Non-fungible tokens (NFTs) aren’t a new invention. They’ve been around in one capacity or another for a couple of years now. But they’re really getting popular now because of mainstream news outlets and investors on social media.
We’ve talked about some of the problems of NFTs before, but recently, there’s kind of been a shift in the way we think about NFTs.
A lot of the popular collections that have made press in mainstream media are purely artistic collectibles. They have no inherent value or purpose other than being a digital asset with a prescribed value.
When compared with cryptocurrency in general, these collectible NFTs serve far less function than a lot of people realize.
With Ethereum, you can purchase goods and services from online vendors (and some in-person places, too), hold onto it as an investment, or stake your ETH for interest.
With a collectible NFT, like a Bored Ape, you’re pretty much just holding onto it as a clout item or trying to flip it for profit. There’s not much else you can do with it.
That’s where many creators and crypto enthusiasts get caught up. Outside of the hype for these projects, what do they have to offer? And that’s where utility NFTs come into play.
Understanding NFT Utility
Where collectible NFTs have real no function other than being a novelty used by flippers to make a profit, utility NFTs come with some kind of inherent value or use outside of simply turning it around for a quick buck.
As a hypothetical explanation, let’s say you have a video game that relies heavily on weapon selection over real skill. The better gear you have, the better you are at the game.
We talked about how Counterstrike skins are like NFTs in the last blog, but they fall into the collectible NFT section. Other than adding cosmetic value, they don’t do anything else.
A utility NFT for a video game would be something you buy that has a use in-game that’s non-cosmetic. It could be a sword with reduced weight for faster swings, or a gun that has a higher rate of fire and more accuracy. These elements are what make the NFT useful, and that’s why people will buy them. Not only can they still look cool as a collectible item, there’s a functional purpose for owning them.
Additionally, some utility NFTs today provide more than just a digital asset. Some of them, like Jigen, provide an article of digital clothing for the Metaverse, as well as a physical edition of the clothing. You’re buying the NFT, but receiving both a digital and physical asset.
Why Adding Utility Solves Some NFT Problems
A lot of people that are serious about the NFT community always complain about the pump-and-dump schemes. Creators will hype up a project, profit off sales, and disappear, leaving buyers questioning the whole purpose of the project in the first place. The same goes for crypto tokens that started popping up after Dogecoin and Shiba Inu took the Internet by storm.
Utility NFTs solve this problem by providing users with a value other than an investment opportunity. With collectible NFTs, your use for them is controlled solely by market factors, much like a stock or other investment.
But with Utility NFTs, chances are you bought it for its functional purpose, and aren’t as concerned with the monetary potential in flipping it. This, overall, levels out the concerns a lot of people have with the NFT market.
Are we in a bubble right now? Will NFTs faze out in a few years when the novelty wears off? Maybe, but with an inherent use that gives value to users, NFTs will be a lot harder to rule out as a viable method of transferring goods and services.
Applications for Utility NFTs (In a Sci Fi Sense)
You might be wondering how many NFT projects actually have applications for the sci fi enthusiast, and it’s a reasonable question.
In a world that’s looking wackier and more dystopian every day, some utility NFTs can seem like they’re breaching privacy, weakening economic structures, and pulling the wool over the eyes of buyers.
Here are some examples of how utility NFTs are changing the digital landscape for good:
Nebula Genomics – This company is using blockchain technology to provide complete genome sequencing for people across the world. Where their counterparts collect and store DNA data—doing who knows what with it—Nebula Genomics makes their process 100% anonymous with a “blockchain-enabled multiparty access control system”. And, they’ve even shown they have the capability to turn complete genome sequences into NFTs, with their auction of Professor George Church’s genome data as an NFT.
Molcule.to – Where Nebula Genomics provides a service to the general public, Molecule is dedicated to provide top-tier research to medical and scientific professionals. On their website, Molecule states that it specializes in “funding, collaborating and transacting early-stage biopharma research projects”. Molecule allows researchers to connect with investors who will receive NFT data, and it facilitates the transfer of research between professionals in a decentralized marketplace.
Snapshot – Snapshot provides a secure, tested location for blockchain project owners to engage with their communities. Snapshot employs a gasless, blockchain-backed voting system, where members in the community have clear access to poll statistics about the future of their backed projects. This service assures full transparency for community-driven projects.
The Future of Utility NFTs is Bright
While there the market is still rampant with collections and projects that don’t have a clear end goal in mind, the NFT world is starting to develop a coherent purpose.
While not all NFT art collections are bad—like this street-art preservation project—utility NFTs are opening up the community for more scientific and purposeful projects.
Who knows, maybe in the future we’ll see NFTs change digital reading, online subscriptions, and other high-traffic industries.
For now, it’s safe to say that projects that exchange collectability for utility are bound to see more success than those purely invested in the novelty of the format.