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How to add utility to an NFT? The utility-based principle.

Date: 2022-10-23

Uncovering what differentiates useless NFTs from truly valuable ones

How to add utility to an NFT?

Photo by Austin Chan on Unsplash

This articles assumes that the reader knows and understands what an NFT is. If not, please check out this article for a comprehensive description of what an NFT is, and then proceed to read this article next.

What do NFTs really offer?

NFTs exist for two reasons and two reasons only, proof-of-provenance and proof-of-ownership.

That is, by owning an NFT you have a factual claim over the ownership of the underlying asset, while the blockchain also guarantees the provenance of it, so that you know for a fact the NFT isn't a fake one.

In other words, the value proposition of NFTs can only be understood if they sit on top blockchains, it's blockchain's decentralized nature that allows for the data immutability, integrity, and protection that, in turn, allow NFTs to truly disrupt the digital assets market.

I'm even going to be bold enough to say that, in the future, no digital asset on the planet won't exist without its NFT, as no one will trust owning a digital asset that isn't secured by a blockchain.

Once society figures out blockchains, it's over.

Now, you will be probably asking… why are blockchains so powerful, and why are they capable of making such bold claims?

Blockchain technology in a nutshell

If you're interested in knowing the answer, you can read my 8-minute article about blockchain technology and its security.

By reading this article, explained as I would to my 5-year-old cousin, you will have a better notion about blockchains than 99% of society, or even more.

The NFT bubble and the "it's digital art bro", movement

Being hosted in a blockchain alone has allowed NFTs to blossom, at their peak, to a market value of 54 billion dollars.

For comparison, the total music industry sits at around 27 billion dollars, so NFTs were, in 2021, a two-times-bigger market than the entire music industry.

And all of this without utility.

The speculative bubble

Of course, as utility was not present, the hype and bubble around the NFT craze eventually faltered, and the majority of NFT projects crashed, the majority of them losing up to 90% of their heyday value.

Naturally, especially coming from speculators, they all quickly arrived at the conclusion that NFTs were scams, and that everything surrounding them would die over time.

As you may assume, that statement was proof that investors and speculators weren't investing in NFTs because they understood their value, but quite the contrary.

Those people who understood NFTs, unless they saw a hugely valuable investment opportunity, stayed on the sidelines.

But why?

Simple, they knew that the majority of NFTs were worthless.

Seems awkward and a contradiction, right?

The contradiction of NOT investing in what you DO understand

Those same people that truly understood the value of NFTs as an asset, at the same time, despised the actual state of NFTs and considered them useless.

It's almost like an unfathomable contradiction, but it's how it is.

People who understood NFTs stood away from them because they knew that they were lacking the most basic utility.

They were, as the famous Twitter @cobie described, basically "altcoins with pictures".

They were - and still are - simple jpegs, pngs, and jpgs whose metadata is stored in a blockchain, and that's pretty much it.

Of course, thanks to being in a blockchain, their ownership is provable and guaranteed…but what's the point in claiming ownership of a jpeg of a rock?

You probably guessed it, zero.

And this explains what the real hype was about those days.

It wasn't about the NFTs, it was about the blockchain.

NFTs were just a new way, probably a more enticing one as NFTs are more visual than cryptocurrencies, to gain exposure to this super trend known as the blockchain. A way for our obsessed-with-betting minds to bet our savings in just another asset.

It was never about NFTs, because if that had been the case, they wouldn't have reached a 10th of the value they reached, because everybody knew, at heart, that their NFTs were worthless image files.

But what if the NFT's underlying asset really had value?

That my friend… changes everything.

NFTs and digital art

Up until now, NFTs have just been seen as a form of legitimizing digital art.

That is, enabling digital art creators to create pieces whose issuer is verifiable, and that the owner can claim as theirs and only theirs.

Before NFTs, what value could have a digital painting? Couldn't it be instantly faked, replicated, and distributed?

Art with such a low barrier of entry for counterfeiting is destined to fail.

Unsurprisingly, when NFTs appeared, the world suddenly stumbled upon the tool that would, finally, enable digital creators to earn a living from their creations.

A truly powerful statement that is.

But, doubling down on the "picture of a rock" mentioned before.

Unless the painting is done by Banksy or any other super-known digital artist, what's the value of that digital art painting?

How do we appraise the value of something that my 5-year-old cousin could have done in 10 minutes?

Consequently, we can all agree that the digital art utility use case only applies to truly world-known artists.

The problem, however, was that each and every new NFT followed the same premise; "it's digital art bro, you just don't get NFTs".

Considering the majority of them were launched by literal unknowns, it's not surprising to see what happened when society called bullshit on the NFT space; NFT prices crumbled like a house of cards, and with them the savings and illusions of many.

Rediscovering utility

At this point things are looking daunting for NFTs, right?

The only conclusion we have arrived at is that actual NFTs suck.

And that is because we haven't even entered the realm of illiquidity and scams, but will leave that for another day.

Moving forward, I want to send you a message of hope.

Even though it may seem as if I am completely against NFTs, the reality is that I am convinced that the concept is not only super powerful, it will actually disrupt the digital world, unlike anything we've ever seen before.

In the future, everything around us will be tokenized.

  • Your car? Tokenized.
  • Your stocks and bonds? Tokenized.
  • Your house? Tokenized.
  • Your insurance? Tokenized.

Besides the constant battle to see what final form will cryptocurrencies have, what no one dares to put into question is that the underlying technology, the blockchain, will inevitably become the foundation of all-things digital, the absolute, almost dogmatic, source of truth and ownership for everything living in the digital world.

And one of the primordial tools which will enable this? Yeah, NFTs.

NFTing what's valuable

It's as simple as that.

Stop trying to find the next NFT gem in the overestimated concept of digital art, and start trying to find projects that create NFTs out of valuable assets.

Is the NFT of a house valuable? Heck yes! It gives you the rights to a literal house.

Is the NFT of a car valuable? Heck yes! It gives you ownership rights over a literal car.

That is where NFTs become not only valuable but necessary: Ensuring ownership of valuable assets that are bought and sold in digital markets.

It's that simple.

It is that simple because there is an actual necessity in ensuring ownership over that asset.

How actual systems tackle the issue

In actual systems, you can buy things on the Internet because you trust certain websites to be honest enough for you to hand out your personal and financial information.

But what if I told you that with NFTs and blockchains, that's no longer necessary?

With blockchains, the need for trust is no more, and you can claim ownership of an asset and publicly verify that ownership.

In actual systems, only the company from which you bought the asset can attestify your claim over it.

With physical assets, that's not much of a problem, but with digital assets, the issuer could rapidly reverse the ownership of the asset and take it away from you.

With blockchains, once the transaction has been ordered and settled, nobody can take the NFT from you, it's yours until you decide to sell it.

And, when we consider interoperability, the balance goes even more in favor of NFTs.

NFTs solve communication between silos

Now, if you buy a skin on Fortnite, your ownership of that asset is circumvented to the proper game of Fortnite, you simply can't take your Goku skin elsewhere.

There is a simple reason for this, the Fortnite worlds don't communicate with other virtual worlds.

And that is what the Metaverse intends to create, a network of super-connected virtual worlds that share digital assets among a common structure, that will inevitably be the blockchain.

Consequently, NFTs have a uber-important role to play in the future of the Internet, that "thing" we describe as the Metaverse, by allowing and ensuring the ownership of your assets across virtual worlds.

NFTs will break the barriers of ownership, actually enclosed in digital silos that we normally call platforms or even video games, it's about expanding the reach to which can verify the ownership of our assets to all the corners of the digital world.

NFTs are that powerful.

Are we there yet? Hell no.

But will we get there? Hell yes!

The rest of my stories

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