Hype may have been a factor in the rise of NFTs, but the actual utility will be the catalyst for the mainstream adoption of the technology.
Nonfungible tokens (NFTs) have seen a stratospheric surge in popularity accompanied by sky-high values, giving rise to legitimate and ongoing worries about a market bubble, as many projects lacked real-world application or utility.
NFT utility is an essential component because it adds value and functionality to the technology. One of the most well-known use cases for NFTs is the ownership of digital art pieces like CryptoPunks. Play-to-earn (P2E) gaming is another use case that had massive popularity in 2021.
NFTs can assist firms in various sectors with their operations since, at their core, they contain evidence of ownership and proof of provenance. In addition, collections have access to a strong branding strategy that works in conjunction with their public image due to granting commercial rights to NFT owners for their assets.
However, the market needs additional use cases for NFT technology to reach mainstream adoption as it adds value and usefulness to NFTs, helping them to stand out among the crowded digital asset projects.
For example, picture-for-proof (PFP) projects may have driven huge NFT growth in 2021, but a lot of it was based on speculation by investors trying to make a profit. In addition, market leaders like the Bored Ape Yacht Club have actual utility, with each ape granting the owner access to events and copyright licenses to monetize their NFTs. Many copycat projects lacked any utility, apart from mimicking popular projects and promising vague “future developments” for holders.
Furthermore, brands that want to use NFTs need a solid strategy that spans their business model and industry for particular use cases. Unfortunately, many have entered the NFT market without a proper plan or vision, rushing on the hype train or cash grabs. As a result, NFT hype has led to confusion among investors and consumers alike.
Users want utility
However, as the market has matured, it seems like it is shifting toward a focus on utility, with investors becoming savvier and expecting additional use cases for their NFTs.
Kameshwaran Elangovan, co-founder and chief operations officer at NFT launchpad GuardianLink, told Cointelegraph:
“People have also grown beyond just thinking about speculative profit. They have started to think about long-term investments. The growing knowledge and awareness about NFTs have, in a lot of beneficial ways, helped the market and the offerings shift towards NFTs that have utilities rather than the ones that just represent a gimmick.”
Ted Mui, CEO at Chibi Clash — a P2E blockchain game — told Cointelegraph, “The market is going to shift towards a focus on utility because people are becoming more careful with how and where to spend their money. That’s why they say a bear market is for building. People will need more than the promise of good art to convince them and increase their confidence in investing their hard-earned money.” He continued:
“That’s where the utility will come into play and also be the reason NFTs are adopted into wider society. As it stands, owning digital art is still relatively foreign to most people, and at most, it’s a cool concept. The utility will allow the mainstream to attach a more tangible value to owning an NFT — this will ultimately be the catalyst for a more wide stream adoption.”
What are the use cases?
When it comes to real-world utility, digital ticketing is a promising use case for NFTs. NFT tickets are essentially digital assets that save a user’s credentials to provide them entrance to an event.
To make the experience of being a fan even more immersive, they can also provide ticket holders extra benefits, such as access to the backstage area, merchandise and other items. In addition, NFT tickets can potentially reward artists, event organizers and other stakeholders with recurring royalties, assisting in establishing a stronger link with fans.
When using NFT tickets, everyone can follow the transactions on a blockchain ledger, making it simpler to know when and where the ticket was purchased and sold. In addition, smart contracts can enable NFT tickets to hold a fixed price, preventing ticket scalpers from inflating prices on the secondary market. As a result, the NFT ticketing market is expected to be worth $68 billion by 2025 and presents a practical use case for NFT technology.
Organizers can put up a rule that will cause a royalty payment to be made if a ticket is transferred to a new owner. This will allow them to decide how royalties are distributed after secondary ticket sales.
Metaverse real estate has also gained traction as an NFT utility. On a metaverse platform, an area of digital land that users may own is called NFT virtual land. Because each NFT is one of a kind and it is simple to demonstrate digital ownership, they are well suited for use in representing land ownership. In addition, people can use NFT land for various purposes including working, socializing, gaming and promoting their businesses. The value of a plot is determined by factors such as its usefulness, rarity, the project it will host and market speculation.
Users can acquire NFT land directly from a project via a land sale or on the secondary market through an NFT exchange like OpenSea. However, before making a purchase, users should completely understand the potential risks and benefits of the virtual property and the project that will be built on it. Benefits include being able to build on the virtual land and rest spaces to other users. One of the risks of investing in virtual land is an investor losing money if the land’s value decreases over time.
Putting more of a focus on utility will bring about several positive changes, one of which is the potential resolution to the problem of investors seeking quick liquidity and immediate returns. While cryptocurrencies and NFTs will always appeal to those seeking to get wealthy quickly, utility encourages ownership over short-term flips.