Non-fungible tokens (NFTs) are a hot topic in many industries today. But what do they mean for the luxury market? Why are most luxury brands eager to join the NFT bandwagon? To begin with, let’s see what NFTs are and their unique features. As we move forward, we will also examine what burning NFTs is all about.
Non-fungible tokens are cryptographic assets created using blockchain technology. Cryptocurrencies are typically fungible tokens as they are exchangeable for equivalent values. However, NFTs in crypto have unique identification codes and metadata to distinguish one from another.
Hence, each NFT is not replicable, making it a unique digital collectible. This concept has captured the imaginations and wallets of many in the last few years. With huge investment potential, it is similar to owning an original piece of artwork, but in digital form.
WHY THE LUXURY INDUSTRIES ARE USING NFTS?
The luxury industry’s major challenge is, fraudsters copy products as they want the status of ownership without paying the price. One of the advantages of NFTs is that they cannot be duplicated, thus solving this problem. Blockchain technology ensures that these assets are traded transparently, ethically and cannot ignore copyrights when using them. It is an advantage for the brands and clients, protecting the designer’s creativity and preserving the individuality of the product.
In addition, like luxury items, NFTs are timeless, having a long-term appreciating value. Just as people hand down heirlooms, similarly, we might see people passing down digital assets in the future.
Hence, it is about time that the luxury brands use these tokens. As it paves new ways of telling their story and interacting with their clientele. Today, luxury consumers want to know the stories behind the products they buy. Also, they expect these products to spark connections with other like-minded individuals. They want their products to reflect their values. NFTs allow luxury brands to create priceless digital assets and experiences. This will help boost awareness, encourage interaction, and ultimately drive interest in their brands.
Creating NFTs is a new way of connecting with your desired audience. High earners who aren’t rich yet and young high net worth individuals have the potential to drive new, loyal buyers who will follow your brand. Thereby showing the young high net worth individuals that you understand their needs and are willing to adapt your product or content to suit their preferences.
The opportunity provided by NFTs to create unique, everlasting, and highly valued digital content is unlike anything else currently available. Therefore, luxury brands cannot afford to miss the opportunity of using the NFT technology. The luxury brands that have joined the NFT bandwagon are Louis Vuitton, Burberry, Dolce & Gabbana, Gucci, Rimova, and Jacob & Co.
WHAT IS BURNING OF NFTS?
We know that blockchains and NFTs cannot be changed, replicated, or deleted, allowing for authenticity, ownership, and scarcity. What happens when a luxury brand, that is experimenting with NFTs, wants to change or eliminate an NFT they created? They can burn it.
Burning NFTs, which are tokens stored on a blockchain, is the process of permanently removing an NFT from circulation. It is to eliminate unsold or problematic inventory from an NFT drop. Also, to engage collectors and fans through upgrades that replace an original NFT with something else.
WHY THE LUXURY INDUSTRY IS BURNING NFTS?
However, for fashion and beauty brands, burning NFTs could offer a way to manipulate scarcity, thereby price. It could also lead to more intriguing NFT projects, in which consumers must weigh risk and reward by burning an NFT in exchange for something else. These scenarios, among others, are already playing out among artists and gaming start-ups, paving the way for the fashion industry. Already, Adidas is using a burn mechanism to change the state of its NFTs when NFT owners make a purchase.
Burning NFTs is not a straightforward process, as there is no established, formal definition of a burn. Changing the ownership of an item from the blockchain to a general null address that no one owns is the simplest way to burn it. Though it will not necessarily destroy the token, now the NFT would be owned by the digital rubbish bin.
It is also possible for the original creator of the item to revoke rights, but only if the creator still owns the rights. Else, the original creator could cut off the server, remove the picture and say that the owner can no longer use anything related to it. Although the NFT owner might still own a token, it would not represent any usable rights. Additionally, a burn can also be an event when the ownership record is not changed, but a status change is recorded on the blockchain. A brand or platform could change the URL to which the token is pointing inside their platform, leaving the token unaffected.
HOW DOES THIS HELP?
Companies already manipulate the availability of items to keep prices high and scarcity high in the physical world. Burning NFTs can enable this with digital products as well.
The burning of NFTs can benefit the luxury brands industry to keep the scarcity and prices high. However, it is wise for the brands to think of sustainable options for creating NFTs to reduce burning NFTs. Only then will these brands be able to grow in this fast-paced market.