Blockchain technology has revolutionized the way we store and transfer digital assets, and non-fungible tokens (NFTs) have taken this one step further by providing a way to prove ownership and authenticity of unique digital assets. However, a new type of NFT on the block, known as utility NFTs, offers more than just ownership of a unique digital asset.
This article will explore what utility NFTs are, how they work, and their practical uses. We will also look at some examples of projects that use utility NFTs in innovative ways.
What are Utility NFTs?
Utility NFTs go beyond being unique digital assets and offer specific use cases by providing owners with privileges, rights, or rewards that are otherwise inaccessible.
Unlike traditional NFTs, often used as digital collectibles, utility NFTs serve a specific function or provide access to a particular service or product. They represent a new way for creators to monetize their content and for buyers to access unique experiences.
For instance, a musician could create a utility NFT that grants its owner exclusive access to backstage passes, meet and greets, and other exclusive perks. A sports team could make a utility NFT that gives the owner access to VIP seats or even ownership rights. An online game could use utility NFTs to grant players access to unique in-game items or exclusive game modes.
The potential uses of utility NFTs are endless, and their benefits are numerous. For creators, utility NFTs provide a new way to monetize their content and offer exclusive experiences to their fans. For buyers, utility NFTs give a unique opportunity to access exclusive experiences and services that would otherwise be unavailable.
How Do Utility NFTs Work?
In a nutshell, utility NFTs work similarly to traditional NFTs.
Utility NFTs (like traditional NFTs) rely on blockchain technology and smart contracts to operate. Blockchain is a decentralized public ledger that records all transactions in a transparent and immutable way, ensuring the highest level of safety and transparency. Meanwhile, smart contracts are self-executing digital contracts that fulfill predetermined conditions for a transaction to take place.
Most utility NFTs operate on the Ethereum blockchain network, which allows creating smart contracts that can grant specific privileges, rights, or rewards to the NFT owner. Just like traditional NFTs, utility NFTs have unique IDs and metadata that make them one-of-a-kind and impossible to duplicate. These attributes help maintain the uniqueness of NFTs and give owners a claim of ownership of tangible and intangible assets.
When an NFT is minted, the smart contract code is executed, and the information is stored on the blockchain. This procedure involves creating a new block, verifying the data, and then entering the verified data on the blockchain. The smart contract feature enables creators to impose their rights to royalties in perpetuity every time their work is sold or transferred.
The difference between traditional NFTs and utility NFTs is that instead of representing a unique digital asset, utility NFTs represent access to a particular service or product. The owner of a utility NFT can use it to gain access to the service or product it means, and the creator can specify the terms of use for each NFT.
What are Utility NFTs Used For?
Utility NFTs may seem complex, but they have much in common with things we use daily. For example, when we buy tickets or boarding passes, we often receive them in a digital format that can be saved to our smartphones. Utility NFTs can offer the same convenience but with added security features to ensure that our tickets and other assets are always safe.
Let’s explore the most well-known practical uses for utility NFTs and how they can improve existing processes:
1. Governance and Voting Rights
NFTs can also be used to represent governance and voting rights. This means that an NFT could be created as a digital token that grants the holder the right to vote on important decisions or proposals within a decentralized organization or community.
For instance, an NFT could be used to represent a share of ownership in a blockchain-based project or a decentralized autonomous organization (DAO). Holders of these NFTs would have a say in important decisions, such as the allocation of resources or the project’s direction.
Example of a project from this use case: MetFi DAO – a decentralized autonomous organization. When you purchase a MetFi NFT, you acquire a portion of the stake in all MetFi treasury investments. The treasury profits are distributed to all MetFi NFT holders on a daily basis in the form of freshly minted MetFi (MFI) tokens. The quantity of new MFI tokens you receive is determined by the NFT you possess and the quantity of MFI tokens you have staked.
2. Memberships and Event Tickets
NFTs can be used to represent memberships or event tickets. This means an NFT could be created as a digital certificate granting access to exclusive events, services, or perks. For example, a private club can use NFTs as membership cards, giving complete access to events and experiences. Similarly, an NFT could be used as a concert or sports event ticket, allowing the holder to enter the venue and prove their attendance. NFTs could also be used to create VIP experiences, such as meet-and-greets with performers, backstage access, or private tours.
Example of a project from this use case: EulerBeats – A project that uses NFTs as membership cards for a music and art collective, granting access to exclusive events and perks.
3. Physical Products
NFTs can also be used to represent ownership of physical products. This means that an NFT could be used as a digital certificate of authenticity for a piece of fine art or luxury goods. For example, an NFT could be issued for a limited-edition watch or handbag, proving the authenticity and ownership of the physical product. This would also allow the product to be tracked and recorded on the blockchain, ensuring it remains unique and rare.
Example of a project from this use case: VerisArt – A platform that uses blockchain technology to certify the authenticity of physical artworks, collectibles, and luxury goods. They use NFTs to create digital authenticity certificates linked to the physical product.
4. Loyalty Rewards
NFTs can also be used to represent loyalty rewards or points. This means that an NFT could be created as a digital token that can be earned by making purchases or engaging with a brand. These tokens could then be redeemed for discounts, exclusive offers, or unique experiences. For example, a fashion brand could offer NFT-based loyalty rewards to regular purchasers, providing them access to exclusive sales or early access to new collections.
Example of a project from this use case: Refinable – a decentralized NFT marketplace that rewards users for holding their native token, $FINE, with exclusive NFTs, discounts, and other perks.
5. Exclusive Content
NFTs can also be used to represent exclusive content, such as VIP membership, early access, or behind-the-scenes access to an artist or creator. This means that an NFT could be used to represent a VIP membership for a music artist’s fan club, granting access to exclusive content and experiences. NFTs could also be used to provide early access to new products, services, or experiences, giving early adopters a unique advantage. Eventually, NFTs could grant behind-the-scenes access to an artist or creator, allowing fans to look inside the creative process.
Example of a project from this use case: NBA Top Shot – A platform that uses NFTs to represent collectible highlights from NBA games. Holders of these NFTs have access to exclusive content and experiences, such as VIP access to live games and events.
6. Airdrops
NFTs can also be used to represent access to future airdropped tokens. This means that a specific collectible or cryptocurrency could airdrop an NFT holder who has held an asset for a certain period to reward their loyalty. This incentivizes users to hold onto their NFTs, as they may receive additional rewards over time. For example, an NFT holder could be airdropped in a rare collectible after having their NFT for a year or more.
Example of a project from this use case: Bored Ape Yacht Club – A collection of unique, hand-drawn NFTs that grant membership to an exclusive social club. Holders of these NFTs are eligible for airdrops of rare, limited-edition NFTs and other perks and benefits.
The Future of Utility NFTs
Utility NFTs are still in their early stages but are already transforming how we think about ownership, access, and value. As more innovative use cases emerge, the potential of utility NFTs is becoming increasingly apparent.
One of the most exciting possibilities is the replacement of traditional cards and tickets with NFTs. In the future, healthcare cards, loyalty cards, and even season tickets could be replaced by NFTs, giving holders access to healthcare, discounts, and events. This would also allow for better tracking of ownership and more efficient distribution of benefits.
Besides, businesses could use utility NFTs to incentivize sales and build customer loyalty. Instead of paper coupons or discount tokens, NFTs could be redeemed for discounts or freebies, making the process faster and more convenient for businesses and customers.
As we move towards the metaverse, utility NFTs could play an even more significant role, providing access to exclusive virtual environments and games.
Utility NFTs could also be used to protect the planet by providing a verifiable record of ownership and incentivizing sustainable practices. For example, NFTs could be used to track carbon credits ownership or reward individuals for reducing their carbon footprint.
The possibilities of utility NFTs are limited only by our imagination. As more use cases emerge and the technology becomes more widespread, we can expect revolutionary changes in how we think about ownership, access, and value.
