What are Utility NFTs?

Despite being unique non-fungible tokens (NFTs) may face criticism for their limited real-world utility. 

However, the emergence of utility NFTs may change that perception. These digital assets come with tangible rewards and practical applications, making them attractive to potential NFT adopters, especially the younger generation.

What are Utility NFTs?

Although the concept of NFTs is not entirely new, the emergence of utility NFTs has added a new dimension to this digital asset class. Utility NFTs are digital assets that are designed to have real-world applications and tangible rewards. Unlike traditional NFTs that are primarily collectibles, utility NFTs are functional and provide a practical use case beyond their inherent rarity and uniqueness.

At its core, utility NFTs are a type of smart contract that enables developers to embed additional functionality into NFTs beyond their basic ownership attributes. This added functionality can range from access to exclusive content or events to unlocking specific features in a game or application. The possibilities are endless, and developers are only beginning to scratch the surface of what is possible with utility NFTs.

One of the most significant advantages of utility NFTs is that they offer a direct and tangible benefit to the holder beyond just owning a rare digital asset. They provide a way to create more engaging and interactive experiences for users and incentivize them to participate actively in various communities.

For example, a music artist could use a utility NFT to give their fans exclusive access to backstage passes, VIP events, or even a private concert. Gamers could use a utility NFT to unlock rare items or skins in a game, providing a competitive edge and a unique visual experience.

Adding Utility to Non Fungible Tokens: A Case Study

While many are curious about how to add utility to standard NFTs, the approach is more about reforming the application of technology than changing the technology itself.

A great example of utility NFTs comes from the music industry, where Kings of Leon released their album as an NFT collection in March 2021. The band used conventional platforms like iTunes and Spotify but also offered different utility NFT variants in the album. For instance, one NFT featured digital artwork and a digital music download option, which owners could redeem for a limited edition vinyl copy. Another NFT variant provided top seats at Kings of Leon concerts and shows. The NFT music album release generated around $2 million in sales.

This example of adding utility to NFTs reinvented the way buyers discovered value in non-fungible tokens. Instead of just owning a digital album, music enthusiasts could redeem the NFTs for real-life vinyl record copies of the album or get exclusive rewards like the best seats at shows. The Kings of Leon music album release as a series of NFTs presents a compelling case for utility non-fungible tokens.

Adding utility to NFTs doesn't require creating a separate NFT with new and advanced technology. Rather, it involves embedding additional functionality into existing NFTs to offer a direct and tangible benefit to the holder beyond owning a rare digital asset.

Applications of Utility NFTs

Let`s explore some of the exciting applications of utility NFTs across various industries.

• Gaming - Gaming is one of the most promising areas for utility NFTs. In-game items such as weapons, skins, and characters can be turned into NFTs, allowing players to own them and trade them with other players. In addition, utility NFTs can offer other benefits, such as access to exclusive content, early access to game releases, and even voting rights on game development decisions.
• Real Estate - Real estate is another industry where utility NFTs can be applied. They can represent ownership of physical properties, making it easier to transfer ownership and sell shares. Utility NFTs can also represent virtual properties in metaverses and virtual worlds, allowing owners to decorate and customize them.
• Music - As we discussed in the previous chapter, the music industry has already embraced utility NFTs. They can represent ownership of albums, access to exclusive content, and even concert tickets. Utility NFTs can also be used to track and monetize royalties for artists, ensuring that they receive a fair share of revenue from their music.
• Sports - Sports memorabilia is another area where utility NFTs can be applied. They can represent ownership of jerseys, game-used equipment, and other collectibles. In addition, utility NFTs can provide exclusive access to events, meet-and-greets with athletes, and even voting rights on team decisions.
• Finance - Utility NFTs can also have applications in the finance industry. They can represent ownership of assets such as stocks, bonds, and commodities, making it easier to transfer ownership and trade them. In addition, utility NFTs can offer other benefits such as access to exclusive financial services, voting rights on company decisions, and even dividends.

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