Utility isn’t enough; NFTs need a playground too
Non-fungible tokens continue to sweep across the world of Web3, flooding marketplaces like OpenSea with new collections emerging almost every day. As the NFT craze accelerates, it’s necessary to consider the real potential of these digital assets, and it all centers on the concept of “utility”.
Throughout the “crypto winter” that began in January 2022, the value of NFTs has suffered. Transaction volumes plummeted from the heady heights of the previous year when multi-million dollar NFT sales were hitting the headlines almost every day. The trade in NFTs fell from a high of $17 billion in January 2022 to just $46 million in September of that same year, representing a drop of 97%.
Part of the reason for these declines is the significant challenges faced by the NFT industry, such as the potential for scams, the lack of regulation, and the fact that blockchain infrastructure is not standardized. NFTs suffer from scalability issues, too, as we saw during the minting of the Stoner Cats NFTs when users lost more than $700,000 in collective ETH gas fees.
With NFTs facing so many challenges, there’s a clear and urgent need for digital assets to provide additional benefits to users. People need tangible reasons to want to buy and sell NFTs, and that’s where the utility will come into play.
Utility will overcome
Utility NFTs are digital assets that have real-life use cases or benefits. They will be incredibly important in the ongoing adoption of digital assets, providing holders with greater functionality and interactive experiences. Unlike traditional NFTs, which are digital works of art, utility NFTs offer users something besides simple, certified ownership of some pixels. They provide advantages in real life that non-NFT holders cannot access.
Utility NFTs can be considered a digital key that unlocks access to some benefit, such as a virtual world, video game, mobile application, a real-world event or party, digital accessory, asset ownership, or something else. By tying these kinds of benefits to NFTs, digital assets can take engagement to a new level, increasing their value to users. The utility will be the magic that pushes NFTs toward mass adoption.
There are many novel use cases for utility NFTs. The Doodles NFT collection, for instance, gives holders the right to create customized wearables for their Doodles avatars.
Just Doop’d My Doodle ❤️🔥
2x of each wearable with that Common Doop. Bullish on expanding the #Web3 ecosystem with a low barrier to entry …
It’s #Doodles 🌎 & Beta Pass is the alpha pic.twitter.com/y3Rl1IwoIo
— .JUICE (@juicemandood) February 1, 2023
Meanwhile, the Bored Ape Yacht Club is an exclusive community that provides the rights to access members-only online experiences, limited edition merchandise, and star-studded parties in the real world. Even the sportswear brand Adidas has embraced the idea of utility NFTs, with a collection that brings access to a range of unique, physical products such as hoodie with their blockchain address emblazoned on it.
These are just some of the earliest examples of utility NFTs, but their potential goes beyond creating new engagement forms. Utility NFTs can represent ownership of almost any kind of physical asset or real-world experience.
Dynamic NFTs boost utility
The best kind of utility NFTs may well prove to be a new generation of so-called “dynamic NFTs”, which can evolve over time in response to external parameters or events, such as changes in the weather, financial market movements, the results of a football match, or something else.
We can understand how dynamic NFTs work through a couple of examples. Imagine an NFT sports card collection, each token representing a different player. That NFT would list the player’s stats, such as his speed, strength, agility, goals scored, assists, transfer value, and so on. As the season progresses, the NFT’s metadata can update itself to change these stats.
So if a player hits a hot streak and scores in eight successive games, his goal count will increase, and the NFT may gain value. An alternative example might be in real estate, where an NFT represents house ownership. In this case, the dynamic NFT can update itself in response to any changes that might occur to the property, such as if maintenance work is carried out, an extension is built, or if it’s sold to someone else.
At this point, we can begin to understand the incredible potential of dynamic, utility NFTs and their possible place in the world, but what will it take for that to happen?
How will utility NFTs take off?
Technology is already a thing, but the challenges mentioned above, especially the lack of standardization, are a big roadblock in the way of mass adoption. Existing NFTs are spread across multiple blockchain ecosystems. They cannot easily be transferred between one or the other, and a lack of understanding about how these underlying infrastructure works will surely create confusion.
What’s required is the creation of a standard environment for NFTs to exist, and this is where Peer thinks it can play a role. Peer is getting ready to launch a web3 social app that it believes will bring utility for NFTs to the next level. It’s creating a global augmented reality-based app that will, essentially, layer a social network onto the real world.
With Peer, users will have the ability to drop digital assets in real-world locations. Others can then travel to those places in person and mint those NFTs to gain real-world benefits. It’s an app that encourages people to get out into the real world, explore and gain significant advantages from the NFTs they discover.
As Peer explains, while utility NFTs are already viable, no one has outlined a proper vision around how the technology can impact our everyday lives. Peer wants to change that by becoming a global playground where everyone can interact with and exchange digital assets.
Once we have the proper environment for utility NFTs in place, it’s likely that they will quickly demonstrate their true value. Utility NFTs will create new, decentralized communities where members will work together to develop those assets and the advantages they bring, resulting in more benefits for all. Not only will we see more resilient and sustainable forms of ownership, but also a greater sense of shared responsibility.
In summary, the future of NFTs will be centered on real-life use cases and applications that people desperately want and are willing to pay for. Once the questions around utility and accessibility are solved, everyone will recognize the inherent value of NFTs.