With charities being encouraged to digitally innovate to increase fundraising and the charity covid:aid being set up to, hopefully, capitalize on the current enthusiasm for cryptocurrency by auctioning a non-fungible token (NFT) here is a short introduction to NFTs.
Recent months have seen big brands launch their own NFT tokens and Christie's auctioned digital art by Beeple for $69m (£50m).
NFTs are different from other cryptocurrencies such as Bitcoin, all Bitcoins are the identical but every NFT is unique. The dictionary definition of fungible is: (of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable.
NFTs are similar to plane tickets, they look the same but each has a different seat allocation, on a different plane, flying at a different time to a different destination. Because each NFT is unique it is rare.
NFTs are often based on the Ethereum Blockchain in the form of ERC-721 tokens, however, they can be created on rival cryptocurrency platforms. They are released in an event called a “drop” which is similar to an initial coin offering (ICO).
To create scarcity that gives NFT tokens their value, developers can ensure that the supply of tokens is strictly limited. It’s also common for tokens to be split into varying degrees of rarity, meaning that only a small number of the most desirable tokens will ever exist. NFTs for some crypto games are sold in packs, meaning that every player has a chance of getting their hands on one of the most coveted NFTs.
Unlike Bitcoin, NFTs cannot be divided into smaller chunks, you can send 0.05 BTC to a friend but it’s impossible to send 5 per cent of an NFT in a similar fashion.
One of the most common advantages of non-fungible tokens lies in how blockchain platforms can help verify the authenticity of an asset – and provide a comprehensive history of ownership.
So, is this something that fundraising teams at charities should be looking to embrace?
The simple answers is: it’s complex.
If a charity is going to run an auction with NFTs the charity needs to know the details of the platform with whom they are going to work. The number outlets that claim to support NFT marketplaces is rapidly increasing. Any charity should vet the partner platform to make sure it is capable of performing (that it can host the auction, accept the payments, and deliver the winnings to the charity, etc.).
Charities need to work with platforms to ensure disclosures to bidders and donors are very clear on how the auction or donation will work – and what will happen if anything goes wrong or if something should happen to the asset under the digital hammer.
With the NFT market currently looking buoyant it may seem like an attractive opportunity and could present an opportunity for museums, for example, to monetise their physical assets without losing access to them.
As the value of crypto currencies and NFTs can go up and down charities should check with their financial and legal advisers to confirm they have considered all legal aspects of online fundraising compliance.
It is early days with NFTs, there are many opportunities to discuss and ideas to be brainstormed but there are many things to be wary of for fundraisers.