imagine a new kind of membership card, one that is in and of itself a non-fungible token.
- I could purchase the token (my membership card) from the service provider, or potentially from another individual
- The token would live inside of a wallet, which would be authenticated wherever its features could be used
- That token would enable all of the features of my membership—access to software, access to member gatherings, whatever you could imagine
- The token could simply represent an active subscription, but for the sake of this thought experiment I like the idea that they're lifetime memberships—long-term valuable and collectible
- Tokens could be minted or burned based on various criteria—keeping supply in balance would be critical to maintaining a viable market
What kinds of things would this enable?
- Rewarding your most loyal members—it doesn't all have to be about making money. Some members could be rewarded with such a token, and might in turn become an even more powerful supporter.
- Fractional ownership—what if a token was the new season pass? Though the token itself would not be fungible, perhaps there would be a way to participate together. The features of the token would only be redeemable by the current bearerer of the token, but those sharing the token could trade off on who the bearer might be at any time.
- Exclusivity—imagine Peloton had these sorts of lifetime memberships as tokens that could be represented as a badge next to my avatar while riding. You know who would want them? Everyone. Every single Peloton rider.
- Liquidity—if there was a transparent process for how new membership tokens are minted, one could ascribe a value floor to the tokens, and trades of these might happen at a multiple of their purchase price
- Value creation—As new features of the membership get added, the intrinsic value of the token would change accordingly—imagine an exclusive event where token holders get access—the price of those tokens would likely increase with such a thing
- Discouraging bad behavior—there could be clear policies which would allow for a token to be burnt, or invalidated, based on the behavior of its owner. Now, this is absolutely a slippery slope and would need to be implemented extremely carefully, but essentially it would be possible to build a TOS into the token itself.
Whatever happens next, it's going to be exciting
While NFTs are very much in the early days and it will be a long while before consumers are savvy enough for something like this to be deployed en masse, the non-fungible digital future seems inevitable.
If you've seen anything like the above before, do let me know! I'd love to keep this post updated with real world examples of such a thing.