Web3, Blockchain, & Crypto:
Web3. Blockchain. NFT. Wow, loads of hip and cool techy buzzwords. But what do they all mean? To understand how companies, brands, and content creators are using NFTs to build digital communities, it first helps to understand a little bit more about blockchain, Web3, what an NFT actually is and how they can be used, and how the properties of all three are connected.
Let’s start with Web3. A February 2022 article published by PCMag defines Web3 as a “catch-all term that has anything to do with the next generation of the internet being a decentralised digital infrastructure”. Web3’s supporters argue that the present iteration of the internet has become dominated by a handful of companies that include Google, Meta, and Amazon, and that these companies are too subject to regulations imposed upon them by institutions that “we can’t hold accountable”. By implication, Web3 is typically imagined as a kind of digital utopia where people will be able to deal directly with each other, without mediation or arbitration via third-parties, whether those third-parties are social media companies, service companies, or consumer banks.
So what exactly differentiates this hypothetical Web3 from the current version of the Internet we all know, use, and have come to understand? What is it about Web3 that, in theory, endows it with properties more appealing for those who advocate decentralisation and the greater democratization of interacting with people online, without having to do so via third-party arbitrators that have interests independent from individual people? Understanding blockchain technology is the key here.
There are great resources already out there put together by people and organisations with deep understanding of and appreciation for the technical aspects of how blockchain technology works. Euromoney and Investopedia articles each provide good breakdowns of blockchain’s more technical aspects. Paraphrasing how this complex technology works may be foolish, but here we go: blockchains are essentially timestamped records, or ledgers, of data which can relate to transactions or other contractual information.
A new block constituting a record of data about an event is added to the ledger, when the nodes that compose a blockchain authenticate the legitimacy of the event. An article published by Gemini (founded by the Winkelvoss brothers, of The Social Network fame) in Cryptopedia offers a summary: “A network-based consensus mechanism is the way a blockchain protocol agrees on how its underlying technical architecture will operate.”
The utopian dream for Web3 is that much of the internet’s current infrastructure, a blend of “Web1” and “Web2”, will be complemented with additional infrastructure that relies on blockchain technology. Proponents of Web3 argue that, whereas previously people would have used intermediaries whether media platforms, banks, ticketing services, or retailers like Amazon to discover, access, and purchase products and content, Web3 could enable individuals to deal directly with one another and directly with the brands and creators they want to buy from. To understand how this might work, it helps to understand how blockchain is changing payments.
It is now widely understood that blockchain technology is considered a means through which the financial sector could be revolutionised. Cryptocurrencies operate on blockchain technology, and in theory both blockchains and the cryptocurrencies that run on them could enable people to store value in secure wallets rather than in retail bank accounts, and exchange value between individuals, or organisations, companies, and other institutions.
Blockchain and cryptocurrency advocates argue that this technology could reduce fraud, make transactions (including, importantly, remittances) more efficient for people the world over, and make some financial intermediaries redundant (such as debit & credit card companies — unless, it is often argued, they integrate blockchain within their services), with the effect of also making peer-to-peer transactions more cost-efficient.
Besides supporting these novel digital currencies, however, blockchain technology is also being leveraged in ways that may impact the economy beyond the financial services sector. The NFT craze offers a very trendy example of what other uses blockchain technology is currently being put to.
An NFT is an acronym for “Non-Fungible Token” — a unit of currency is fungible because that unit is worth the same regardless of its origin or constitution; a dollar will always equal a dollar. NFTs are non-fungible because they are unique: a bitcoin is the same as another bitcoin, and the two bitcoins are “mutually substitutable”, but in contrast NFTs are each unique and cannot stand in for another.
NFTs have often been portrayed in the media as gimmicky forms of digital art, mocked by sceptics as essentially just overhyped, overinflated JPEGs that people install as their Twitter and Discord profile pictures as conspicuous displays of both the disposability of their wealth and their mastery of cutting-edge consumer technologies. However, some content creators, brands, and companies, have experimented with NFTs in ways beyond the graphic, offering consumers the opportunity to purchase NFTs that offer various insider perks, effectively creating new digital communities that are bound by mutual ownership of NFTs minted by leading creators, brands, or companies.
You may be wondering how this all relates to blockchain and cryptocurrency — well, NFTs can be purchased using cryptocurrency on NFT exchanges such as OpenSea, and ownership is authenticated using the same “network-based consensus mechanism” that authenticates legitimate additions to the ledger.
Web3, NFTs, and Brands
A January 2022 article published by The Independent explains that of the roughly 300 million people who own and use cryptocurrency (triple A estimated that in 2021, crypto had been adopted by about 3.9% of the global population), around 360,000 people own NFTs — this means around 0.1% of all present crypto owners own NFTs too. This has led to the NFT market being described as a “niche of a niche of a niche”, but some content creators, brands, and companies hope they can bring NFTs to more widespread adoption. There are several creators and brands already making moves in the space, including American beer brand Bud Light and American musician Steve Aoki.
Bud Light has recently released their “N3XT” collection of NFTs, comprising 12,772 tokens purchasable via OpenSea (although the Bud Light website claims the original issue has sold out already, meaning they can now only be purchased from individual holders if they are listed for re-sale). Bud Light explains in their FAQ section that token ownership grants holders “access to exclusive benefits including voting-rights on future initiatives (like brand merch), rewards, and surprises”. They add that token holders also obtain “unique roles in Bud Light’s Discord server…and much more”.
So evidently Bud Light are using NFTs to help create a digital community of ambassadors and advocates of the brand. The same can be said for other brands and creators who have also launched NFTs. NFT ownership grants members of these communities some special privileges within them.
The brand’s response to the FAQ “Why is Bud Light NEXT Launching an NFT Collection?” reveals the prospective benefits behind the NFT range for their own sales: “At zero carbs, 80 calories, and 4% ABV, Bud Light NEXT is here to redefine beer’s light beer category. Both NFTs and Bud Light look towards the future.” The bottom line for Bud Light’s NFT range is their hope that the N3XT NFT range will bring them publicity to help them sell beer.
The American musician Steve Aoki has similarly recently launched his own NFT range, which each function as “passports” to his AOK1VERSE (an obvious pun on Metaverse) which is, in effect, a membership club. A January 2022 article published by Decrypt describes the perks offered by Aoki’s NFT mint akin to a “tech-upgraded Steve Aoki fan club”, with holders granted access to “live and virtual concerts and other events, a private Discord server with access to Aoki himself, future Metaverse events, and other perks” — each NFT is described as a “passport” to these privileges. Again, Aoki’s venture into the NFT space aims to generate a digital community of fans, who each have special privileges within it as brand advocates and ambassadors.
The cases of Bud Light and Steve Aoki offer two early examples of how both brands and individual creators can leverage blockchain technology and the hype around NFTs to create digital spaces full of people committed to their products, further endearing them to their most vocal supporters.
Brands and creators that launch NFTs also obtain opportunities to market themselves and their products in new ways and to typically tech-savvy and probably wealthy demographics, with the aim of also raising funds too. The space is still very green, but there can be little doubt that more creators and brands will follow. It remains to be seen whether brand-backed NFT mints will become sticky and gain widespread market attention and adoption, but early progress into the space by several brands and individuals indicates it is an opportunity worth exploring at the very least.