Non-fungible tokens or NFTs are reaching an all-time high in public interest and dollars spent. New records for sales of the digital good seem to be reached each week with an upcoming sale of NFT artist Beeple’s ‘Everydays’ compilation went for $69 million in March, 2021 (source: The Verge).
Source: Beeple’s collage, Everydays: The First 5000 Days, sold at Christie’s. Image: Beeple
Confused yet? First, let’s explain what non-fungible tokens are in basic terms. If you can’t wait and just want to jump to ideas for how nonprofits can leverage NFTs, skip to the bottom. It may also help to better understand how crypto donations work for nonprofits before diving into this more complex concept.
Non-Fungible Tokens: The Basics
What are NFTs?
NFT stands for non-fungible token, which is a digital asset similar to Bitcoin. When an NFT is created or sold, an entry is written to a shared blockchain database which can be used to prove ownership. While it’s easy to make a copy of digital files, it’s not possible to fake the creation and ownership of the asset. In the same way as if someone took a picture of the Mona Lisa, it’s only a copy, was not approved by the creator, and holds none of the value of the original work.
The biggest difference between an NFT and Bitcoin is that each NFT is different from the next. Whereas each Bitcoin can be swapped with another Bitcoin in a “fungible” manner, each NFT is unique.
NFTs are also called crypto collectibles, and are the digital assets that are used in the popular game CryptoKitties. For a little history here, the game CryptoKitties was the first major use case for NFTs and has been a huge success. In fact, the game was so popular that it slowed down the Ethereum network when it launched. The game involves collecting and breeding digital cats, and each cat is unique and owned by a different user. The game has been so successful that it resulted in over $40 million in transactions and has spawned a number of copycats (pun intended) (source: Investopedia, 2021) . The company behind CryptoKitties, DapperLabs, went on to launch NBA TopShot which has helped bring NFTs into mainstream collectible markets.
NFTs work because they are a great way to create digital scarcity and are a great way to incentivize users to participate in a platform. The value of NFTs is determined by the market, and they can be traded on exchanges, transferred and kept in wallets.
How an NFT “drop” works
NFTs are created by the developers of a platform, and they are released in an event called a “drop.” A drop is similar to an initial coin offering (ICO) in that it is a way for a platform to raise money. However, instead of selling tokens, the developers are selling NFTs.
The developers of the platform decide how many NFTs will be created and how many will be sold in the drop. Some NFTs are open for a period of time and others have a finite amount at an auction or fixed price. The NFTs are then sold to users in exchange for cryptocurrency, usually Ethereum based. The developers of the platform, artist and any other parties can then use the funds raised in the drop.
One additional important distinction between NFTs and other assets is the ability to earn from future sales. When creating an NFT, the creator can set a commission for all future sales of the work. This means that even NFTs that are sold for very little upfront can create value for the creators in the future.
The NFTs that are sold in a drop are then listed on an exchange where they can be bought and sold, or simply held in a digital currency wallet. While NFTs are a great way to raise money for a platform, they’re also a great way to incentivize users to participate in a platform, which we’ll discuss later (Source: https://www.cryptoinsider.com/news/non-fungible-tokens-what-are-they-and-how-are-they-used/).
Top NFT Exchanges
There are many exchanges to find NFTs and each one tends to specialize in different types of art or styles. The largest one is OpenSea.io, which is somewhat like the eBay of NFTs. Nearly any NFT can be listed on OpenSea, whereas sites likes SuperRare and NiftyGateway are more curated and selective of artists. Check out more of the top NFT exchanges in the list below.
- Decentraland Marketplace
- Atomic Assets
- NFT ShowRoom
The Future of NFTs
Due to this creation of digital scarcity and unique assets, non-fungible tokens are a great way to raise money for a platform, and they are also a great way to incentivize users to participate in a platform. NFTs are attracting many popular artists because artists are able to control their “drops” and monetize their artwork. What’s more, artists will continue to get a percentage of the future sales of that NFT art into the future. This stands in stark contrast to the current art market, where artists only get paid on the initial sale and don’t get value from the appreciation of their art after the sale.
Examples of NFT Fundraising
There have been a few large NFT drops that have had a charity component, and we’re sure there will be many more in 2021. Recently Jack Dorsey announced that the sale of his first Tweet, that has eclipsed $2.5 million, will be donated to the charity Give Directly (source: CNBC, 2021). This may only be possible if nonprofits have high profiles, or high profile donors, that are also already involved in non-fungible tokens. However, it may give nonprofit fundraisers creative ways to work with their celebrities or wealthy donors to create these NFT opportunities.
Another fundraiser NFT is looking to sell Non-fungible Doge art with 10% of profits going to Save the Children, with TheGivingBlock.com supporting the transaction (source: https://www.nfdoge.com/). This example shows how a nonprofit can be a fun partner to meme NFT and benefit from the sale.
One interesting use of NFTs is to incentivize community building and participation. Token holders can be granted exclusive perks, given additional airdrops, and rewarded for using NFTs
(source: Opensea screenshot NFdoge.com, 3/10/2021)
Historical organizations may also have a pathway to enter the NFT world as iconic moments and people make their way into the market. It was announced in March, 2021 that the platform Ethernity Chain would be creating an NFT of the epic Muhammad Ali ‘Fight of the Century’ with Joe Frasier (source: Coindesk). The NFT is the result of a partnership with the Muhammad Ali Center, a museum dedicated to Ali’s life.Embed from Getty Images
This is a HUGE opportunity for all museums and legacy nonprofit organizations to monetize their physical assets without losing access to them. There is an entire world of digital ownership being built and monetized and many nonprofit organizations may be sitting on digital gold.
Another example comes from the artist WhIsBe who launched their ‘Extinction’ collection of gummy bears representing the plight of endangered species. Some of the proceeds (not disclosed) are going to support wildlife groups like the Sheldrick Wildlife Trust.
Animal welfare organizations have a great opportunity to make NFT celebrities out of the wildlife they support by partnering with artists to tell their story and raise funds.
Where to start with NFT Fundraising
Begin by generating ideas and perhaps pulling together a small advisory group to explore the options of what non-fungible tokens might be in your backyard.
- Create a list of ideas for types of art or moments that might have value as a NFT.
- Create list of important/VIP/wealthy/connected supporters of your organization
- Research NFT or other professional artists that may have a connection to your cause
- Consider how the NFT can capture the conceptual value and appreciate it over time. Remember, the better the NFT does over time, the more potential value there is to the creator
- Think of how you can reward your most loyal supporters with exclusive digital benefits
Develop the ask which may come in the form of an invitation to brainstorm. The artist may also be interested in partnership if it sounds like the nonprofit will be able to help with press and general outreach. A lot of the success of a NFT drop is based on the hype and perceived value generated by the promotion work.
Creating NFT Artwork
When ready, consider talking with a platform listed here about the partnership or reach out to TheGivingBlock.com which is a leader in crypto donation partnerships. There are also new players like NFT for Good trying to help nonprofits leverage digital art.
Like so many events and creations, just because you build it doesn’t guarantee they’ll come. Partnering with larger brands, partners and platforms will increase the chances of fundraising success.
Platforms to create NFTs
Disclaimer: This article is not recommending investing in crypto or NFTs as a strategy. This is not financial advise and we are far from financial advisors. Past performance is not a predictor of future success and NFTs have proven to be a volatile asset.