Utility NFTs: The Next Step in Blockchain’s Evolution

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 the 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 resource.

This article will explore what utility NFTs are, how they work and their practical uses. We will also look at some examples of projects using utility NFTs in innovative ways.

What are Utility NFTs?

NFTs go beyond being unique digital assets and offer specific use cases by providing owners with privileges, rights or rewards otherwise unavailable.

Unlike traditional NFTs, often used as digital collectibles, NFTs serve a specific function or provide access to a specific service or product. They represent a new way for creators to monetize their content and for buyers to access unique experiences.

For example, a musician can create a tool NFT that gives its owner exclusive access to backstage passes, meet and greets and other exclusive benefits. A sports team can create a tool NFT that gives the owner access to VIP seats or even ownership rights. An online game may use NFTs to give players access to unique in-game elements or exclusive game modes.

The potential uses of NFTs are endless and their benefits are many. For creators, NFTs provide a new way to monetize their content and offer exclusive experiences to fans. For buyers, NFTs provide a unique opportunity to access exclusive experiences and services that would otherwise be unavailable.

How do NFTs work?

In a nutshell, NFTs work the same way as traditional NFTs.

NFTs (like traditional NFTs) rely on blockchain technology and smart contracts to function. Blockchain is a decentralized public ledger that records all transactions in a transparent and immutable manner, ensuring the highest level of security and transparency. Meanwhile, smart contracts are self-executing digital contracts that meet predetermined conditions for a transaction to take place.

Most utility NFTs operate on the Ethereum blockchain network, which allows the creation of smart contracts that can grant specific privileges, rights or rewards to the NFT owner. Just like traditional NFTs, NFTs have unique IDs and metadata that make them unique and impossible to duplicate. These attributes help maintain the uniqueness of NFTs and give owners a claim to 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 onto the blockchain. The smart contract feature enables creators to assign their rights to royalties in perpetuity whenever 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 tool NFT can use it to access the service or product it signifies, and the creator can specify the terms of use for each NFT.

What are Utility NFTs used for?

NFTs may seem complex, but they have a lot in common with things we use every day. For example, when we buy tickets or boarding passes, we often receive them in a digital format that can be stored on our smartphones. Utility NFTs can offer the same convenience, but with added security features to ensure our tickets and other assets are always safe.

Let’s explore the best-known practical uses of NFTs and how they can improve existing processes:

1. Management and voting rights

NFTs can also be used to represent governance and voting rights. This means that an NFT can be created as a digital token that gives the holder the right to vote on important decisions or proposals within a decentralized organization or community.

For example, an NFT can be used to represent a share of ownership in a blockchain-based project or a decentralized autonomous organization (DAO). Holders of these NFTs will have a say in important decisions, for example the allocation of resources or the direction of the project.

Example of a project from this use case: MetFi DAO – a decentralized independent organisation. When you buy a MetFi NFT, you buy a portion of the ownership interest in all of MetFi’s treasury investments. The Treasury surplus is distributed to all MetFi NFT holders on a daily basis in the form of newly minted MetFi (MFI) tokens. The amount of new MFI tokens you receive is determined by the NFT you have and the number of MFI tokens you have staked.

2. Membership and event tickets

NFTs can be used to represent membership or event tickets. This means that an NFT can be created as a digital certificate that gives access to exclusive events, services or benefits. For example, a private club can use NFTs as membership cards, giving full access to events and experiences. Similarly, an NFT can be used as a concert or sporting event ticket, allowing the holder to enter the venue and prove their attendance. NFTs can 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 a membership card for a music and art collective, providing access to exclusive events and benefits.

3. Physical products

NFTs can also be used to represent ownership of physical products. This means that an NFT can be used as a digital certificate of authenticity for a work of art or luxury goods. For example, an NFT can be issued for a limited edition watch or handbag, proving the authenticity and ownership of the physical product. This will also allow the product to be tracked and recorded on the blockchain, ensuring that 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 works of art, collectibles and luxury goods. They use NFTs to create digital certificates of authenticity associated with the physical product.

4. Loyalty Rewards

NFTs can also be used to represent loyalty rewards or points. This means that an NFT can be created as a digital token that can be earned by making purchases or engaging with a brand. These tokens can then be redeemed for discounts, exclusive offers or unique experiences. For example, a fashion brand could offer NFT-based loyalty rewards to regular shoppers, giving them access to exclusive sales or early access to new collections.

Example of a project from this use case: Refineable – a decentralized NFT marketplace that rewards users for holding their original token, $FINE, with exclusive NFTs, discounts and other benefits.

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 can be used to represent a VIP membership to a music artist’s fan club, providing access to exclusive content and experiences. NFTs can also be used to provide early access to new products, services or experiences, giving early adopters a unique advantage. Finally, NFTs could provide behind-the-scenes access to an artist or creator, allowing fans to see into the creative process.

Example of a project from this use case: NBA top shot – A platform that uses NFTs to represent collectibles 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 can send an NFT holder who has held an asset for a certain period of time to reward their loyalty. This encourages users to hold onto their NFTs as they can receive additional rewards over time. For example, an NFT holder may be airdropped in a rare collectible after holding the 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 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 to replace traditional cards and tickets with NFTs. In the future, health cards, loyalty cards and even season tickets may be replaced by NFTs, giving holders access to health services, discounts and events. This will also provide better tracking of ownership and more efficient distribution of benefits.

Also, businesses can use NFTs to drive sales and build customer loyalty. Instead of paper coupons or discount tokens, NFTs can be redeemed for discounts or freebies, making the process faster and more convenient for businesses and customers.

As we move towards the metaverse, NFTs can play an even more important role, providing access to exclusive virtual environments and games.

NFTs can also be used to protect the planet by providing a verifiable record of ownership and incentivizing sustainable practices. For example, NFTs can be used to track ownership of carbon credits or reward individuals for reducing their carbon footprint.

The possibilities of utility NFTs are limited only by our imaginations. 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.

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