What are Utility NFTs? Offering Real and Immediate Value!
Have you heard of NFTs? They’re a type of digital asset that use blockchain technology to prove ownership of unique items like pictures or videos. But some people wonder if NFTs are just for collectors without any real-world use. Enter “utility NFTs”! These are NFTs that come with special perks or privileges that you can actually use. For example, owning a utility NFT might give you access to a private chat room or let you belong to a club offering exclusive travel benefits to their members. This makes them more than just collectibles – they are like digital keys that unlock some really cool stuff.
Utility NFTs are becoming more popular as people realise they can have real-world value. While some NFTs are just pictures or art, utility NFTs give you something extra. Brands and creators are starting to offer them to fans as a way to build communities and reward supporters or members. So if you’re interested in NFTs but want something more than just a pretty picture, take a look at utility
NFTs!
But first, a quick reminder as to what an NFT is. NFTs, or non-fungible tokens, are digital assets that represent a unique item, whether it be a realworld object or a digital asset like a jpeg image or even a tweet. These assets cannot be interchanged with one another and data about the NFT is stored on the blockchain via smart contracts, which verify the authenticity and ownership of a particular asset.
Utility NFTs Explained
What are utility NFTs?Utility NFTs provide more functionality than standard NFTs, and are designed to offer holders additional benefits beyond their aesthetic or collectible value, such as rolling membership benefits, access to premium gated content (access to exclusive content, experiences or services behind a digital asset), or exclusive entry to real-world experiences such as travel. These NFTs act as inbuilt assets that represent digital land or other assets within a virtual ecosystem, built using secure and decentralised blockchain technology, providing a new way for members of a community to share value and experiences among themselves and with asset owners.
Unlike traditional NFTs, which are primarily used for digital collectibles or art, utility NFTs have a practical application within a specific platform (eg Ethereum) or application. Utility NFTs are a kind of “NFT with benefits” that go beyond the average smart-contract token, offering perks ranging from redeemable rewards, travel memberships, access to events and holiday properties. While regular NFTs are worth something in terms of market demand, such as an oil painting, utility NFTs offer immediate and direct value to the buyer upon purchase through immediate access to specified privileges and experiences.
They have the potential to disrupt traditional business models in various industries. For example in the music industry, utility NFTs could be used to represent ownership of a specific song or album, allowing for more direct monetisation for artists and more control for music rights holders. Utility NFTs can take many forms, such as tokens that grant access to a virtual world or game, or a token that grants access to exclusive travel experiences or perks. For instance, a hotel chain could create an NFT that represents a loyalty program membership. This would incentivise customers to become loyal to the hotel chain and provide a way for the hotel to reward its most valued customers in a unique and trackable way using blockchain technology.
Overall, utility NFTs represent a promising new frontier in the world of digital assets and have the potential to revolutionise the way we think about ownership and value in the digital economy.
How do Utility NFTs work?
Unlike standard NFTs, utility NFTs can have extra features of benefit or purpose added to them, such as cryptographic security to prevent falsifications or tampering and they can be extended with new functionality that grant holders additional privileges. These features benefit NFT owners, as the technical specifications of blockchain technology guarantee that NFTs cannot be altered and provide transparency, enabling owners to verify the origin of their NFTs.
When a utility NFT is created, it receives a unique digital signature called a “hash,” which is impossible to duplicate or replicate. The hash is then recorded on the blockchain, creating a permanent and immutable record of the NFT’s ownership and existence. This process is called “minting,” and it plays a crucial role in ensuring the authenticity and distinctiveness of the token. After minting, the NFT can be given a specific utility that suits the creator’s vision or project. This requires careful consideration of token gating, physical or digital products and the desired user experience. The possibilities of what can be achieved with this technology are endless. In addition, utility NFTs can be bought and sold on marketplaces just like any other NFT. As demand for the NFT increases, the value may increase as well, allowing owners to transfer the benefit to others.
How do utility NFTs work for your own project? If you are interested in incorporating utility into your own NFT project, there are many options available. At their core, utility NFTs function in a similar way to traditional NFTs, with a unique identifier stored on the blockchain to prove ownership. This creates a secure and efficient way to track and exchange digital assets. The utility aspect of an NFT is not actually stored within the NFT itself, but rather the NFT serves as a unique identifier. Think of it as a secure and unique cell phone number or credit card number. This identifier can then be used in a variety of applications, with numerous possibilities. To provide access or privileges to a specific NFT holder, their unique identifier is simply added to a whitelist. This effectively turns the NFT into a membership card, granting access to a range of
additional utilities.
The exciting part is that new utilities can be added to an NFT at any point in time, without it needing to be built into the NFT at the time of minting. A prime example of this is the Bored Ape Yacht Club NFTs, which originally started as a collection of pictures, but now offer owners exclusive rewards and access to private events.
Types of Utility NFT's
Utility NFTs come in various forms. An airline company could create a utility NFT that represents access to its VIP lounge at the airport. Customers who purchase this NFT would have access to the lounge, which offers various amenities such as free food and drinks, comfortable seating, and high- speed Wi-Fi.
The NFT could also be used to track usage and ensure only authorised individuals are accessing the lounge. This would add value to the airline’s services and provide a seamless and exclusive experience for its customers.
There are several categories of utility NFTs that have emerged, and we will delve deeper into them to understand how they work in the digital world.
Governance
NFTs can be used to represent voting rights or governance in a project or organisation. Governance is a type of Utility NFT that allows a community to make decisions about a project or product through a token-based system. Holders of certain NFTs may have the ability to vote on decisions or proposals, such as changes to the project’s code or community rules, similar to a decentralised autonomous organisation (DAO). DAOs are communities that govern Web3 platforms and use smart-contract automation to make decisions.
Events
Utility NFTs can act as a digital representation of memberships or event tickets, giving the holder access to unique events and benefits. For example, an NFT could serve as a ticket for a concert or sports event, granting entry to the event and proving attendance.
Utility NFTs can offer privileged access to exclusive-entry events, incentivising an already invested community to buy in. These events can be in-person or online, through the metaverse, and range from professional conferences to networking meetups, expert panels, community group calls and webinars.
Some of the first utility NFTs provided access to unique platforms, including exclusive Discord channels. As utility NFTs have evolved, they have offered new ways to provide digital access to events, holiday destinations and platforms. Utility NFTs are also commonly used as membership cards for exclusive clubs or restaurants, allowing NFT holders to meet up with their community and collaborate in the same space.
A well-known example of an event in the USA that uses utility NFTs is the Ethereum-based conference ETHDenver. Attendees can purchase an NFT ticket that provides access to the conference and other exclusive experiences, such as private networking events and access to VIP lounges. The NFT ticket also serves as a collectible and provides access to perks and rewards within the ETHDenver community.
Premium content
NFTs can also represent exclusive content such as VIP membership, early access or behind-the- scenes access to a performing artist or band. For example, an NFT could represent a VIP membership for an Art Collection, granting access to exclusive visits and experiences.
One strategy to create a loyal audience and generate impact for brands is to lock premium-quality content behind an NFT. In this way, content which is in demand by their audience is released, while the NFT market value will be directly correlated to a brand’s impact.
The NFT series created by DJ 3LAU for his album Ultraviolet is an example of a Premium Content NFT. The NFTs provided access to exclusive content, such as unreleased tracks, digital art and backstage passes to 3LAU’s shows. The NFTs also gave holders the ability to redeem physical merchandise, such as limited edition vinyl records and concert tickets.
Offers, discounts and promotions
NFTs can be used to represent discounts or promo codes that can be redeemed for a discount on a purchase or service.
By using token-gating coupons and deals, creators can keep NFT holders interested by offering exclusive access to discounts or other benefits. This creates a cycle of anticipation and excitement, with occasional releases of new deals to keep the holders engaged. For example, in the travel industry, a token-gated coupon could give NFT holders access to special discounts on flights or hotel bookings.
This approach is most effective for popular brands. Depending on the creator’s project, providing discounts and promotions, similar to a loyalty program, may be more flexible than restricting access to a constant flow of exclusive content with an NFT.
Gamified Engagement
The permanent and public nature of blockchain technology allows creators to track and measure user activity. With this information, they can design a system of rewards and incentives to encourage user engagement. For example, users could be rewarded for collecting a certain number of NFTs, holding onto valuable NFTs for a long time, participating in virtual events, or engaging with the community by accessing virtual worlds. These rewards could come in the form of additional governance tokens, special limited-time offers or other benefits that keep users engaged with the platform.
Physical Products
NFTs can be used to represent ownership of physical products, such as fine art or luxury goods. The NFT acts as a certificate of authenticity and ownership, allowing the owner to prove the authenticity of the physical product and track its ownership on the blockchain.
Loyalty Rewards
NFTs can be used to represent loyalty rewards or points, similar to a traditional loyalty program. Customers can earn NFTs by making purchases or engaging with a brand, and then redeem them for discounts or exclusive offers.
Exclusive Experiences
NFTs can be used to represent access to exclusive experiences, such as meet-and-greets or private tours. Holders might have the right to attend private events or meet celebrities or influencers.
Metaverse Events
NFTs can be used to represent access to events within virtual worlds or metaverses. Holders of certain NFTs may have the right to attend virtual concerts or events within a metaverse.
Travel NFTs
NFTs have the potential to revolutionise the travel industry by offering travelers unique and exclusive experiences. With NFTs, travelers can gain access to rare and limited experiences such as private tours or luxury holiday homes, creating a feeling of exclusivity and status for customers.
There are exclusive benefits and experiences that come with being a member of a limited membership size Travel NFT. The cost savings, safety and flexibility that come with NFT travel clubs or communities make them an attractive option for travelers. Additionally, the networking opportunities and knowledge sharing that come with a limited NFT travel club or collection such as the Pangolin Collection NFTs can be invaluable.
We will be delving further in the world of Travel NFTs in future blogs
Conclusion
Utility NFTs are a promising innovation that open up a new world of possibilities for creators, businesses and individuals. They are unique digital assets that offer real-world value and functionality beyond their inherent artistic or aesthetic qualities. Utility NFTs enable creators to engage and reward their audience, build communities and establish a more direct relationship with their support base.
Meanwhile, users can leverage the ownership and utility of NFTs to access exclusive content, experiences and services, as well as participate in decision-making processes and gain more control over their digital lives. As the Web3 ecosystem continues to evolve, we can expect to see more innovative use cases and applications of Utility NFTs, creating new opportunities and challenges for the crypto industry and beyond.