What exactly is an NFT?
To put it simply, NFT stands for non-fungible token.
But what does it mean?
Fungibility means interchangeability. Physical money and cryptocurrencies are examples of fungible items. Take, for instance, if you purchase a Bitcoin valued at $1, and exchange it with another Bitcoin, you will end up with another Bitcoin that is also of $1 value. On the other hand, NFTs are non-fungible, meaning they are unique and not interchangeable. A good analogy would be trading a unique Pokémon card and getting a unique Babe Ruth baseball card in return.
So what is an NFT?
An NFT may be anything digital. It could be a piece of digital art, film, music, or even a Tweet. Like cryptocurrency, the NFT is simply a unit of data kept in a blockchain ledger. What sets NFTs apart from cryptocurrencies such as Bitcoin and Ethereum is that extra data is included to ensure that each NFT token is one-off, and cannot be copied, lost, or maliciously reproduced. Although NFTs could be anything digital, recent interest in NFTs is mostly in the form of digital fine art.
Where we are at today with NFTs: Pros and Cons
NFTs are still in their early days and there is a lot of room for improvement. Critics point out several weaknesses, ranging from security to inefficiencies in the system. But perhaps one of the main issues with NFTs is the lack of real market value. Currently, the price of an NFT is arbitrarily assigned, leading to some rather incredible prices; for example, the Tweet Jack Dorsey, founder of Twitter, sold for nearly $3 million earlier this year.
With no real market value, many experts are concerned that the meteoric rise in popularity of NFTs has created a bubble that will inevitably burst, with many comparing it to the Dotcom bubble of 1990. Despite the general consensus that an NFT bubble exists, many experts are inclined to believe that, like the Internet, NFTs will survive the crash. Given the entrance of more mainstream organizations, such as Christie’s and Sotheby’s, into the digital art space, it does suggest that NFTs are not going anywhere.
So what is the next step for NFTs? How do different projects add real market value to their NFTs? How do projects survive the aftermath of the bubble bursting?
Enter utility-driven NFTs.
How to add value to something that inherently does not have real market value?
Since its advent, NFTs have been traded simply as pieces of art. Owners get to own the original NFT, but not much else. Ownership does not even grant the NFT holder control over distribution of his NFT, as others are allowed to distribute and reprint the NFTs at their discretion. The harshest critics describe the NFT space as a bunch of rich people paying an exorbitant price just to complement each other on their digital avatars.
However, successful NFT projects can be observed adding utilities into their projects as means to add real market value to their NFTs. Such projects include Bored Ape Yacht Club, VeeFriends, and CyberKongz. These projects appear to be making a calculated move to ensure their project will survive the crash, while projects with no real value die off.
How are Utilities a Possible Answer to the Question of Value?
Projects such as BAYC, VeeFriends are using utilities to give their NFTs value by turning them into a sort of VIP membership card.
Take Bored Ape Yacht Club as an example. When someone purchases a BAYC NFT, they are purchasing more than a piece of digital art because the BAYC NFT doubles as a lifetime membership into the BAYC community, unlocking exclusive utilities. BAYC membership includes utilities such as their exclusive members-only games, digital merch, and VIP parties, for instance, the first annual Ape Fest in New York, held recently on October 31.
Another notable NFT is VeeFriends, by Gary Vaynerchuk. Vaynerchuk has been experimenting with various methods of incorporating utilities into his project. One of the ways he has been experimenting is to allow users to earn a VeeFriends NFT once they buy a predetermined number of his books. Besides that, owning one of his NFTs provides holders with access to real world lectures, events, and even a members-only restaurant.
Both of these projects are great examples of how utilities can help create the real market value that is sorely missing in the NFT space. Not only do we see the addition of digital utilities (ex. games, digital merch), we also see projects dabbling with reaching out of the metaverse and into the natural world.
What about new and upcoming projects?
Speaking of real-world utilities, one upcoming project that is worth mentioning is Ghetto SharkHood. Similar to VeeFriends, this NFT project will include utilities that break through the metaverse and into the real world.
According to their website, besides being community-focused, they are also aiming to be the first NFT to focus especially on real-world utilities, with “Future real-world and metaverse utilities [that] will be unlocked by the community through roadmap activation, creating an ecosystem that spans both worlds.” Furthermore, they pledge that the majority of their profits will go back towards their community, as well as social and environmental impact.
So what kind of real world utilities is Ghetto SharkHood planning on introducing to the NFT space and how will they be tied to social and environmental impact? From a first glance at their website, their roadmap seems to include the usual digital utilities that are becoming more widespread, such as gaming, a digital merch store, and a community fund. In terms of real world utilities, the website states that each Ghetto SharkHood NFT will unlock exclusive hotel and travel packages for their holders.
But after speaking with one of their founders, it turns out their arcade, appropriately dubbed the “Sharkade”, will not be a simple digital gaming space. Instead, their Sharkade is intended to be one of the real-world utilities that will be the highlight of their NFTs.
“For our first phase, we are very excited to debut our Sharkade as one of our real-world utilities. What is special about our games is that they will mirror the real world. To illustrate my point, we may create a farming game where the goal of the game is to grow potatoes in the metaverse. The in-game potato would correspond, say to a piece of farmland for a farmer from a poor community.
The digital potato would allow us to sponsor a farmer, helping to provide him with the land, infrastructure, supplies, know-how, and any additional support needed to start his own potato farm. A portion of the profits generated from the farm, as well as from any ad revenue and sponsorships, will go back towards supporting farmers in poor communities, while the other portion will go towards the NFT holder, to create a self-sustaining social programme. As we like to say at GSH, we believe in doing well, by doing good.
This is just one of many possible gaming ideas that we will be releasing as our project progresses.”
The Ghetto SharkHood team firmly believes they have a lot to offer the NFT space with their unique approach to integrating the real world with the metaverse. What is more, their NFT will simultaneously generate social impact, positively influencing the real world, thus bringing the metaverse and real world even closer. This is undoubtedly a project to keep an eye out for.
Future of NFTs
While it is hard to guess whether or not NFTs will last, given what we have seen so far, it appears unlikely that the bubble will lead to the demise of NFTs. What is more likely, is that the bust will purge the space of subpar NFTs, while the solid projects remain. It is encouraging to see many exemplary projects showing a commitment to stick around for the long-term and taking the necessary steps. For now, it seems the best bet for those interested in buying into the NFT space is to choose solid, utility-driven projects that have the best chance of surviving the impending crash.
