NFT #6 – Utility NFTs: the new frontier of crypto art?

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Since the beginning of the NFT era, it was clear that the blockchain technology was keen to rapid evolutions and several new applications were introduced as this new modality of making, collecting, and displaying art is increasingly used in many different environments.

The latest opportunity for the art world is the application of utility tokens with NFTs: non-fungible-utility-tokens could represent a new way to develop relationships and engage audience in the art world for digital and crypto artists, as well as for galleries and institutions interested in exploiting a new way to collect funds and offer services and products in the most innovative way on the market.

White Rabbit Utility NFT

But let’s take it fromthe basics: what is a utility token?

The blockchain technology has produced three types of tokens, that have different features and applications, these are:

1.     Security tokens (basically conventional securities such as shares, bonds, and investment fund units embodied in acrypto token).

2.    Non-fungible or collectible tokens, in other words, NFTs.

3.    Utility tokens.

If you’re reading this blog, you probably already know what NFTs are, so let’s focus on the third typology.

Utility tokens are digital tokens of crypto currency issued to fund the development of a cryptocurrency, that can be later used to purchase goods or services offered by the issuer of the crypto currency.

In other words, they are tokens that are issued for funding purposes and that in exchange to their purchase offer to the buyer some physical or digital benefits. We can thinkabout these as casino chip or vouchers. They are not unique, and they can be exchanged with any other utility token issued by the same company. Another use of these tokens is as loyalty points and are widely used as a compensation and motivation system in decentralized companies.

Crazy Skulls Utility NFT project

Having cleared out what utility means in the blockchain, let’s now add the NFTs into the equation:  

Normal NFTs are generally unique or limited series digital artworks that cannot be replaced, and when we talk about NFT utility tokens, we are introducing the non-fungibility feature.

NFT Utilities retain the uniqueness characteristics typical of traditional NFTs, but also associate practical applications typical of the utility tokens, meaning that NFT Utilities are Non-Fungible Tokens (NFT) that not only have artistic purposes, but also a utility, i.e., extra features.

These extra features, or more precisely practical features, allow the owners of such tokens to receive back from their purchases a specific, non-interchangeable service or product.

Traditional NFTs, to be more specific, already have some characteristics of “utility”, as with the use of smart contracts, into each NFTs, the author has the possibility to embed particular characteristics (from authorship certificates to fees or revenues for every secondary sale).

However, speaking of utility NFTs we are talking about more complex features, often related with the physical world, personalized experiences, or other products. According to the functionalities developed so far, utility NFTs can be divided in three macro categories:

  1. AccessibilityNFTs – This category includes Community NFTs, which are used to manage access to exclusive online or offline experiences.
    Some examples can be celebrity events, premium content and brand decision voting.
  2. Gamified NFTs– these utility NFTs are related to the gaming environment, specifically this category includes: Fantasy NFTs; Gambling NFTs and In-game NFTs.
  3. Engagement NFTs - Social NFTs are artistic NFTs (images and gifs) that can be used within communities to identify individuals or as a communication and interaction tools between users.

Block of blocks, Emin Mathers, 2021

As any newborn technology, utility NFTs have limitations:

The main limitation for this new application of the blockchain technology is once again the lack of regulations and laws that can protect users against piracy. Nevertheless, it seems to be more a matter of time rather than a practical impediment; in fact, since their first appearance on the artistic scene, regulations behind the use and application of NFTs have become clearer and clearer.

It is indeed quite natural to expect an evolution in the same direction for what concerns utility NFTs.

A new world, Damiano Fasso, 2022

The opportunities for the art system:

The art system has always been heavily relational, and this kind of NFTs will give all the creatives andtheir audiences the possibility to leverage on cryptos to create networks and relationships free from intermediations of third parties. Wrapping up how this could be the next level for the art systems, here are few opportunities of utility NFTs:

  • Since utilityNFTs are registered in the blockchain, they allow artists to monitor who theirmost affectionate collectors and followers are.
  • Collectors, onthe other hand, can keep a decentralized portfolio of their purchases and maybegain benefits or exclusive services for their loyalty.
  • Emergingartists and players in the art market can use this kind of NFT to fund their work,issuing a series of utility NFTs from which the buyers will have a benefit in asecond time.
  • Utility NFTs could create relationships and networksbased purely on the support of followers towards artists.

This new feature and application of NFTs is exciting and we will probably hear a lot about it in the future. In the meantime, as we wait for the newt revolution to come towards us, let’s all keep an eye on our crypto wallet … because the NFT investment oftoday may result in the access to exclusive events and projects in the future!

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Written by
Alice Asia Bergagnin