Why F1 is embracing NFTs, despite the critics
It has been impossible to ignore the explosion of NFTs around us right now, as each week another brand throws its hat into the ring regarding digital collectibles.
In the last few days, Ferrari declared in an earnings call that it is keeping an eye on the opportunities that could be open to it in the NFT marketplace.
Ferrari CEO Benedetto Vigna said: "For sure, the digital technologies, the Web 3.0 technologies that are using the blockchain and the NFT is an area that can be interesting for us. It deserves some attention."
While Ferrari may do something in the future, some F1 teams have already begun dipping their toes in.
Alfa Romeo, through its partnership with Socios, minted a strictly limited edition NFT to its fan token holders at last year's Brazilian Grand Prix that triggered a spike in the team's coin price. It has also released NFTs of signed memorabilia.
The Swiss team was one of the first to sign up to the fan token ecosystem, of which an NFT offering has now been added as a bonus for its most-loyal holders.
The Swiss team's commercial director Yan Lefort said: "I'm convinced that we are witnessing a shift in the way that sponsorship is evolving and how we actually sell, as a rightsholder, our platforms.
"I think that we need to be right there in terms of being innovative in any kind of way, specifically when it comes to addressing to new audiences and new customers, etc.
"So I think the fan token and the agreement with Socios was exactly that: it was the opportunity to get into that universe, new business, but I'm going to be completely honest with you: I originally had no clue what we were talking about.
"I'm not a specialist at all. I had very little knowledge. But I have the gut feeling that this is exactly where a team like us or even the sport needs to be today in order to prepare the future."
But Alfa Romeo is not alone in launching NFTs. Red Bull has been issuing its own digital collectibles, of 3D models of helmets, overalls, cars and cards, through American NFT platform Sweet.
McLaren has also been using the same company to launch a cars part McLaren Racing Collective, where fans can buy individual digital components to then build up their own full car if they want.
Just as Panini Football albums or baseball cards were a rite of passage for many, so NFTs are being embraced by the young generation as something to be purchased, swapped, shown off or sold.
Antonio Giovinazzi, Alfa Romeo Racing signed left hand racing glove
These are in effect the modern digital version of memorabilia and collectibles, like ticket stubs or sticker books were before.
There is no going back on the digital world, and what we are seeing now is almost certainly just the start of what will be more and more campaigns from teams, brands and potentially drivers as interest around NFTs grow.
Tom Mizzone, CEO of Sweet, sees huge opportunity and says NFTs are moving away from just being standard digital images.
"The tech is really evolving fast," he tells Motorsport.com. "Six months ago, the whole perception of an NFT was Taco Bell doing an animated GIF of a taco and auctioning it off! It was fun and it got a lot of press, and it was what I would call a novelty release.
"But the reality is we're really pushing the boundaries now of how these things can be used. So for example, NFT's can be bundled with physical merchandise as a means of validating the authenticity of that merchandise, so you know that something you bought from Red Bull or from McLaren is actually authentic.
"Another really cool thing that we're doing is real time video moments. So imagine you're at a hockey game and a world record is broken. If, within 30 seconds, we can make that in the form of a video NFT, then you can leave with that video moment right there from the arena. It's the same thing we can do in F1. It's very, very powerful."
Despite there being this buzz around non-fungible tokens, mention 'NFT' in a conversation these days and people's opinions are hugely divided.
There are those who share the enthusiasm of the creators: who like the concept of unique digital collectible items, especially if there is a chance to flip it in the future and make some tidy profit on the way.
Then there are those who are sceptical of the entire concept. They cannot understand why NFTs hold any value, when anyone can right click and 'save to desktop' and have the exact same digital image for free.
Furthermore, they see the inflated prices for NFT collections like CryptoPunks, with one selling for $11.7 million, as a warning sign of a modern-day Tulip bubble that is going to burst and leave a lot of bag carriers in the future.
Max Rabinovitch, chief strategy officer of Socios, says his company spent time understanding the market before stepping in because it wanted to provide products that were good for holders of its fan tokens and were not just about a quick profit.
Red Bull Racing Neon
Photo by: Cryptoland PR
"In terms of the scepticism, I think, to be honest, it's warranted to a degree," he explains about the doubts some have on NFTs.
"I think with any sort of great gold rush or boom of this kind of magnitude, there's going to be bad actors, and there's going to be gimmicks.
"There are good ideas out there. Our friends at Dapper Labs are doing really great work. And they're laying the foundation for entire product sets and utility driven NFTs, with a really interesting branded ecosystem.
"But at the same time, some have decided that if they become an NFT provider, they can just call any brand or sport, make them some NFTs, sell them and make a bunch of money.
"And it's almost a hit and run scenario where they don't care what happens afterwards because people are excited now, and they are not going to be the one left holding the bag.
"There was a lot of that I think. But increasingly, people have caught on to that. And it's actually a big reason we didn't, as a company, kind of jump on that NFT bandwagon at first because we've always, whether it's naive or not, believed that the value from all this tech comes in the infrastructure you build around it."
Mizzone points out that those who think that NFTs are worthless because they can copied easily are missing the point.
"I really think of NFTs less as investments and more as a way of using open ledger blockchain technology to ensure that the item that you have is truly yours and it's distinct. It's one of a kind, right?
"If I gave you an image of a car, and you could copy it a million times and send it around, there's nothing of value to that.
"If I gave you an image of a car and you can use the blockchain to determine that you have this particular sequence number and there's only one of those in the world, now it's true memorabilia. It's the equivalent of getting that rare baseball card or that really cool comic book back in the day."
The environmental issue
Perhaps the harshest criticisms aimed at NFTs come from those who question the environmental impact of NFTs, with proof-of-work blockchains like Ethereum coming under fire for the amount of emissions generated by miners.
But while some NFTs are hosted on proof-of-work blockchains, it is very difficult to judge their direct impact, because the blocks would be calculated in exactly the same way without the NFT transactions anyway.
McLaren Gulf livery
Photo by: Cryptoland PR
It is little like working out if you have saved any carbon emissions by not travelling on a plane that still took off without you….
Also, not all NFTs use proof-of-work blockchains. McLaren and Red Bull, for example, both use the Tezos blockchain which is proof-of-stake, so has much less of an environmental impact.
And, as Mizzone points out, a brand launching a digital collectible marketing campaign can have far less environmental impact than if they did something like release a real-life toy collectible in breakfast cereal boxes.
Asked about the environmental criticisms, he said: "I always like to think about the other way of doing things. Sweet powered a sweepstakes with Burger King, on six million addresses, where, for the first time, instead of getting a plastic toy like in the past, you got an NFT.
"Now, think about what it would involve to put a plastic toy in six million mailboxes around the US. We were able to put a QR code on the side of the box and deliver a digital toy in the form of an NFT on a very green eco-friendly chain.
"That was much greener than the old way. You didn't have to sort every box with the toy, and when you think about manufacturing and shipping them, and most of them ending up in the garbage, the environmental impact would have been huge.
"This is a very eco friendly opportunity to be much more efficient with collectibles and things that we're providing to consumers."
Another important point is that the crypto industry is very fast moving. Ethereum is already moving towards proof of stake, and other blockchains can adapt as necessary.
As Rabinovitch, whose Chiliz blockchain uses proof of authority, said: "Luckily, blockchain is all digital. So it's not a situation where there's a brick and mortar infrastructure that needs to be torn down: like let's get rid of all the coal power plants and rebuild them with solar in their place.
"It's just a matter of coding new blockchains differently. And that can happen very, very quickly.
Sauber sale promo
"So if, I would say correctly, there's pressure being put on the industry to say, 'Hey, keep your eye on it.' Once the pressure becomes great enough, I think it would be a fairly quick switch."
The future path
What is clear is that where NFTs are now is not where they are going to be in a few years.
As Lefort says: "It's not a 'you press a button and everything is singing and dancing'. I think it will be quite a bit of a journey in order to educate first of all our fans, but also new fans to come on board and work in the context of this relationship. I think for me, I see it as the beginning."
The NFT world will evolve and is evolving fast. As well as making any necessary adjustments to address sustainability concerns, the whole ecosystem, after such a rapid growth, will probably need to spend some time in consolidation to adapt to market forces, and move away from the speculative bubble that has been a hallmark of the past 12 months.
Rabinovitch adds: "There's going to be consolidation and winners, right? Look at the real world: people only care about Topps trading cards and Panini trading cards. There's dozens of other companies that couldn't get the market sustainably excited, and they faltered
"The consolidation will be based on meritocracy: which of these projects were smart and doing the correct stuff from the get go? Which were building the community the right way, and not the fast way and cynically, kind of winking and nudging, 'Hey, you can get rich doing this.'"
"You have to somehow cap what that expectation is. If you make it this unbridled Wild West of, 'you can hope you can sell this NFT for a million dollars and retire,' then, of course, the primary reason and the primary interest and inflow of cash is going to be from people looking for that.
"So you're going to have a minority of users coming in, who are going to represent a majority of the money that's in the market.
"Their sole intent will be to just make a profit, and they could not care less what they're collecting. In that sense, the NFT stops having utility because no one cares about its collectible value."
In the end, the success of NFTs in sport, including F1, will depend on the network effect. To win, brands and sports will need to get the masses interested.
Rabinovitch says: "The biggest single shift will be just network inclusion. The early days of the Internet were very isolated.
"There was this thing, and it was a network of information, but it didn't connect anything. It didn't connect outside of it itself, and there were no real world services necessarily that you could use via the Internet.
"That slowly changed and we're at a point now where everything happens through the internet. When you pay your bills, when we're having this interview, it's all connected. And there's a very strong network effect because everyone's on the same system.
Max Verstappen, Red Bull Racing RB16B, Sergio Perez, Red Bull Racing RB16B, Lando Norris, McLaren MCL35M, Carlos Sainz Jr., Ferrari SF21, the rest of the field at the start
Photo by: Zak Mauger / Motorsport Images
"I think when you talk about fan tokens, when you talk about NFTs, it'll be a slow but sure path to that same level of networking.
"You could, for example, connect the Socios account to things that will let you have in stadia experiences, whether it's due to you having an NFT or you being a fan token holder. It is about being part of that community and getting access to those experiences outside of the stadium."
Better than the real thing
Mizzone is convinced that ultimately all the same qualities that made baseball and football collectibles such a hit for decades will drive the growth of NFTs, especially because their utility is so much greater.
"I think we're well on our way," he said. "I've got a boatload of baseball cards in my attic, all from the 80's. They are dear to my heart, but I can't show them off.
"So the idea that you have this really cool display utility on your phone, where you can put your stuff in a virtual trophy case and share that with the public and friends, and add a little story like, 'I was at this F1 race and I got this collective and it's one of 500 with a low sequence number'. There's a perceived value in owning this stuff.
"Then there's that ever attachment right to the teams that we love and we're passionate about.
"I think this is well on its way to really taking over and it's really interesting to think how digital collectibles are in some ways superior to physical collectibles: harder to counterfeit, harder to fake, easier to show off and display, easier to trade and swap.
"This is the real deal. And there's so much enthusiasm for it right now."
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