Technology is a wonderful thing. There was a time when calculators were the “big thing.” Then, along came programmable cash registers and after that, computer systems. Bringing businesses online and setting up e-commerce sites was considered groundbreaking – Technology has grown by leaps and bounds in the last 100 years. It’s grown even faster in the last three decades, especially where business is concerned.

Now we are turning yet another page in the big book of technology and history is being written before our eyes. Digital assets are taking the business world by storm as some of the most prominent brands in the world have moved into the world of the Internet.

As the popularity of cryptocurrencies has soared and words like “Bitcoin” and “Ethereum” are becoming household names, more investors are being drawn to the decentralized ecosystem that is Web3, the metaverse, the blockchain. The real world is going virtual and NFTs are the tokens that get you admitted on the ride.

Is your business ready for the next wave of tech – and the tech-savvy customers that come with it?

What are NFTs?

Non-fungible tokens, NFTs, are a form of digital assets that are most commonly associated with art or music. Major brands like Coca-Cola, Adidas, and the NBA have used NFTs to reward their customers. They can be used as keys to unlock exclusive promotions or events, or they can be used as unique collectibles.

NFTs are non-fungible meaning that they cannot be replaced with another token that is identical. They can’t be swapped because they are unique. In the real world, a dollar bill is fungible and can be swapped for something that is the same value, such as a candy bar. A Bansky painting is non-fungible because it’s one of a kind and can’t be replaced.

Venture into the Web3 world and you find similar occurrences, only the dollar bill is now a Bitcoin and the Bansky painting is now a Beeple on an NFT. These tokens can represent art or music, but companies are now expanding their use to include videos, concert tickets, and photos. 

What is Web3 Technology?

Web3, or Web 3.0, is the next phase of internet access for users. To break it down simply,

  • Web1 – Users had the ability to access information on websites like AOL and Yahoo. They could read but there was limited interaction.
  • Web2 – Users were introduced to blogs, social media, and wikis. Facebook, Twitter, and YouTube came online, and users were given more control over the content they accessed, created, and shared.
  • Web3 – Users will enter a decentralized virtual world that gives them access and control over their data.

How can NFTs be used in Business?

Businesses are no longer selling products solely in the physical world. Businesses have moved from exclusively brick-and-mortar to a split between brick-and-mortar and e-commerce. Some businesses are completely virtual as we are seeing an entire generation growing up that has never known as world without the Internet.

This new generation of consumers is spending a great deal of time in the digital world from shopping for groceries to doing their taxes, most things are done online. Brands that want to keep up in the marketplace must meet those customers where they are – which is now online.

Using NFTs in your business will expand your reach to market to this new generation of customers. It will give you a competitive advantage in this brand-new virtual frontier. Use them in your customer loyalty or rewards programs, offering collectible NFTs or offering special edition tokens that can be traded for special promotions or exclusive products.

How are brands using NFTs?

Several big-name brands are using NFTs in creative and exciting ways. And the customers are responding.

  • Taco Bell – The company auctioned 25 NFT GIFs on Rarible to support the Live Mas Scholarship. It was a good move since they were supporting a good cause and in the process boosted their brand awareness.
  • Coca-Cola – The brand released four NFTs in a series with original artwork and a number of little “extras.” The winning bidder received several virtual swags as well as a real-life, fully stocked, branded refrigerator.
  • Clinique – The upscale cosmetics giant introduced its very first set of NFTs. The limited edition tokens, called MetaOptimist, were given as prizes in a competition that the company ran for its Smart Rewards members. 
  • McDonald’s – To celebrate the return of the limited menu offering, the McRib, the brand launched its first NFT promotion. The response was phenomenal.
  • Hot Wheels – Matter’s Hot Wheels released 40 different NFT designs that customers could purchase. They were in packs of 4 and 10 and with four levels of scarcity. Some were even redeemable for a physical Hot Wheels exclusive collectible.
  • NFL – The NFL launched an NFT promotion in the form of virtual, limited edition commemorative tickets that could be obtained when fans attended certain games.

The list goes on and on. What this shows though is that NFTs can be a very effective marketing tool, especially to boost brand awareness. The proof is in the success of these campaigns and many others.

Are NFTs right for your Business?

Incorporating NFTs into your marketing strategy or business plan can be the boost that your company needs. But not all businesses are a good fit. Take a look at your customer base as well as the customer demographics that you want to attract. How do they feel about NFTs? Do they want it? Will this technology appeal to them?

If you believe you have an audience for your NFT, find a community for collaboration. Web3 is all about community and collaboration, so this is not the time to be the Lone Ranger. The right collaborator can make all the difference – and ensure its success. A number of celebrity NFTs have tanked because they did not put enough effort and attention into the collaboration and community. 

Some ideas for collaboration:

  • An NFT that is an extension of a real-life product
  • Collaborate with musicians or artists to create a NFT
  • Mint digital assets that owners can display
  • Provide legal ownership of the intellectual property
  • Use the NFTs as exclusive keys to access special offers, deals, or promotions
  • Give people the ability to rent NFTs as a source of revenue

How do you start working with NFTs?

Getting started with NFTs can take a lot of effort and investment or it can take very little. It depends on what you want to do and what you want to get out of it.

  • Low Cost/Low Effort – Start internal discussions with employees who have an interest or passion for blockchain, crypto, and NFTs. Let them help get the ball rolling.
  • Mid Cost/Mid Effort – Begin accepting crypto as a form of payment. Customers can forego a password and log in with their digital wallet instead. Another idea is to purchase NFTs and join the communities, immersing yourself in the tech.
  • High Cost/High Effort -Create your own NFT working with an external community, enter the market, and eventually sell your NFTs on your branded marketplace.

The best thing you can do is research. NFTs aren’t right for every business. But if they are, don’t be shy about handing the project over to someone who understands the technology and can help you create a system that will work for you.

Do you need money to start an NFT?

Incorporating NFTs into your business can cost very little or be very expensive, depending on what you want to do. If you are creating an NFT, the cost can be a few cents to over a hundred dollars. It depends on the blockchain cost, fee for the marketplace, listing fee, and other expenses. Ethereum tends to be the most expensive blockchain and Solana tends to be the cheapest.

If you hire someone to take care of the setup for you then you are going to have to factor their fees or salary into your costs.

Are profits from NFTs taxable?

The IRS views NFTs as property and taxes them accordingly. Like Bitcoin and Ethereum, NFTs are usually subject to income taxes and capital gains taxes. For US taxpayers several factors determine the capital gains rate you will pay. If the NFT is a collectible, that will affect the rate. If you sell the NFTs after holding them for at least a year, that affects the rate too.

Any transactions that involve NFTs are usually taxed. Your taxable income may also affect the tax rates that you have to pay.

When filing your company taxes, treat NFTs and any cryptocurrencies as property. If you are not certain how to classify them or the rate you are to pay, you should talk to your NFT attorney who can help you.

What do you actually own if you buy an NFT?

When you own an NFT, you own an original digital file. It’s like owning an original artwork or the master file of a recording. The files are subject to many of the intellectual property laws, although there are some differences when it comes to NFTs.

But Copyright, trademarks, and other intellectual property rights do apply. They are recorded in the contract that comes with the NFT. It provides information regarding creation and ownership as well as any royalties that must be paid to the creator if it is sold.

This is something that your attorney can help you with and explain. It is important to understand or have your NFTs in the hands of someone who understands how they work and can protect your rights.

What laws do you need to know to start an NFT business?

When you incorporate NFTs into your business, especially if you are launching your own NFT marketplace, there are several regulations and licenses that you must comply with. This is where your attorney will be invaluable. 

Some of the areas where you will need to ensure compliance include:

  • Payment services
  • Data protection and privacy (federal and state)
  • Consumer protection
  • Formation of your corporate entity
  • Legal restrictions for standards of the community
  • Sales tax license
  • Legal terms of sale
  • Privacy policy (required by law)
  • State or local business license
  • License for intellectual property for all content
  • AML/KYC compliance (if you will have financial transactions)
  • SEC compliance (if your NFTs are classified as securities)
  • Money transmitter license (check your state’s laws)

Give your business a good start with an experienced New York NFT lawyer

If you are ready to launch your NFT business or incorporate NFTs into your existing business, you need the experience and knowledge of an NFT attorney to help you protect your assets. Call The Litvak Law Firm today at 718-989-2908 and get the legal protection and advice that your business needs.

Let us help you make the most of your business and attract more customers. We’re here for you.