Non-fungible donation tokens
- April 30, 2021
- 4 min read
Let’s explore the fundraising frontier and imagine how we in the near future may use non-fungible tokens in fundraising
This post is our own thoughts on how non-fungible tokens may be used for charitable fundraising, especially in relation to crowdfunding for charities. But first, let’s get a basic understanding of the topic.
What is a non-fungible token?
A non-fungible token? You may have come across this concept recently online, often shortened to the acronym ‘NFT’. If you have, it is probably because of the sale of a digital artwork by the artist Beepl (Mike Winkelman) through the auction house Christie’s for 69 million dollars. Yes, 69 million – and Mike Winkelman is therefore among the top three most valuable living artists.
The short version is that NFTs allow you to buy and sell ownership of unique digital items and keep track of who owns them by using a blockchain.
A non-fungible token is a representation of a unique digital file on a blockchain. So the non-fungible relates to the uniqueness, and the token relates to the blockchain. But what is a blockchain?
A blockchain is in short a digital ledger. It is a growing list of blocks, each block is linked to each other by cryptography. The way a blockchain is generated ensures that it cannot be changed, as the data in any given block cannot be altered without altering all subsequent blocks. Therefore blockchains are exceptionally good at recording ownership in an open and transparent way.
In theory the ownership of anything can be recorded on a blockchain, but it’s biggest advantage is in recording ownership of digital assets. And while non-fungible tokens share the concept of a blockchain with cryptocurrencies like bitcoin, it is different in that each token represents a unique digital asset – or non-fungible assets.
So a non-fungible token is a representation of a unique digital file on an open, transparent ledger created through cryptography.
If you want to dig in deep on NFTs, here is a comprehensive list of resources on NFT’s.
The many facets of a NFT
An NFT can also have other properties. Tokens can be programmed. The artist can,. receive a share of any resale of an item later on for example, thus giving them a recurring income. Or maybe a commission will have to be paid each time it is shown – for an image, or played – for a song. It could also be that a NFT is limited in whether it can be resold or not.
One way to view NTFs is as a standardisation that ensures that we have one uniform way to define the ownership of a digital asset, and that ensures both interoperability and tradability among digital assets.
Blockchains are open and free to interact with. They are not closed ecosystems, and therefore anyone can see transaction history and build on top of the data. This gives unique possibilities to develop things like applications that show artwork, play songs, or in other ways build on top of the data in the blockchain.
Due to the programmable nature of NFTs, there are almost endless possibilities, but one thing that is of special interest to us is that it is possible to split a NFT into smaller fungible tokens. This makes it possible for many people to each own a fraction of a digital asset. An imperfect analogy is that it is similar to owning a share in a company. Each company is non-fungible and unique, but each share that represents a fractional ownership of that company is fungible and can be replaced by any other share . In the same way a piece of digital art is unique, but a fraction of the NFT can be fungible and traded.
Why people buy NFTs
You might have read several people expressing wonder at why anyone would want to own a digital item, when a digital item is so easy to copy. Why would anyone want to own 1/100 of an image file, when you can just take a screenshot of the image. The short answer is for the same reason one might buy a real painting when you can buy the poster in the museum shop.
You buy it because you
- Collect art
- You want to support the artist
- You want to showcase your wealth
- Want to own something that builds your identity
- As an investment
- Put an actual value on the digital item
When the NFT is involved in a donation, you can add to that the many reasons why someone might give a donation
- Virtue signalling
- Warm glove effect
The big difference is that NFT’s will be much more accessible because ownership can be split up into many fractions. Suddenly we will have students owning 1/10 of a popular meme or a new hit song because they discovered a band before they broke through.
It gives a way to align incentives of artists with their true fans, who will have an even greater incentive to push the artists.
Non-fungible donation tokens
Did we just coin a phrase? We hope so. Non-fungible donation tokens (NFDTs) are NFTs issued by charities where all proceeds and possible future commissions are paid to the charity.
The digital item may either be donated by an artist for the charity, or created by the charity itself. It could be photographs, songs, graphics or even the logo of the charity.
Buying a non-fungible donation token isn’t completely the same as donating, as you do actually get something tangible in return – the ownership of a digital item (and thus it wouldn’t be a donation to by tax agencies at least).
One big reason why a charity may not just sell prints of a piece of art to their supporters, but would sell the ownership of it instead, is that it may give commission on each future sale to the charity. This will suddenly transform the sale of digital assets into a recurring donation engine.
NFT’s will also benefit from being associated with charity, thus this will be a mutually beneficial relationship. NFT’s are only worth something if they have legitimacy, and this might actually come from being associated with charities. This idea was suggested by Vitalik Buterin – co-founder of Ethereum – who also proposes that NFTs will be a great way to fund public goods, just as crowdfunding already is.
Possible user cases for non-fungible donation tokens
Here we will present what we see as some possible scenarios for how NDFT’s might be used.
- Artist donates a digital item to the charity. Instead of auctioning it off, the charity sells fractions of the ownership through a crowdfunding style campaign. It won’t really be crowdfunding as the digital item has already been produced, but the same setup can be used.
- Charity crowd-funds a new campaign by selling the ownership to supporters. Supporters will get a thrill by knowing they helped spark change by funding 1/100 of your next happening.
- Charity produces a digital item, this could be a photograph for example, and sells it as an NFT. The ownership is seen both as a donation by the buyers, but also as an investment. The value increases over time, and for each sale, a small percentage is funnelled back to the charity.
- New charities will launch by fractionalizing the ownership of their logo. The logo is bought by 100 dedicated supporters who are ambassadors for life – or will sell it to others later. Remember that ownership in this world is programmable – and that there can be conditions on the ownership.
We especially think that a combination of crowdfunding and non-fungible tokens used by charities has huge potential.
Are NFTs ready for charities?
Yes and no. Some charities will be early to the game, and others will wait till it has been proven to work. This isn’t honestly much of a prediction, as it so obviously will be true. So to make the prediction more interesting, we will claim that in five years NFT’s will be a standard tool in any charity’s fundraising toolbox.
That said, a lot of legal issues that are still not settled, especially around cross border IP rights and what regulations will apply to fractionalising an NFT. Only once these legal issues are settled will we see mass adoption. Until then, the best strategy for charities will be to minimise risk by not issuing NFTs themselves, but to rely on others to do that – and just receive donations from the sale. Even with that, large charities with good lawyers or small charities willing to take a risk might have some really big opportunities right now.
Actually, this is already happening. Jack Dorsey auctioned off his very first tweet and donated the proceeds (2.9 million dollars) to the Give Directly Africa Response Fund.
Non-fungible tokens are a huge opportunity for charities, artists and public goods in general. We hope this opportunity will become a reality soon.
So, will you be launching NFTs on BetterNow?
We have no specific plans, but we will be looking into how we might provide better support for NFTs in connection with our upcoming crowdfunding solution, maybe through partnerships with players in the NFT world.
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