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New-Breed NFTs Blending Real and Digital WorldsThink NFTs are a fad?
NFTs, or non-fungible tokens, are similar to cryptocurrency, existing as records, or “smart contracts,” on the blockchain. They represent a unique item such as an artistic image, an MP3, or a video.
They differ from cryptocurrencies in that they have their own unique value. That’s the non-fungible part. One NFT is not interchangeable with another, unlike how one Bitcoin can be swapped for another.
But thanks to widespread stories about big bucks being spent on apathetic, digital cartoon apes (“Bored Apes”) — and similar headline-grabbers — the gloom-and-doomers have come out in full force. (Indeed, the “explain-the-news” website Vox.com recently wrote that between meme stocks, cryptocurrencies, and NFTs, “money has never felt more fake.”)
Today, I’m going to counter these naysayers.
NFTs are a powerful trend — and an emerging opportunity.
In fact, transcending expensive cartoons, NFTs represent “the No. 1 growing trend,” according to my friend and LikeFolio co-founder Andy Swan.
And they’re definitely worth a closer look…
A Stunning SurgeThe market for NFTs surged to $41 billion last year — putting it in arm’s reach of the “respected” market for fine art, which came in at an even $50 billion in 2020, studies by Chainalysis and the Art Basel & UBS Global Art Market Report found.
Want another stunner? More people searched for them than Bitcoin.
And for reasons I’ll cover today, “Shark Tank” regular Kevin O’Leary has suggested NFTs will be bigger than Bitcoin, even while critics have compared them to a worthless deed to land on the moon.
A big part of their allure is about ownership: Essentially, NFTs represent ownership and display provenance, or transactional history, in any type of digital asset.
In the beginning, their uniqueness was central to their worth. But now a new breed’s value extends beyond mere “bragging rights of ownership” and is tied to real-world utility.
It’s this “value-add” utility that has us so revved up. And that’s where I’ll take you next.
Utility-driven NFTsThese emerging NFTs generate value by blending real-world and digital-world applications.
Perks can be added to an NFT: For instance, they grant bonuses — like early song releases for fans. Or, in the case of branding expert Gary Vaynerchuk, three-year access to an annual conference, VeeCon, that he’s launching in 2022.
These perks have value beyond a digital image’s intrinsic worth. When you really think about it, NFTs become a kind of “ticket” for exclusive products, or a grant of special privileges — like “behind-the-velvet-rope” access to the hottest celebrity of the day.
Which brings me to the first of three unique applications of utility-driven NFTs.
No. 1: Authentication and Event TicketingShifting from purely digital assets to paperless proof of ownership and authenticity of “physical” items, like designer watches, has O’Leary saying that “NFTs [will become] a much bigger, more fluid market than just Bitcoin alone.”
Aside from branded luxury items, “authenticity NFTs” can verify provenance within digital documents such as titles, deeds, passports for travel, and even health and insurance records.
That’s real-world value. And yet, it’s only scratching the surface.
One specific use is tied to event ticketing. Using verifiable metadata, an NFT provides a ticketholder a kind of “purchase confirmation” — while potentially providing other perks such as interviews, backstage passes, and bonus-music downloads.
Plus, the venue could add code to the NFT that digitally routes secondary-market resales back to itself. Or it could put a stop to resales altogether by making the ticket nontransferrable. That would quickly freeze out ticket scalpers.
Early adopters tend to set the tone for those that follow. Ticketmaster has recently partnered with the National Football League to offer commemorative NFTs on special-game tickets.
Ticketmaster’s parent company is Live Nation Entertainment Inc. (LYV) and may represent a publicly traded opportunity to take advantage of this specific utility.
In the six-month chart below, LYV is currently in a healthy Green Zone status, trending upward, and matching two Ideas Lab strategies: Low Risk Runners and Best of the Billionaires (the stock is owned by Ray Dalio). LYV also appears in the recommendations of two newsletters I follow.
While authenticating documents such as event tickets may be an obvious use for NFTs outside of digital art, this next application perfectly connects a brand to its customers in a way that has enormous business-to-consumer (B2C) potential.
No. 2: Burnishing Customer LoyaltyIn the beginning was the punch card. Remember those? With every purchase of a cup of coffee, a donut, a sandwich, or a car wash, you’d get your card “punched” or “stamped” — and after 10 or so “punches,” you’d get something free.
The weakness was that you’d forget to bring the card, lose it, or send it through the laundry.
Then came the plastic loyalty card. Like a credit card, or possibly a fob for your key chain, it was shown or swiped, and points were accrued on your journey toward free coffee, discounts, or other goodies.
The customer-loyalty market is huge — it’s projected to reach $17.65 billion by 2028.
And NFTs are one way to revive loyalty programs that lost their appeal to shoppers who tired of the shortcomings or failed to appreciate the value of signing up.
Emerging NFTs make it possible for companies to be much more creative with their offerings: Rewards can include tailored collaborations or cross-promotions with other businesses to entice shoppers.
One specific utility is the long-popular “frequent flyer” program that airlines use to build passenger loyalty. Customers could be rewarded with a variety of desirable limited-edition content, digital as well as physical, through a network of partnerships with other brands.
All managed on the blockchain…
Think of it; you could buy a ticket as part of a frequent flyer program, earning miles and reward points. But what if that extended to concert tickets at your destination, a dinner out, or even an exclusive drop by Nike, for instance, for shoes you can’t get anywhere else?
Latvian government-owned airBaltic made history as the first airline to accept Bitcoin as payment, and it became the first to adopt NFTs as well. Limited-edition NFTs will depict images of the carrier’s Airbus A220-300 passenger jets, along with artwork of a Latvian city to promote tourism.
How long before others follow?
In the old days, frequent flyer programs really did induce folks to stick with that carrier. In this new sphere, all things being equal, the scope of rewards will help differentiate one airline from another. Moreover, it’s a way to incentivize flyers with something other than simply hopping on another plane.
This opens the door to a secondary “trading” market for loyalty. Once rewards are tied to an NFT, “perks” can be exchanged with others in the marketplace. And in a win-win, the issuing company can add measures that bring it a percentage of any proceeds.
The utility of a product is measured by how well it solves a problem, and this next application directly confronts a tremendous challenge facing the health care industry.
No. 3: Tokenized Health CarePatient data management (known less formally as “health records”) is the administrative and financial “black hole” in health care. A mountain of paper — I’m talking nearly 1.2 billion patient documents — are produced in the United States every single year.
Eighty percent of those documents are unstructured, incomplete, or inaccessibly locked away. This creates huge opportunities for error, costing as much as $750 billion per year in unnecessary or redundant treatment.
But now, for the first time, we have technology to consolidate health care data into a single, lifetime record.
A decentralized health care industry places patients in control of their own data, strengthening privacy and security.
Patient-record NFTs promise accurate and efficient tracking for blood donations, health histories, and medications. And through the integration of blockchain, patients plug into a worldwide ecosystem of health care.
This landscape is evolving swiftly. One company to watch is the Singapore-based Enjin, a blockchain developer of virtual economies.
Crypto by TradeSmith tracks Enjin’s coin, ENJ/USD, an Ethereum-based cryptocurrency. Though it is currently in the Red Zone, along with more than two-thirds of all cryptocurrencies we track, it is recommended in four of the newsletters I monitor. And at less than $2, it’s very affordable. Plus, our Timing indicators suggest that this coin is in a valley, which is a bullish signal. Exercise patience and good judgment, but this is one to watch carefully.
The new breed of NFTs have value far beyond their collectibility as pieces of digital art.
When the excitement has finally passed, and your Bored Ape Yacht Club collection is no more valuable than a sack of Beanie Babies, there will still be a way forward with NFTs.
And by “way forward,” I mean a way to invest and make money from legitimate, high-upside opportunities.
The key will be connecting digital assets to the physical world by delivering utility. Companies that rise to the challenge (and the investors that support them) have the best chance for success.
Look for more unique applications of NFTs and the metaverse in upcoming articles.
As always, if you have questions or want to share your own perspective, feel free to reach out over email. Let me know what you’d like to hear more about.