Let's be honest - the current state of NFTs is rather rudimentary. In my eyes, most people that are currently in the NFT space are in it for the money.
They think that they can buy a generated art piece of some funny looking animal for $250 and sell it for $1,000. And in the current market that's totally plausible. But in my eyes, trading is not the behavior thats going to take NFTs mainstream.
Before diving into what I think will take NFTs mainstream, it's important to understand what an NFT really is. Spoiler: most people misunderstand them.
What is an NFT, really?
Before getting into the potential NFT use cases outside of trading, it's important to understand what an NFT really is, and what it is not.
An NFT is not a piece of art.
An NFT is a verifiable piece of code that exists on the blockchain.
Most images that you see shared around as NFTs on social media are actually not part of the NFTs code (also known as a token). The art itself, meaning the jpeg file, does not even exist on the blockchain in most cases! The token, which is what makes the asset uniquely identifiable on the blockchain, simply links to a website that is hosting the image file.
What's the problem with this? Well if the website that's hosting the image file of your NFT goes offline, then the art associated with your NFT also goes offline.
You own the token, not the art (in most cases).
Is this really so bad?
Not necessarily, no. Big NFT projects aren't going to all of a sudden remove their image files from the internet. Big projects also usually have utility beyond the art itself.
But for most small NFT projects that flatline after a few months, potentially yes.
As Jonty Wareing, author of a great twitter thread about this topic said, "It is likely that every NFT sold so far will be broken within a decade."
Will NFTs hold their value over time?
Most of the current ones, no. This is obviously my opinion, but its a shared opinion across some of the leading minds in this space.
99% of NFT’s won’t be good investments and there will be some massive crashes in the next 12 to 24 months .. many will get confused and think it was a fad.. that’s when it gets really good .. this will be an interesting decade ... oh and that 1% will be all-time returns
— Gary Vaynerchuk (@garyvee) February 28, 2021
I see the current NFT market landscape as a gold rush. Seemingly everybody's rushing to buy and flip their fancy blockchain assets for a profit, and this is exactly how a lot of people will get burned.
Don't get me wrong - I love NFTs and own many, even in their current state, but that doesn't stop me from saying I think many of them will go to 0 overtime.
What can NFTs be used for outside of digital art?
Now we get into the exciting part. As I've explained, NFTs are technologically-proven to be unique assets which exist as virtually indestructible code that lives on the blockchain.
This means that NFTs are a a great way to prove ownership of basically anything. Some of the first use cases that come to mind are:
- Tickets to an event
- Equity in a company
- Loyalty status to brands
- Part ownership of a song
- Virtual assets in a video game
- Exclusive membership to a club
- Digital wearables for the metaverse
- Exclusive merchandise for VIP customers
The example that I use to explain the future of NFTs to friends is concert tickets.
Why NFTs should be used as tickets to live events
Imagine the current process of buying a ticket for a concert from your favorite band. You buy the ticket, use it to get into the event, then it loses 100% of its value. The lifespan of that ticket is just 1 day.
But what if:
- the band wants to create a community chat of everybody who attended the event?
- they want to reward fans who have been to 5+ concerts?
- they want to do a giveaway amongst the people who attended a certain concert?
- they want to give everybody at the concert a digital collectible that represents they attended a special event?
With NFTs, that is all made easier while also not locking operations down to a single platform. You can imagine how this might work without NFTs — a startup appears that wants to facilitate conversations between fans and artists. A few bands sign up for the platform and start onboarding their fans, then the startup goes out of business. What now? The band has to start over from scratch.
NFTs abstract ownership in a decentralized way — they are not controlled by any company, but rather companies can use them to provide functionality.
So using the same example — if a messaging startup goes out of business, the NFTs don't leave the fans possession, and can easily be brought over to any other messaging app that the band decides to use. This portability is part of what makes NFTs so powerful.
What does this actually look like?
A band can create and list a set of NFTs for sale, and their fans can buy them as tickets. If a fan realizes they can no longer make it to the event, they can sell their ticket on a secondary marketplace. Heading to the event, attendees can verify their NFT ownership as a way to get into the venue. Up to this point, its the same process as a traditional online ticket.
After the event, ticket holders are invited to join a token-gated community. This means that only people who own that NFT are able to join the group.
Also, people who own 5+ tickets get access to another, even more exclusive chat with VIP fans. This is where you'll be able to interact with the band themselves most easily.
It's important to realize here that since these tickets are NFTs, they're also tradeable at any point. So if I want to get the benefits of a VIP fan but have only been to once concert, I'll have to buy 4 more of the ticket NFTs on the secondary market. And when you think about it, secondary market sales are good for all parties.
NFTs usually have royalties, meaning if I buy an NFT for $100 from the band and then sell it to a friend for $200, the band gets a percentage of that $200. This incentivizes the band to reward their fans, because it promotes secondary sales which makes them money. This is also good for fans, because they have an opportunity to sell their tickets after a concert if they'd rather recoup some of their ticket cost rather than get exclusive long-term benefits.
Happy band, happy fan, happy collector.
Beyond exclusive communities, bands could also create limited edition physical merchandise that only VIP fans can purchase like many NFT projects have done. The opportunities are endless once there's a reliable way to authenticate digital ownership of something.
Tools used to create a token-gated community
NFT Tickets with POAP
POAP, or Proof of Attendance Protocol, makes it easy for any brand or individual to create NFT tickets to an event, or create redeemable tokens as a sort of collectible form a given event. As they define it, POAP s an open-source project that "enables a new way of keeping long-lasting records of life experiences".
The largest brand to adopt POAP as of the time of writing is Adidas with their adidas Originals: our future started here event. These tickets are currently selling on the secondary marketplace for ~$3500 USD even though there is no immediate use case.
"This digital collectible is our way of rewarding you for following your curiosity....this token proves you were here from the beginning of this journey. Keep it safe — it may come in handy."
It's become very clear that Adidas is heavily investing in this space, so people feel as if this ticket may be valuable in the future.
Token gating a Discord community
As you might have read in my post "How to Get More Involved in the Crypto and NFT Community", NFT communities operate largely on Discord. If you don't know how Discord works, each community has its own server. And within a server there are channels. Each channel can have different permissions, meaning each channel can be gated in a different way.
The way most NFT projects utilize Discord is there will be some channels that are open to everyone - you don't need to own anything in order to participate in the conversation. Alongside those, some channels will be for NFT owners only. So you must own an NFT from a specific collection in order to see that channel.
There are multiple tools that allow token gating in Discord. The most popular amongst NFT projects is Collab.Land, but it's important to reiterate that anybody can go and build a similar product without having to get permission from a company. Collab.Land doesn't own or control the NFTs, they just create tools that add functionality to already existing NFTs.
Discord alternatives for token-gated chats
Ourspaces.xyz is one of the easiest ways I've seen to create a token-gated group chat. You simply enter the contract address for the NFT, enter how many the person must own, and press create!
Another great option is nfty chat.
Wrapping up
Hopefully now you have a better idea of what NFTs can be used for beyond just trading drawings of funny animals, and how that might actually look in practice.
If you want to dip your toes into the world of NFTs, I suggest reading How to Get Started with NFTs and Web3.
Have any questions or want to jam on ideas? Feel free to send me message on Twitter.
