By Emma-Jane MacKinnon-Lee
In a year where Bitcoin has entered its biggest bull market in history, NFTs, or non-fungible tokens, are shaping up to be the hottest trend in cryptocurrency. Furthermore, thanks to a wide variety of use cases that integrate with real-world industries, NFTs are to become the catalyst for the kind of mainstream adoption that has so far eluded cryptocurrencies and blockchain technology.
For the most part, the 2021 NFT hype has been in the segment of digital art. For many years, digital artists had no way to protect their work from being copied and distributed all over the internet. However, by minting art as NFTs and introducing the element of scarcity, artists such as Beeple and Grimes have sold works for multiple millions of dollars.
But digital art is just one of the many use cases for NFTs, which are set to introduce entirely new value sectors to the world in the coming months and years. One of those is digital fashion, which is already proving to be a lucrative revenue source for game developers in the form of in-game skins. For instance, Fortnite is free to play but netted an estimated $2.4 billion in revenue during 2018, mainly thanks to players buying skins.
Last year, Felix "Pewdiepie" Kjellberg released a set of NFT skins for the game Wallem, which have changed hands for an average of 41 ETH (worth around $80,000) on the NFT marketplace OpenSea. If you want to get your hands on one right now, it will currently cost you an incredible 995 ETH, or around $2 million.
Introducing Digital Fashion
NFT skins like Pewdiepie's mark a new era in the field of digital fashion. The fashion sector is already embracing the ability to create hyper-realistic 3D digital garments in the design and manufacturing process, which has helped promote sustainability and bring new productivity to designers. Digital fashion allows prototyping so that a designer or brand can experiment with different looks and collections on a screen before they ever start to produce a garment.
Imagine the revenue potential once brands and designers start taking their digital creations into gaming, virtual reality, retail marketing, and other live 3D content environments. NFTs give participants in the fashion sector the ability to create original, verifiable assets backed by immutable ownership. Pewdiepie's skins were a basic t-shirt that already attracted massive investment.
Once luxury brands get involved in digital metaverses, they can distribute their high-end fashion to new customer bases of players and spectators. This can be done through new business models like in-game merchandising, digital-only product lines, cross-game collections, sponsorship endorsements, and more.
NFTs introduce the magic ingredient which compels consumers in the real world to splash out on designer goods like clothes, watches, shoes, or bags – scarcity. A brand could mint one-off digital fashion items for auction or mint a number as part of an exclusive collection and sell them for a fixed price.
Fractional Garment Ownership
Even more potent than scarcity is that NFTs also allow creators to collaborate on the process of designing and producing digital fashion items in a similar way to how they currently do in real life, using ERC-1155 NFTs. ERC-1155 is a smart contract standard that allows creators to generate a fragment of an NFT. Applied to digital fashion, it would mean that one creator can focus on generating ERC-1155s dedicated to textile patterns, another on those dedicated to textile textures, and another to designing the shape and fit of the garment. When the NFT representing the end garment is sold, all three have the opportunity to earn revenues from the sale.
However, unlike the physical markets where brands and designers lose out from secondary market sales, NFTs mean that royalties can be programmed to apply for the entire lifetime of an NFT. So each time a digital fashion piece changes hands, the creators always get to take their share of the royalties, enforced automatically through programming on the blockchain.
Furthermore, their intellectual property rights are also asserted through smart contract programming. A pattern, texture, or garment is completely protected – nobody can simply duplicate it and pass it off as their own.
Building Blocks for a New Industry
All of this is now becoming a reality. The digital infrastructure that makes it easy for those in the fashion sector to mint tokens and connect them to games and VR engines is already proven to work, thanks to a recently launched project called ESPA. It allows esports players to purchase NFT-based digital fashion items so that they can participate in casual battles to win crypto-based prizes. Revenues from the sales are distributed fairly to ecosystem participants, including designers and developers.
Once it starts gaining mass adoption among gamers and VR users, digital fashion will generate entirely new value streams within digital metaverses. In a world where the shift to digital is now rapidly accelerating, NFT-based clothing and accessories offer the potential to make gaming and VR attractive to vast new audiences of fashion lovers around the globe.
About the author:
Emma-Jane MacKinnon-Lee is the Founder and CEO of DIGITALAX, the pioneer Digital Fashion NFT protocol and marketplace for gaming and esports. A Space engineering drop out, she previously co-founded a crypto algorithmic tail risk hedge fund, GDA Fund, the only one of its kind in the world. You can follow her on Twitter @emmajane1313 or Clubhouse @emmajane for more insights on digital fashion and how modding is changing industry while making the metaverse real.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.