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What is an NFT?
A non-fungible token (NFT) is a digital token of ownership that can be linked to any kind of asset, whether digital or physical. NFTs are stored on the blockchain, an immutable public ledger that records transactions and tracks the movement of cryptographic assets.
NFTs really came into the spotlight in the art world, where the first serious transactions took place. Digital artists were thrown crazy opportunities, with the art market taking off exponentially as many wanted to get their hands on their first NFT.
The non-fungible hype has only really been going for about a year, and we’re beginning to see how they’re fitting in with society as well as their potential use-cases. Rather than just a certificate of ownership, NFTs are now providing their holders with various other perks and benefits - and this is driving up their demand and price tag.
The Concept of Utility in NFTs
Utility defined is simply: “the state of being useful, profitable, or beneficial.” Linking utility to NFTs means giving them perks or making them useful. I like to think of utility in NFTs and making them worth keeping rather than selling. Keeping the NFT means you have access to the benefits while selling it passes over the perks to another buyer.
Utility can come in various forms. Whether it’s a canvas that comes with purchasing a piece of digital art or getting access to play a game through purchasing a character as an NFT, there are many forms of utility that can satisfy investors/collectors and incentivise them to keep hold of their token.
I like to see utility as a way of rewarding holders for buying into a project or NFT. Projects heads are becoming more and more creative with their ways of rewarding holders and incentivising holding, as well as tempting others to buy in.
1. Gaming
Perhaps the type of utility that makes the most sense in NFTs, is linking them to games. A new game may look to release an NFT collection to raise funds for building their game. This collection may come in the form of a few thousand heroes or characters, or even in-game items.
Those who bought into the collection or minted an NFT from the collection will likely gain benefits or perks linked to the game itself. These benefits could range from early game access, in-game bonuses, or perhaps token airdrops. Although these benefits may not be useful to some, many out there may find keen interest in the project and will be willing to pay considerable amounts to obtain these benefits.
A prime example of a gaming utility NFT collection would be The Remnants. A collection of 8000 'Remnants' which are characters that give you access to their game. The game entails sending your character out on looting missions, with the goal of bringing back in-game currency and useful in-game assets.
Each loot lasts around 5 hours long and when the loot is finished, players can claim their items/coins. These coins are $CMP and can be used to craft new items. They can also be used to purchase items from other players on an in-game P2P marketplace that is currently being built. Soon one will have the ability to trade $CMP on decentralised cryptocurrency exchanges, meaning they can acquire other cryptocurrencies for their effort in the game.
The key utility or perk of owning one of these NFTs is having access to the game and having the ability to earn in-game assets for your time and effort.
2. Return on Investment
Modern NFT collections provide holders with a return on their investment through the likes of staking or revenue share. Holders have the potential to earn passively through holding an NFT or staking it, enticing them to hold rather than sell. These returns may seem attractive to non-holders - driving the price of the collection.
Staking
If you’ve got involved in crypto or NFTs of any kind, you’ve come across the term ‘staking’. Staking involves locking up your asset on a project's platform in exchange for rewards. These rewards will generally come in the form of a cryptocurrency native to the project.
Staking is often questioned when it comes to longevity. How long can a cryptocurrency last within a project if it has no real value? Staking can last if there are key use-cases for the token given out. There needs to be some sort of demand for the token being given out to stakers.
Many projects these days rush to release a cryptocurrency that acts as a reward for staking. The aim of this is to motivate investors to buy into a project as they may see the potential to earn a form of passive income. These coins may do alright in favourable market conditions, but as soon as there’s any sort of drop in the markets — these newly made tokens are the first to fall - especially if their use-cases are limited.
However, if there is a long-term use case and demand for the native token as well as a product behind the project, there’s no reason why staking is not an effective mechanism for rewarding holders.
Revenue share
Another form of earning from your NFT would be through a revenue share model. Projects can share the revenue generated through their service with their stakeholders, or in this case, their NFT holders.
For example, if a project launches a service through the funds raised from an NFT collection, investors in the NFT may earn a portion of the revenue generated from that service. Again, these rewards will most likely come in the form of a native cryptocurrency.
3. Exclusive Access
One popular form of utility that some projects are looking at is providing exclusive access to their NFT holders. This exclusive access can come in the form of literally anything - whether it’s an event, a group chat, or even a music playlist.
A popular form of exclusive access NFTs would be a collection that gives one access and voting rights within a DAO.
A good example of this would be Adidas’ first NFT collection. They partnered with Bored Ape Yacht Club and released a collection on Ethereum. Holders of this NFT have exclusive access to specific merchandise drops from Adidas. As there are so many avid fans of Adidas, this collection sold out and minutes and there are very few of the NFTs listed on OpenSea - the secondary marketplace for Ethereum NFTs.
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4. Asset-Backed Utility
Many of us think that NFTs are limited as they are only associated with digital assets. This is not true and NFTs are now being used for physical assets such as property, or even a piece of luxurious jewelry. This form of utility is called asset-backed utility - meaning there is a physical asset pegged to the NFT.
Every asset can be tokenised - the process of taking assets that sit outside a blockchain and putting them onto one. These assets are now registered on an immutable, distributed ledger - making them easy to track and verify. It's incredibly exciting to think that we can tokenise literally any asset, and it's something we're going to start seeing more and more often.
5. Environmental Impact
One of the ongoing concerns with NFTs and blockchain technology as a whole is the environmental impact that they bring. The process of minting NFTs can be energy-intensive - thus impacting our carbon footprint. There are however more environmentally friendly ways to mint NFTs, such as using a proof-of-stake blockchain.
Some NFTs are now being used to enhance our carbon footprint. These come in the form of carbon offset NFTs and they’re quickly becoming popular methods for everyone to offset their carbon emissions produced through travel, or even bidding transactions online.
The companies behind these carbon offset NFTs will either engage in carbon removal through actions like forestation, or carbon offsetting such as supporting renewable energy sources. By buying NFTs like these, you’re helping reduce your carbon footprint and supporting great schemes that are looking to make a positive impact on our environment. There is also proof of your impact made through owning these NFTs - perfect for businesses trying to expose their efforts in reducing their own carbon footprint.
Wrapping Up
As you can see, NFTs are making their way into all kinds of industries and can have many kinds of utility. This utility can be profitable on an investment, it can have real-value assets behind it, or it may involve doing good for the environment or a charitable foundation. NFTs provide the proof that you're part of a project or movement, giving you access to everything that a project may entail.
Momint aims to be a marketplace where one can invest in projects that offer all kinds of real-world utility.
