Blockchain, NFTs, Token Gating redefine marketing. Risks like hacking, security concerns need addressing. Actionable recommendations proposed for NFT regulations.
//

How blockchain and NFTs can transform the future of marketing

Blockchain, NFTs, and Token Gating redefine marketing, but they also bring risks like hacking and security concerns that need addressing.

In today’s digital age, marketing is predominantly online. The future will likely embrace technologies like blockchain, NFTs (Non-Fungible Tokens), and token gating. These innovations enhance customer experiences, with AI (artificial intelligence) and AR (augmented reality) elevating brand engagement. Forward-thinking companies already offer virtual try-ons via platforms like Snapchat and Instagram. For instance, Farfetch, Prada, and Dior provide interactive experiences. Additionally, VR (virtual reality) applications offer immersive views of venues, while BMW (Bavarian Motor Works) utilises AR for customised car shopping experiences.

NFT Token Gating to create an experience for brands to build niche segment or to attract cyber pirates towards a dream treasure hunt? NFT Token Gating is no doubt a sublime opportunity for brands to build an extensive network of loyal customers, but it is also a space for hackers to exploit. The answer is in setting up security measures which will facilitate in a shielded and sheltered presence of NFTs.

Rajit Panickar

What is token gating?

Token-gating runs on the public blockchain. It works by using the access key of your digital wallet to read the data in your wallet. If you’re holding the right fungible or non-fungible token in your wallet, you’re granted access. If you aren’t holding the right token, access is denied. It is a common tendency among people to gather with like-minded people. People appreciate being able to gather with others who value the same things. The easier you make it for people to get together and the more secure or exclusive you make that gathering, the more likely that group will congregate and unite to achieve your intended purpose, like brand evangelism.

Token-gating represents a new stage in community, virtual, or physical experience control. Access depends on the tokens held in a crypto wallet, granting entry to exclusive content. Brands and businesses are adopting this method for Web3 communities, centralising on platforms like Discord or Telegram. As technology advances, these communities may expand beyond a single platform, enabling broader engagement. By incorporating gating into their tokens, businesses empower supporters to build communities and spread brand awareness autonomously.

Many well-known brands have already begun using this concept, which is a fine example of the combination of physical and digital; therefore, we may call it phokengate (phygital access based on digital tokens).

Credit. Midjourney

NFT – the future of marketing

A company especially uses NFT tokens to interact with consumers. They offer exclusive merchandise to NFT token holders. This helps them connect with niche customers and increase their sales in targeted segments. This ‘token gate’ is a new initiative by this company. The company allows its vendors to create their own token gates for their customers. As a customer, you have to connect your Web3 wallet and confirm that you own an applicable NFT to shop the merchandise and gain access to exclusive events.

A luxury brand utilises token gating to offer exclusive perks to NFT holders. Recently, they launched a unique offer for CryptoPunk NFT holders, selling 250 NFTs alongside bespoke pendants priced at 30 ETH each. Crafted by luxury brand artisans to match the owner’s Punk NFT, these pendants were exclusively available to CryptoPunk NFT holders. Buyers received digital and physical products, enhancing the brand’s value and sales.

Here, we should also mention SBTs (Soul Bound Tokens). SBTs are digital identity tokens representing a person or entity’s characteristics, features, traits, and achievements. Built on blockchain technology, it takes NFTs applications to the next level.

Risks associated

While all this sounds very exciting, some concerns remain to be addressed, such as privacy and security concerns. The probability of hacking or becoming a victim of cyber fraud must be addressed, as data is available online, and fraudsters can access it. This is a serious concern. In the case of NFTs, hacking is a challenge. Generally, NFTs (non-fungible tokens) are stored on a centralised exchange, and if the exchange gets hacked, one can lose all the valuable NFTs. Alternatively, NFTs are also stored on a blockchain. The challenges and security concerns faced by NFTs stored on a blockchain need to be analysed to ensure the complete security of the assets.

NFTs serve as digital receipts proving ownership of hosted assets. However, owning an NFT doesn’t necessarily mean owning the underlying asset. Instead, it confirms a transaction for a specific digital asset, akin to a verifiable receipt. Typically, NFTs are stored in decentralised file-sharing systems like Filecoin or Storj, albeit hosted centrally. The risk is that the entity that runs the server can simply delete an item, even if you have paid millions of dollars for it. This reflects a huge security gap, a huge matter of concern.

Actionable recommendations:

  1. To prevent ‘wash trading’, that is, illegally inflating the price of the NFT to trap a potential buyer, the Regulatory Authority must make it mandatory for traders in NFT to verify their identity, comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements and norms to prevent them from engaging in illegal activities.
  2. Some countries have not laid down laws to regulate commercial dealings in NFTs. In India, the government taxes NFTs as Virtual Digital Assets at a rate of 30 percent and subjects activities related to NFTs to AML checks. Authorities must establish laws to regulate NFTs.
  3. To ensure trust, it is mandatory to undertake strict user verification while acquiring NFTs to avoid malpractice and to prevent the spread of harmful content.

Conclusions

As of now, NFTs have yet to take off. People dealing in NFTs are an extremely niche segment. One needs to study the behaviour characteristics of the very high-end HNIs (high-net-worth individuals) to tap this segment. NFTs and token gating are new marketing strategies based on the technology used by high-end brands in advanced countries. For some affluent customers, this experience may be thrilling, but others may see it as a mere marketing tactic.

Over time, as customers enjoy more immersive experiences, their confidence in the brand will increase, fostering loyalty and brand evangelism.

🔬🧫🧪🔍🤓👩‍🔬🦠🔭📚

Journal reference

Colicev, A. (2023). How can non-fungible tokens bring value to brands. International Journal of Research in Marketing40(1), 30-37. https://doi.org/10.1016/j.ijresmar.2022.07.003

Rajit Panickar is a driven marketing professional with 3 years of industry experience and a postgraduate degree in MBA from Savitribai Phule Pune University, India. He currently serves as an Assistant Professor for Marketing Management at Sinhgad Institute of Management, Pune, Maharashtra, contributing to both industry and education sectors for over 6 years. Rajit has published research articles, blogs, and podcasts on marketing and social topics. He is focused on pursuing a Ph.D. in Management from Savitribai Phule Pune University. An avid reader, fitness enthusiast, and music lover, Rajit enjoys counselling students and guiding them towards successful careers in the corporate world.

Dr. Sagar Pawar is an esteemed academician and Associate Professor at Sinhgad Institute of Management, Pune, India. With a Ph.D. in Management from Savitribai Phule Pune University, he is recognised for his expertise in Marketing Management and serves as a guide for research scholars. Dr. Pawar actively contributes to various academic committees at the university and conducts Faculty Development Programs. He has published over 20 research papers and is dedicated to innovative teaching methods, ensuring students stay abreast of global business trends.