Interest in NFTs, at least by one key metric, has plummeted over the past 12 months.
Search interest, per Google Trends, recently had dropped by a full 83% on a year-over-year basis. Despite the drop off on what had been a verifiable digital collectibles hype cycle, big brands have been continuing to enter the industry.
Here are the highlights:
- 86 companies initiated NFT/Web3 projects in Q1 2023 (only 4 less from the previous year), according to a new report by NFT Tech. It found brands are primarily choosing NFTs for their digital asset adoption efforts — as opposed to other crypto sectors.
- The floor price of Starbucks inaugural NFT collection, Sirens, is up 400% since its March launch.
- There are at least nine NFT use cases and 19 types of digital collectibles finding real adoption from brands and media companies.
The NFT phenomenon has lured its share of dismissive jabs.
But cynicism for cynicism’s sake risks eclipsing all of the progress made on NFT use cases demonstrating tangible, real-world utility. Evidence through this point indicates the technology extends beyond the purview of gamblers and into the domain of professionally minded people.
Before considering the latest in NFT types — and associated emerging use cases — definitions are in order.
Table of contents:
NFTs 101: Back to basics
You can use buzzwords to explain NFTs. Take “unique identifier” or “decentralized ledger.” Or…
And you get.. An abstract-sounding word salad that begs the same question: “Wait, what are we talking about, again?”
So, what is an NFT?
An NFT, or (non-fungible token) in simple terms is a one-of-a-kind digital record that verifies ownership. Non-fungible means it can’t be recorded (on a blockchain) again or counterfeited. But unlike traditional record keeping systems, an NFT doesn’t rely on, or even need, to be certified by a third party.
Call it getting a car title without ever having to stop by the DMV.
How does it work?
To avoid another technical salad, in short: NFT creation and authentication both rely on underlying blockchain technology.
There are various protocol standards, but essentially, each NFT on the blockchain is created with a unique identifier (token ID) and metadata (token URI).
The metadata serves as a “digital file” that contains characteristics that define a given NFT. Its contents are often stored off-chain — encompassing the likes of art and gaming assets, as well as government documents and airline tickets.
What gives NFTs meaning?
Anyone can create a database with non-repeating identifiers.
However, that list is only meaningful to the person managing it.
When identifiers are recorded on a blockchain utilized and maintained by millions, rarity multiplies exponentially. The network acknowledges the uniqueness of individual NFTs, while it simultaneously certifies their non-fungible authenticity – giving them meaning to the world.
I can still right-click and save, though, so…
Does it matter, though?
Considering NFTs are all about proving authorship and ownership, access to their data file matters less.
While it’s possible for anyone to screenshot an NFT, the counterfeiter cannot use their illicit copy to take credit for its creation or assert that they own the asset.
What about the people who make NFTs from other people’s work? Isn’t that plagiarism?
Some attempt to mint NFTs that rely on the work of others — often encroaching on intellectual property ownership in the process — but typically, NFT collections and projects don’t claim to enforce copyright law.
Doing so would be especially complicated to enforce across multiple jurisdictions, considering NFTs trade globally on a number of exchanges.
The root value of NFTs resides in their ability to digitally simulate scarcity, instead of pulling it from the outside world.
Though there are many attempts to sell NFTs of the Mona Lisa, the projects that get significant attention are connected to verifiable collections such as Cryptopunks or artists like Beeple.
What are NFTs used for?
NFTs’ ability to authenticate authorship and ownership initially paved the way for securely creating and trading non-fungible assets.
Perhaps unintentionally, that initial innovation went on to unlock a diverse range of use cases, including digital rewards, gated access, identity verification and exclusive experiences.
NFTs have come a long way in a relatively short time.
The first notable experiment: the creation of Colored Coins on Bitcoin back in 2012.
In 2017, the Ethereum community introduced ERC-721, a token standard specifically designed for NFTs, setting the stage for a growing number of applications.
Upstart CryptoKitties, a digital collectible game, went on to gain popularity in short order, showcasing NFT potential in gaming early on.
ERC-1155 then emerged in 2018, designed as a token standard that combined the features of both ERC-20 (fungible tokens) and ERC-721. It allowed developers to create and manage multiple NFT types within a single smart contract.
Under that context, here’s an overview of where NFTs stand now:
Static NFTs are unchanging digital tokens that maintain the same metadata and content. Like a vintage Polaroid, their appeal lies in capturing, then preserving, a moment in time. It’s a classification often used in art NFTs. And it’s also known for being used to track permanent data storage like identification documents.
Dynamic NFTs (DNFTS)
The properties and metadata of dynamic NFTs — as the nomenclature implies — change over time. These adaptable tokens support interactive experiences and evolve with interactions, making them a versatile option for NFT gaming.
These tokens often rely on Chain Link oracles to feed off-chain data like weather patterns, market prices and user input.
Soulbound tokens (SBT)
Soulbound tokens are NFTs permanently bound to a specific user account.
The tokens are non-transferable and non-sellable, making for a unique digital asset that stays with one account address. They’re often used to identify and credential applications, sometimes introducing security concerns in the process.
For example, if they’re relied on to provide credentials, dishonest actors can share them by sharing their account.
Executable NFTs (xNFTs)
Executable NFTs stand out with built-in code or smart contract capabilities.
These tokens can interact with other NFTs and smart contracts, adding an extra layer of utility and complexity that unlocks a myriad of possibilities and use cases.
Rise in NFT use cases
Advances in NFT technology have produced an exciting arena of use cases.
Some of the most popular include the fashion and sports industry. The latest brands highlighted by NFT Tech listed sports as the industry with the most NFT integrations in 2022 — and retail as the most in 2023.
NFT types and use cases across domains can be divided into four general categories: digital rewards, gated access, digital identity and unique experiences.
Each has produced multiple types of NFTs that can be hard to track. Here’s a breakdown.
Gated access has become an NFT hot topic, thanks to innovative profile picture (PFP) NFT projects like Bored Ape Yacht Club.
By utilizing static or dynamic NFTs as digital passports, gated access NFTs grant holders entry to exclusive spaces.
NFT ticketing offers a unique access to events or services, ranging from physical to virtual.
What sets it apart is the improved record-keeping and creative ways to engage ticket holders. NFT tickets enable seamless transfers, enforce reselling terms — and even serve as loan collateral.
- Concert and event NFT tickets: In October 2022, YellowHeart launched an NFT ticketing platform for artists and event holders. The platform aims to combat scalping and fraudulent ticket sales by leveraging blockchain technology, ensuring each ticket is valid and not duplicated. Its smart tickets can program a cut of proceeds from a secondary sale to go back to the artist.
- Airline tickets NFTs: Tech startup TravelX recently said it would help an Argentinian airline offer NFT tickets to its customers. The idea is to streamline the booking process, reduce the risk of fraud, and eliminate intermediaries like travel agents.
NFT memberships differ from ticketing by offering continuous access to exclusive clubs or social media groups. They foster a sense of belonging — and can even grant holders special perks or voting rights.
- Art community NFTs: There are a wide variety of NFTs that grant access to community clubs on Discord and other web3 channels. One NFT project, Rug Radio, uses an elaborate NFT and tokenomic model to grant access to its decentralized content production process. Branded a decentralized media platform, a more accurate description would be a decentralized production studio — because their platform or website doesn’t host any content. Instead, shows are hosted on Twitter Spaces. Rug NFT membership pass holders are granted permission to mint Genesis NFTs that distribute an inflationary crypto token, RUG, which can be used to purchase RUGDAO NFTs. These DAO NFTs give holders voting rights, as well as input on content production and treasury matters.
- Social Media Group NFTs: In February 2023, the Niche protocol launched its decentralized social media platform. Users can mint membership pass NFTs that grant access to exclusive social groups — similar to Discord. The tokenization grants creators full ownership of their content and channel curation. Its NFTs are minted on the NEAR (NEAR) protocol and do not impose gas fees.
Customer engagement NFT use cases focus on building long-term relationships with consumers by offering unique experiences through things like governance rights. It contributes to brand loyalty — but engagement is really its end game.
- Creative brand governance NFTs: In May 2023, Sol3mate, a Web3-native sneaker brand launched its first collection. Each NFT functions as a ticket that grants perks for different tiers of ticket holders/minters. What makes Sol3mate unique? In addition to granting holders perks like rare sneaker giveaways, they also grant their highest tier the ability to contribute to branding decisions. There are 10,000 total with a mint price of 0.3 ETH.
- Creative media engagement NFTs: Krapopolis, a new animated series from the creators of Rick and Morty, launched an NFT collection that functions as fan passes. The collection gives fans the ability to vote on scene elements and show directions, in addition to granting them early access to content. The passes also generate soulbound tokens, KRAPEGGS, every 24 hours. The project has generated $764,238 in revenue from secondary sales.
Digital rewards is an NFT category that encompasses various tokenized ownership and customer loyalty use cases. NFTs here serve as both digital assets with innate value and incentives, encouraging brand loyalty and interaction.
Tokenized ownership involves using NFTs to represent digital or physical goods, granting the holder ownership rights. The use case branches off from customer loyalty, as it focuses on the ownership and value of the assets. The fundamental value of owning digital goods lies in their uniqueness, rarity and verifiable ownership.
- Collectible NFTs: Digital art, such as the Australian Open NFTs, showcases collectible moments from the tennis tournament. The AO’s metaverse launch features a dynamic NFT art collection linked to live match data, allowing fans to own a piece of history. Collectible NFTs can also represent music albums or videos. KINGSHIP is a music NFT project that offers unique audio experiences from a group of Bored Ape collectors. Glass is a video NFT platform that enables creators to tokenize their video content.
- Phygital NFTs: Phygital goods blend physical and digital worlds, using NFTs to track and showcase the ownership of physical items. Americana, for instance, leverages phygital NFTs to authenticate and manage ownership of physical art pieces. In another example, Johnnie Walker created exclusive Blue Label Whisky NFTs to represent their physical products. These NFTs add a layer of digital value to the tangible goods.
The customer loyalty NFT use case focuses on building and enhancing brand loyalty by rewarding customers with unique, valuable tokens. It differs from tokenized ownership, which emphasizes the ownership and value of digital assets themselves. The fundamental value of customer loyalty NFTs lies in their ability to foster brand engagement, encourage repeat purchases and deepen the connection between customers and brands.
- Brand ownership reward NFTs: Brand ownership rewards involve issuing NFTs to customers as part of a chance to own one-of-a-kind brand collectables. Starbucks, for example, introduced their Siren collection as part of a rewards program. Under the company’s broader Web3 initiative, customers embark on “journeys” to collect stamp NFTs that unlock various rewards.
- Membership asset rewards: Membership asset rewards involve granting NFTs to customers as part of a membership program instead of an opportunity to own brand memorabilia. Liquid Death, a canned water brand, launched its Murder Head NFTs as part of its customer loyalty program. While these can also be considered NFTs that offer ownership in the brand, their primary purpose is to grant members exclusive access to limited-edition merchandise, discounts, and priority access to new product releases. The collection sold out just minutes after launch.
The digital identity use case category for NFTs encompasses applications in social expression and digital reputation. By leveraging NFTs, individuals can establish and showcase digital personas with unique, verifiable assets. These NFTs can represent personal avatars, profile pictures, or even badges of honor, highlighting the individual’s interests, accomplishments or affiliations.
NFT applications in social expression focus on creating and displaying digital personas or representations of an individual’s identity. These applications differ from reputation-based applications, which emphasize the credibility and achievements of an individual.
- NFT avatars: NFT avatars allow users to create and own unique digital representations of themselves. Nike’s CloneX and Adidas’ ALTs are examples of NFT avatars connected to major brands. Nike acquired CloneX from RTFKT. The “clones” from the acquired collection are unique, customizable and collectible digital characters. They serve as personal avatars that users can own and display in various metaverse environments. Each clone comes with a distinct design, style, and rarity, making them desirable and valuable for collectors. Adidas’ ALTs, are avatars that come with a unique and exclusive digital identity. Users can access digital experiences and express their interest and taste in the brand.
- Profile picture (PFP) NFTs: PFP NFTs are digital images that users can adopt as their online profile pictures, allowing them to display a unique digital identity. Unlike NFT avatars, PFP NFTs are static NFTs for profile images rather than full-fledged digital personas. DeGods is an example of a PFP NFT project, while Reddit’s NFT avatar marketplace offers a hybrid between PFPs and avatars.
Digital reputation NFT applications focus on building and showcasing reputation, achievements and contributions in the digital space. They differ from social expression applications, which mainly emphasize personal expression and creativity.
- Soulbound tokens as credentials: xHashtag is a Web3 protocol that uses SBTs to provide on-chain credentials. By utilizing Soulbound tokens as reputation credentials, xHashtag enables brands to dynamically assemble teams based on users’ skills and experience. Users, in turn, can build their Web3 reputation and earn rewards in exchange for creating value. SBTs, though, are not the only way to provide verifiable credentials in Web3. Read our latest guide to learn more.
- Proof of attendance protocol (POAP): The proof of attendance protocol is an Ethereum-based protocol used for collecting unique, verifiable digital badges as proof of attending specific events. The badges, stored as NFTs, can be used to showcase users’ involvement and accomplishments within communities.
- Social media profile NFTs: The Lens Protocol uses social media profile NFTs in their decentralized social media network. By tokenizing users’ social media profiles as NFTs, Lens Protocol allows users to retain control and ownership of their digital identities, relationships, and content across various platforms. The approach empowers users to benefit from digital presence and relationships, while mitigating the risks of centralized control and data exploitation by large social media platforms.
- Domain name NFTs: Domain name NFTs like ENS and Unstoppable Domains are another example of digital reputation applications. They represent ownership and control of a specific domain name in the decentralized web, allowing users to showcase their digital presence and branding.
Digital unique experiences
The digital unique experiences use case category encompasses applications in augmented reality and virtual reality. The applications leverage NFT scarcity to enhance and transform user experiences in previously impossible ways.
Augmented reality NFT applications, overlay digital assets and experiences onto the physical world, enriching users’ real-life experiences. Unlike virtual reality applications, users are not fully immersed in the experience. The blend opens up creative use cases in retail, social and gaming environments.
- Digital Twin NFTs: Flyy is a social platform utilizing Digital Twin NFTs to tokenize physical buildings and spaces, allowing businesses to monetize locations and engage with customers in new ways. These assets are examples of dynamic NFTs, because they feed data from the user platform and physical space to create unique experiences. By creating a digital representation of the physical world, Flyy enables users to interact with these spaces through augmented reality experiences.
Virtual reality NFT applications derive their value from the fully immersive and interactive digital environments they create. By tokenizing digital assets within virtual worlds, users can own, trade, and interact with unique virtual items, properties, and experiences, adding a new dimension to their online presence.
- Gaming metaverse NFTs: In the gaming metaverse, NFTs play a crucial role in enhancing user experiences by enabling the tokenization of digital assets like virtual land. Decentraland, for example, allows users to purchase, own, and develop virtual land as NFTs within their platform. By doing so, users can create personalized spaces, host events, and even generate income by leasing or selling virtual properties.
FAQ and further reading
How do you make money with NFTs?
There are several ways to earn money with NFTs, including buying and selling, as well as lending. To dive deep into strategies and learn the ins and outs of profiting from NFTs, read our comprehensive guide on making money with NFTs.
How do you buy an NFT?
Purchasing an NFT might seem daunting at first, but our step-by-step guide simplifies the process.
How do you sell an NFT?
Selling an NFT successfully involves understanding its value, finding the right marketplace, and setting an appropriate price. To learn more about navigating the NFT selling process, check out our article on how to sell an NFT.
How does NFT lending work?
NFT lending is an emerging trend in the world of DeFi that allows NFT owners to earn passive income by lending their tokens. To explore the benefits, risks, and platforms for NFT lending, read our comprehensive guide on how NFT lending works.
What are the best NFT marketplaces?
The best NFT marketplace for you depends on factors such as the type of NFT you’re interested in, the blockchain it’s on, and your preferred payment methods. To find the perfect fit and learn about the top NFT marketplaces, read our in-depth comparison of the best NFT marketplaces.
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