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CPGD Blog

An Investor's Guide to NFTs and E-Commerce

Andrea Popova
November 29, 2021

When you think about NFTs, you might imagine Silicon Valley finance bros trading digital images like they’re baseball cards (perhaps because sometimes NFTs actually are used to purchase baseball cards.) But the history and implications of NFTs are much more complex than that, and to understand their true value in modern commerce we must first navigate the intersection of tech, art history, law, and even feminism.

The reality is: as Gen Z drives drop-commerce and web3 allows for the digitization of virtually every human experience via the metaverse, NFTs will close the gap between the physical and digital worlds. And while investors should remain cautious of the legal limitations and general volatility of the crypto market, early entrants (yes, one can still be considered “early”) will find lucrative opportunities to apply NFTs to the 5 trillion dollar eCommerce universe.

First, let’s clear up some definitions. NFTs (non fungible tokens) are crypto-currency-backed digital products that are unique (or parts of a limited set, as was the case with Kings of Leon selling albums as NFTs with special perks). Because NFTs are documented on the Blockchain, you can consider them as “barcodes” with authenticated metadata on who owns the NFT at any given time.

This technology comes at a key inflection point in eCommerce, when virtual reality and digital experiences are becoming less easily separated from brick and mortar. For brands to succeed in this new era, they will need to leverage solutions that save them money and enhance the user experience. I have broken down four applications of NFTs in eCommerce that are at the forefront of this conversation, followed by some of the limitations and legal considerations that should follow…

1. Authenticating Ownership

Luxury fashion brands lose over $30B a year to counterfeit sales, which is mainly driven by the fact that everyday consumers can’t tell the difference between a counterfeit and the original. But with the ability to authenticate ownership of a designer product via NFTs, it will become increasingly difficult for consumers to fake their way to a lavish lifestyle.

Designers have already started to use NFTs as a way to authenticate a customer’s ownership (like Nike via their recently launched “Cryptokicks”), which in turn improve the lifetime and resale value of the product (more on this in the next section). Some day users will be able to have virtual closets in the metaverse, where their physical belongings are authenticated by virtual NFTs that anyone can view. This transparency will further the need for NFTs, whereby someone’s belongings in the physical world can be validated in the virtual world.

2. Resale and Thrifting

Another application of NFTs exists within the rapidly growing resale space (which is especially popular among Gen Z and Gen Alpha). Startups like Beni that aim to make online secondhand shopping more streamlined could use NFTs to validate the authenticity of products on the secondhand market. That way, consumers know that when they purchase a Saint Laurent bag on Poshmark it is truly an original from the designer label.

3. Virtual Retail

With the use of NFTs, brands can extend their reach to not just those in the physical world, but also to those willing to purchase in the digital world. For millennials who grew up buying clothing and food for their virtual pets on Webkinz and Neopets, this is nothing new. The metaverse is purely an extension of that experience into virtually every aspect of a person’s life. With cryptocurrency, retailers can purchase digital real estate and sell digital goods as NFTs directly to avatars. Users will be able to visit virtual grocery stores with crypto packaged goods sold on the shelves. Many of these sales will tie only to digital products, but others will connect to physical products and experiences, enhancing users’ relationships with brands and expanding brands’ reach to new customers.

4. Payment Processing

One of the biggest losses for brands, especially small businesses, is in payment processing. Payments with traditional methods are also prone to fraud and difficult to track without the proper software or access. For this reason, eCommerce payments may some day predominantly or fully exist on the Blockchain, which is faster and more secure. There are also new applications in the metaverse whereby restaurants create virtual food trucks that users can visit, order from, and track their meal preparation through.

These four opportunities are just the tip of the iceberg for NFTs, which are only at the start of what will inevitably be a long and exciting road ahead. But their lack of maturity also poses some interesting legal and functional concerns that should be taken into consideration.

For starters, the copyright implications of NFTs have not yet been fully addressed. For example when Emily Ratjakowski bought an NFT instagram image of herself, it was not clear who exactly owned the contents of the image: Sports Illustrated, the photographer, instagram? What about a picture of the NFT? A picture of a picture of the NFT? Similarly, when Nathan Apodaca wanted to sell a TikTok he created as an NFT, he could not use the original audio because he didn’t own the copyright.

There is also limited insight into how future regulation will affect the cryptocurrency market as a whole. Whether recent SEC regulation is a portent for further regulation or inhibition remains to be seen, and it could be wise to allow the market to mature a bit more before investing.

There is much to be understood about cryptocurrency and the expanding universe of NFTs. What appears to be a black box to many today could soon become the lifestyle of the future. In a space with so much that is unknown, there is merit to keeping an open eye versus an open wallet, but early investors should keep in mind key opportunities across authentication, secondhand sales, and metaverse shopping— these could be the opportunities that investors reap the benefits of for the rest of their lives.

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