NFTs X Luxury — both share the fundamentals of scarcity
Scarcity has been an underlying characteristic of luxury. Now we see it in new technology — NFTs. Have you explored it yet?
Luxury is based on the concept of scarcity created by rare and exclusive items — a prominent reason why luxury has always been part of our history.
In order to guard this important characteristic of scarcity, in times where luxury is subject to dilution, one needs to understand the psychological impulse of a human behind it.
So why do humans collect?
From postage stamps, coins to niche times like depression glass, exclusive furniture and vintage artworks — some people collect is as a hobby, whereas others collect it as a reward for finding rare, unique items and gain a status of exclusivity.
According to a recent study by Itamar Simonson, a professor at Standford Graduate School of Business, people are more likely to begin a collection once they possess two of one item. This is because people begin to associate owning the same objects. This redundancy becomes difficult to justify.
Then comes either for profit or for pleasure. The professional collectors aim for the profit. On the other hand, the amateur collector — collect for enjoyment, connection to a historical period, or the prestige behind having the largest collection of something.
The notion of rarity builds the whole idea of scarcity which in turns drives the concept and price of luxury.
However, in today’s globalised and digitized world — a physical scarcity driving the price is not enough. As the luxury world becomes a victim of expansive and increased visibility, it runs the risk of losing its scarcity element.
A few prominent challenges that luxury faces are that of counterfeit goods; verifying authenticity in case of second-hand goods market.
Luxury needs new characteristic
Highsnobiety found that only 6 per cent of their readers stated that they purchase products as a direct expression of wealth. This means that the value of a luxury item is today less than ever defined by its price. Instead, “new luxury characteristics related to knowledge consistently score higher than reductive notions of cost”.
In fact, more than a quarter of Highsnobiety’s readers are willing to spend more on an item if it has a history to it (28%), and more than a third if it is a limited edition (37%).
Consumers now want to be well-informed regarding the provenance of items and want assurance and easy accessibility to a product’s knowledge.
Physical to Digital Scarcity
Attention needs to be focused on simultaneously integrating the physical scarcity of luxury goods with its digital presence. The digital scarcity of truly one-of-a-kind products will then also alter the nature of their physical scarcity world. An act that might see convergence in the coming future.
This is where non-fungible tokens (NFTs) can revolutionize the luxury market.
A quick definition — in the context of currencies, fungibility is the property that any unit of a given currency is interchangeable with any other unit of the same currency. A U.S. $2 bill is interchangeable with any other U.S. $2 bill. In terms of cryptocurrencies — 1 ETH is equivalent to any other unit of ETH, and there is no way to identify specific units. This quality is what makes cash or ETH fungible.
In contrast, a non-fungible token (NFT) is a special type of crypto asset in which each token is unique, having a specific identity distinguishable from any other token.
Fundamental characteristics of NFTs that make it relevant to the Luxury Market:
Scarce & Unique:
As stated earlier, luxury is a business model based on rarity. Romanee-Conti vineyards produce only a few thousand bottles per year. Ferrari, Patek Philippe and so does Hermès have restricted supply. What this scarcity generates is a feeling of privilege and exclusivity.
In the case of NFTs — scarcity is an important ingredient in the recipe that makes it so attractive. NFTs provide a token with a unique digital identity. This in turn makes a digital item valuable through verifiable scarcity.
The supply of lifestyle NFTs can be capped in numbers in the code so that their owners can be certain about their overall supply and resulting value.
By pairing an item with an NFT, we can know algorithmically that no additional copies of that item can ever be created. Adding on, since each NFT is built on a transparent and auditable blockchain, the scarcity of an NFT-backed item can be unquestionably proven by anyone interested in buying or selling the item.
Provenance and utility:
Of course, due to the counterfeiting and consumer trust issue, blockchain technology addresses a real market need. Verifying authenticity and establishing a clear ownership history helps to increase this trust. But NFTs are now the new kind of certificates of authenticity. Instead of relying on physical certificates, NFTs serve as a unique digital passport that certifies the authenticity of the product. From the origin to the various hand’s it passed through — NFTs guarantees the products provenance.
In luxury, there remains the need for trustworthy assurances of authenticity and condition, especially when it comes to high-end classics and collectables, like cars, watches and exotic Kellys. They run a high risk of their documentation being forged or misassigned as there’s no one, single, global document standardization for them.
However, with the advent of the concept of tokenization, these allow luxury goods to be taken to the blockchain as a non-fungible token with an integrated certification library, offering not only proof of ownership and history but also to serve as a permanent link to the verified documentation.
Proxeus — a blockchain startup launched a user-friendly method to register classic car collections on the blockchain, making it impossible to forge and verifiable by anyone. The first client is Mercuria Helvetica in Switzerland.
Luxify tokens themselves will be non-fungible ERC-721 tokens which represent item ownership.
Permanence:
Lastly, using NFTs give items the property of permanence, similar to how Luxury is meant to be timeless and it has a long-term appreciating investment. Think about how people hand down physical items like jewellery and watch to their children — someday you may even see the same occur with digital items!
The fundamental concept of NFT blends well with that of luxury. Exclusive, rare, scarce, timeless — terms that define both NFTs and our good old luxury.
This new technology has been gaining momentum at a very fast space and currently being used to explore the digital art space.
New startups like Ariaane have recently got Breitling, a luxury watch brand on board — employing non-fungible tokens.
A concept that might seem crazy to many but exciting to a few.
I think we need to start understanding the underlying principles that guide technology like NFTs to associate it with the world of luxury.
I hope this sneak-peak drives interest in you to get exploring the world of NFTs.
