NFT: From the World of Art to Gem and Jewelry
With the economic fluctuation during the past two years, the investment trend is heading towards an increasing variety of alternative assets. These include the long-established safe-haven assets like gold and silver to increasingly popular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Binance (BNB), and now the new trending digital asset called NFT is gaining interest from people around the world.
Introducing the NFT
NFT or Non-Fungible Token is a type of non-interchangeable digital asset being stored on a blockchain. Unlike the fungible cryptocurrencies which can be exchanged with other digital currencies or other items, there is only one piece of each NFT with a sole exclusive owner (depending on terms of sale). The origin of NFT can be traced back to 2014 when the work "Quantum" by Kevin McCoy was sold on Sotheby's platform at 140,000 US dollars. Since then, NFT has gained popularity not only in the art world but also in various forms of digital works, including photography, music, short video clips, games, collectibles, and memes. As a result, leading companies and brands are now making serious attempts to enter the NFT market.
According to DappRadar, a commonly known platform offering analysis and the latest news on cryptocurrencies, NFT, and blockchain games and transactions, the NFT market was worth over 25 billion US dollars in 2021 from 95 million US dollars in 2020. Now there are around 28.6 million active NFT wallet accounts. The top three NFT markets are OpenSea, LooksRare, and Axie Infinity, with a combined transaction volume of over 42,840 million US dollars, as shown in the table below.
The top 10 NFT markets from dappradar.com
Selling NFTs is one of the options chosen by professional and amateur artists as the main channel to approach their targets, where their works can be displayed and sold directly without the help of physical exhibiting venues. Thus, the NFT platform has become a practical solution during the covid-19 pandemic, resulting in its rapid growth. Most works are created based on the Ethereum blockchain system. As a result, Ethereum (ETH) is the main cryptocurrency used in transactions. Creators should also consider detailed conditions and gas fees, which are different in each platform, minting process, payment methods, supported wallets, and how to convert their cryptos into general currencies.
Although NFTs can be traded at fixed prices or by auctioning just like other works of art, a difference can be found in terms of ownership since every work has its information recorded on the blockchain. All historical owners of each work can be tracked no matter how many times the work was resold. More importantly, every time the work is purchased, the original owner will receive a royalty fee of 5% to 10% for each purchase. Today most NFTs in the market have an average price of 150 to 4,000 US dollars. Meanwhile, several works generate exceedingly high income for their creators. The five highest-valued NFTs are as follow:
unit: million USD
1. The Merge ($91.8M)
2. Everydays: The First 5000 Days ($69.3M)
3. Clock ($52.7M)
4. Human One ($28.9M)
5. CryptoPunk #5822 ($23.7M)
The five highest valued NFTs, from www.dexerto.com
NFT has also extended its influence into the world’s top two auction houses. Christie’s first began selling NFTs in October 2020. It also cooperates with OpenSea, one of the largest NFT trading platforms, and earned around 150 million US dollars from NFT selling in 2021. On the other hand, Sotheby's sold its first NFT in April 2021 and introduced Sotheby’s Metaverse as its exclusively NFT exchange platform in October of the same year. The auction house earned around 100 million US dollars from NFT selling in 2021.
NFT Opportunities for Gem, Jewelry, and Luxury Products
Since the NFT trend is now expanding into several industries, it attracts and offers opportunities to enthusiasts, resulting in a new form of unique digital works. As for the luxury industry, several leading brands show interest in penetrating this market. Burberry sells NFTs as items in the game Blankos Block Party. Its collectible package includes a jacket, a bracelet, a pair of wading shoes, and the character Sharky B for the player to dress. This set of items was sold at almost 400,000 US dollars. Meanwhile, Dolce & Gabbana introduced a collection called Collezione Genesi, consisting of nine NFT items at the price of 5.7 million US dollars. The long-established brand Gucci also presented an NFT in the form of a four-minute video clip called “PROOF OF SOVEREIGNTY: A Curated NFT Sale by Lady PheOnix” in a Christie’s online auction, with the closing price of 25,000 US dollars.
Dolce & Gabbana’s NFT collection, image from runwaymagazines.com
Regarding the growth of NFTs, the global financial consulting company Morgan Stanley estimated that in 2021 luxury NFTs accounted for around 1% of the overall market. Thanks to its rapidly increasing demand, luxury NFTs are expected to account for 8% of the market or 56 billion US dollars in 2030.
In the gem and jewelry industry, several brands are now entering the world of NFT; for example:
Japan’s street fashion clothing and jewelry brand with worldwide popularity Ambush has established its presence in the world of NFT by reintroducing the “Pow!” ring, one of its hottest collections first launched in 2008. It returned in NFT format as part of the “Pow!” reboot on February 14, 2022. Buyers will not only obtain the works but also gain access to the brand’s physical products and events. Yoon Ahn, one of the brand’s founders, shared her vision that you have to think bigger than what is in front of you. Web 3.0 technology is a system that will help creators to expand more than the physical form to connect to customers. (Web 3.0 is a web format in a new era of the internet. It can perform many tasks including data analysis with closer-to-human results, incorporating machine learning (ML), big data, artificial intelligence (AI), and blockchain to produce higher efficiency.) Entering this market before its competitors, the brand seizes the opportunity to attract customers first.
Ambush’s Pow! ring recreated as NFT, image from www.wallpaper.com
According to Jacques Voorhees, CEO of Icecap, one of the problems in the diamond industry is that it is an asset with lower market liquidity in comparison with precious metal like gold and silver, which is commonly traded among investors. The diamond price also reduces by over 50% from its initial price when it is resold. However, in blockchain trading, each diamond will be converted into NFT so its value is maintained. This idea is the foundation of Icecap, a startup platform where investors can buy, sell and exchange investment-grade diamonds at the price of 5,000 to 15,000 US dollars. It also offers rare luxury pieces; for example, a red-pink diamond ring worth around 3 million US dollars.
Icecap’s NFT diamond ring, image from icecap.diamonds
All the physical diamonds are safely stored in an insured vault and checked periodically. Buyers can choose whether to sell the diamond in NFT or redeem the token into the real diamond by sending the NFT back to Icecap. The company will send the physical good to the customer and the token will be destroyed. The diamond can be retokenized into NFT if the customer decides to sell it later.
In Thailand, several famous and independent artists have put their works into the blockchain system through international NFT platforms. At the end of 2021, four Thailand-based NFT marketplaces were founded: NFT1, Bitkub NFT, Coral, and JNFT. Despite their moderate number of transactions, they are the starting point in raising awareness of this technology and supporting Thai creators for more convenience in their NFT releases.
Various forms of digital technology were created and developed during the age of social distancing, many of which have become mainstream trends. Therefore, the industries, including fashion, luxury, and gem & jewelry, have to adapt their business models to changes in the digital age. NFT is an attractive opportunity for artists, designers, gemstone polishers, and jewelers to expand their market into the new digital platform where people are now gathering from all over the world.