Current Status of the NFT Markets
Recently, Non-fungible tokens or NFTs have become a main topic in the cryptocurrency industry, following decentralized finance, or DeFi.
To understand what is “non-fungible”, you should understand what is “fungible” first. Fungible means you can replace a product with another one with the same or similar nature. On the other hand, if you say something is non-fungible, it means that it cannot be replaced by another product because of its unique characteristics.
Since each NFT has a unique identification code and metadata, it cannot be duplicated or have the same characteristics as other products. You can easily prove the original owner of an NFT, ownerships, and transaction history since unique data of digital assets are recorded on the blockchain.
Because of these characteristics, NFTs are used in various fields such as sports, art, games, and music, to name a few.
Dapper Labs, developers of the CryptoKitties game, has launched a service called ‘NBA Top Shot’ that sells the NBA players’ shooting moments through NFTs. Sotheby’s, a global auction house, held an auction for one of the most famous NFTs, Cryptopunks. At Christie’s auction house, digital artist Beeple’s work, ‘Everydays: The First 5000 Days’, was sold for a whopping $70 million (about 82 billion won) and became a hot topic. Famous pop star The Weeknd sold a new song through NFTs, earning about 2.6 billion won, and hip-hop rapper Eminem sold a limited edition NFT with his autograph.
In addition, popular brands such as Pringles, Pizza Hut, and Taco Bell sold NFTs for their fans, and luxury fashion houses such as Gucci, Dolce & Gabbana, and Givenchy also drew great attention by introducing limited-edition NFTs.
In line with this trend, various attempts are being made using NFTs in the Korean market as well.
DeFine, a social NFT platform, is expanding NFT applications to the game and entertainment fields with investment from “Abyss Company”, which has Pearl Abyss, the developer of the famous game “Black Desert,” and artists like Sunmi and Urban Zakapa.
Seoul Auction Blue, a subsidiary of Seoul Auction, an art auction company, is collaborating with Dunamu, the operator of Upbit, the largest cryptocurrency exchange in Korea, on the NFT businesses. In particular, Dunamu is preparing an NFT business that utilizes K-pop by investing 36.5 billion won in JYP Entertainment.
Furthermore, recently, with the rise of the virtual space metaverse, many attempts are being made to issue assets in the metaverse as NFTs. Blockchain-based games such as Axie Infinity, The Sandbox, and League of Kingdoms have issued characters, items, and their virtual plots of in-game lands as NFTs. In-game NFTs are being actively traded and have established themselves as an important factor in building an economic system in virtual spaces.
As various attempts using NFT were made, the NFT market grew rapidly with the size of the market, which was only $75 million in 2019, grew about 45 times to $3.38 billion in two years.
Elements of NFTs and Compatibility with Korean Society
As described earlier, NFTs are emerging as a hot topic as interest in digital assets and metaverses is rapidly rising. Then, what kind of elements do NFTs have? How are they connected to Korean society?
NFTs have various characteristics and definitions, so there is no social consensus yet on which definition we should consider as correct. However, the best-defined description of NFTs can be found in the article by Pecky McCormick, who runs Not Boring Capital.
Packy McColmick cited an article titled ‘Status-as-a-Service’ written by Eugene Wei, former product leader at Amazon and Hulu, on the elements of social networks. Packy McCormick argues that the characteristics of NFTs are aligned with those of successful social networks. These characteristics fall into three categories:
- Social Capital
1. Social Capital
Social capital can be seen as ‘social status’ or ‘social position’ that social network users obtain through network effects. Instagram users post high-quality photos or videos to get more followers, and Twitter users post their thoughts in a thread to attract more followers.
Individuals build their brand and values through these activities and eventually become “influencers” with tens of millions of followers. Influencers are interpreted with various images such as ‘celeb’, ‘young and rich’, and ‘opinion leader’, and they often get admiration from other users.
NFTs retain exactly the same properties of social capital. Users who have unique and rare NFTs such as Cryptopunk and Bored Ape Yacht Club (BAYC) share them to their personal accounts on Twitter or Discord. By sharing with the community that they have these NFTs, users gain images such as an ‘early adopter of cryptocurrency’, ‘whale’, ‘insider’, etc. The community reacts to this, showing envy or a desire to buy or own the NFT.
An important implication here is that having an NFT allows users to show off that they have joined a project and community in its infancy. NFTs can be a ‘digitized pride’ of their community activities and a ‘symbol of belonging’ that gives the NFT holders instant identification that all of them are part of the community.
This is different from what happens with internet celebrities or influencers who simply inspire admiration from the general public. Even if there is no monetary value of NFTs paid by early-stage services, users want to gain ‘digital pride’ that can be verified by anyone by contributing to the community and paying fees to obtain NFTs.
The most unique strength of NFTs as social capital is that this pride and social position can be recognized through a decentralized program called a smart contract. Since smart contracts have no room for human discrimination in their implementation, NFT Social Capital can provide ‘irreplaceable value’ to people’s activities in the network.
Social Capital Element and Connections with Korean Society
These attributes of social capital form an intersection with the recent phenomenon in Korea. Millennials and Generation Z in Korea show a new investment culture and aggressive consumption habits. They are actively investing in stocks and cryptocurrencies, as well as in alternative investments than conventional assets, such as art and music copyrights.
They are also leading the ‘FLEX’ culture, where they consume expensive items such as Nike limited edition sneakers, luxurious Chanel bags, and Rolex watches. Millennials and Generation Z go beyond simply using and consuming luxury goods, and show them on social networks such as YouTube, TikTok, and Instagram, and communicate directly with other users. Through these actions, generation MZ seeks to gain ‘status’ such as a fashionista or a trendsetter in their communities.
In fact, this act of gaining ‘status’ through consumption is a very common phenomenon not only in the MZ generation but also in previous generations in Korea. Korea is the country where European car brands such as BMW and Mercedes Benz are sold the most, and the preference for ‘full option’ is very high when purchasing a car. In addition, ownership of the real estate, hotel memberships, or golf memberships is sometimes viewed as a symbol of wealth.
As such, the desire for social capital inherent in Korean society is a phenomenon that has been ongoing from the past to the present and is spreading and accelerating more rapidly through various communities in the digital age.
The utility is the most prominent attribute of social networks. Facebook users can easily find or make friends through the platform and communicate freely with those friends. YouTube or Wikipedia provides a myriad of information. As users are more deeply engaged in using social media, they create bonds with each other, which develops into a strong community.
As a utility, NFTs have evolved a new concept of cohesion. For example, if a user owns a Cryptopunk with the total issuance of only 10,000 or a Bored Ape Yacht Club (BAYC), it is equivalent to joining an exclusive community with only 10,000 members.
NFT holders feel a sense of belonging when they come together and communicate with each other. Owning Axie, the NFT character of Axie Infinity, is like getting a ‘pass’ to play the game and join the Axie community.
Furthermore, NFTs allow users to extend to other communities rather than being confined to a particular community. It is unlike social networks where people who mainly use Facebook do not receive any special benefits when using other social networks such as YouTube or TikTok.
On the other hand, Axie Infinity’s NFT holders can receive additional benefits by proving that they have NFTs when playing other blockchain games, or use them in other games. An avatar of a blockchain game ‘The Sandbox’ may meet and interact with an avatar of another metaverse platform Zepeto, or exchange items with each other.
As such, NFTs connect different platforms and communities and allow an exchange of assets of each platform.
In addition, platforms can pay or reward loyal fans with NFTs to strengthen community cohesion. Users who hold NFTs are motivated to contribute more to the platform as avid fans and build a strong and exclusive community built by NFT holders only.
Related Article: NFT Wakes Up the Sleeping Giants within Millions of Fans
Utility Element and Connections with Korean Society
Korea is a society with very strong solidarity in communities. Fan clubs of famous artists such as BTS and Blackpink drive fandom culture and encourage more people to participate in the community. In particular, the recent fandom culture has evolved to be more active by going beyond simple consumption of the post content. Fans communicate directly with celebrities through social networks and directly produce and redistribute content and goods.
People who have joined the fan community can participate in fan meetings, be invited to artists’ events (birthdays, etc.), book concert tickets in presales, and have special experiences such as receiving merchandise produced by the artist. In addition, as creators, influencers, and one-person media in various fields such as mukbang(foodie content), beauty, music, and games emerge, the number of communities that want to communicate with them is rapidly increasing.
Some communities require strict conditions to join them. Sports brand Nike has opened a store that sells limited-editions in Korea where it only allows entrance of people wearing Nike clothes and Air Force 1. Internet communities such as “mom cafes” and “Karrot Market”, an online/app where people can buy/sell used goods, set restrictions so that only residents of the specific area can participate. If you can develop NFTs for small communities, it will create strong bonds between users as well as heavy users in the communities.
NFTs can help artists, creators, and communities connect more closely. Artists publish their content as NFTs, and fans can purchase them with fan experiences like support and donation. Through this, a fandom culture can be created in which the community can independently participate in and communicate with the artist in economic and ownership activities unlike in the previous relationships. This gives NFTs a new type of function that the existing community could not provide.
The entertainment sector is an important one in the rapid spread of social networks through communities. Many people spend a considerable amount of time watching, listening to, and enjoying various content posted on TikTok, Instagram, YouTube, etc. In particular, recently, Millennials and Generation Z have been communicating through ‘silly comments’ with exaggerated or funny modifiers on content platforms. A new online communication culture is being created to the extent that there are even separate compilations of these silly comments.
NFTs have an entertainment element as well. Examples include The Ethereum Name Service (ENS), which changes one’s Ethereum wallet address to a specific name, or NFT badges, which were given to early users by Yearn Finance as a token for their early adoption. In addition, avatars of the Cryptopunks and the BAYC, programming arts such as Async.art and Art Blocks have a winning probability and fun entertainment elements.
Users can have fun collecting and boasting rare NFTs, or have fun issuing new and various NFTs. NFTs have a different entertainment element with existing digital assets since it can provide a new experience to users. By utilizing the entertainment elements of NFTs, companies can brand and market their products in new ways.
Entertainment Element and Connections with Korean Society
A new culture in consumption is shown in Korea where people seek to experience and fun elements rather than price, efficiency, functionality, and cost-effectiveness like in the past. It mainly appears among Millennials and Generation Z, who share and brag about their consumption experiences on social media, naturally leading to market-specific companies and products.
‘Gompyo used to be just a brand for baking flour. But now the brand has expanded to variety of products and its change is well received by consumers especially the younger generations.’
As an example, Daehan Flour’s ‘Gompyo’ brand gained great popularity from the generation MZ by launching Gompyo padded-jacket and Gompyo beer. They did not think of Gompyo as a simple flour brand, but had fun with its unique and retro vibe, took pictures and uploaded them on social media. In addition, Musinsa and Hite Jinro collaborated to launch the ‘Chamisul Backpack’, which are all sold out and are currently trading at more than five times the price in the used market.
If the scarcity and irreplaceable characteristics of NFTs are utilized well, companies can implement such entertainment marketing strategies more effectively. By issuing branded NFTs, companies can provide the NFT holders with special and unique experiences, such as selling limited edition products or discounting new products for them only. Ultimately, companies can communicate more directly with fans through NFTs and conduct different and fun marketing.
Unlocking Endless Possibilities with NFTs
Social networks such as Facebook, YouTube, Instagram, and TikTok have been able to achieve great success through the above-mentioned elements such as social capital, utility, and entertainment.
NFTs can also create a new paradigm through these elements. In particular, NFTs can be applied to all fields related to digital assets, such as games, content, music, art, and social platforms.
In the case of existing content and social platforms, even if users create and share content themselves, the content is inevitably confined within the platform. However, in a service incorporating NFTs, creators have ownership for their content and build business models with their creation that enable consumption and financial activities.
As decentralized financial platforms have achieved “democratization of finance” along with building “Money Legos” by stacking various financial protocols, NFTs can achieve “democratization of content’’ as well as building “Media Legos” by various content protocols.
Above all, the composable nature of NFTs can be combined with Korea’s strong ‘digital infrastructure’ to create even stronger synergies. Korea has the world’s fastest internet networks and is a country where digital transformation is actively taking place.
Digital infrastructure has become an important foundation for Korea to develop a culture of digital content ranging from games to K-pop, webtoons, web novels, movies, and e-sports. Through various contents, Korea can make success stories of NFTs.
Of course, NFTs are still in the experimental stage and there may be many challenges or issues that need to be addressed in the future. But what is clear is that the world has always been crazy about new things, and Korea has communities that are interested in new technologies and cultures, and infrastructure to support them. I am truly excited about how the world shaped by NFTs will affect Korean society and bring new opportunities.