By Dušanka Seratlić & Denise Schaefer

NFTs burst into the mainstream in early 2021 and gained a reputation as either digital collectibles or speculative investment vehicles. 

However, the real value behind NFTs lies in their ability to act as utility tokens. As the NFT and Web3 space in general matures, we’ll see more industries offering real-world value through NFTs.

In this article, we discuss utility NFTs and their capabilities through the example of the Surge Passport NFT - a tokenized membership to an ecosystem of Web3 perks and opportunities. Let’s dive in!

What are NFTs?

An NFT is a unique, non-fungible token that lives on a public ledger. Essentially, it’s a string of numbers recorded on the blockchain that provides proof of ownership to its holder.

When you buy an NFT, you get something in return: art, utility, or some other form of value. To claim the value that comes with NFTs, you need to prove you hold that NFT in your crypto wallet. 

An NFT can represent ownership of just about anything. And because NFTs are an application of blockchain technology, the ownership granted to you through an NFT is verifiable, traceable, and cryptographically secured. The possibilities for the application of this technology are endless. 

What are utility NFTs? Are they different than art NFTs?

So far, the most popular use case for NFTs has been digital art collectibles. Additionally, NFTs have also gained popularity as speculative investment assets. In a lot of ways, the NFT market has mimicked the traditional art market - with one major difference - artists get more direct control over their assets.

As the space developed, artist-based NFTs have given way to project-based NFTs that combine art, community, and utility. In most cases, ‘utility’ has become a word that eases the mind of investors, assuring them that their asset ‘is not just a JPEG’.

However, as the space grows, utility will take center stage and become more than a marketing gimmick. Already, Web3 users are expecting to see real and tangible value derived from their NFTs. 

When we talk about utility NFTs, we talk about NFTs that give holders more than art and more than potential monetary ROI. Utility NFTs are designed to deliver tangible value in the form of goods, services, perks, discounts, membership, or community. 

How do utility NFTs work?

On the blockchain level, utility NFTs work the same as any other NFTs. 

You can expect the user experience for utility NFTs to look something like this:

You buy or get an NFT expecting a value in return > you verify the ownership of the NFT to claim the value > you receive and use the value.

The Surge Passport NFT - a Utility Token

 When we started working on the Surge Passport membership, we weighed out our options while deciding which technology was the best fit for us. We settled on NFTs for two reasons: 

1. An NFT can function as a membership pass - this made sense for us because we were looking for a simple and secure way to distribute perks to members.

2. Despite their less-than-stellar mainstream reputation, NFTs still seemed like the easiest entry point to Web3, both in terms of tech and recognition. Besides, we were determined to use NFTs as a force for good and change a few minds.

The value of most NFTs can be understood in two ways: the monetary value the NFT can fetch on the market and the value that comes from its utility. 

With the Surge Passport, our designed the collection to be inclusive and representative of our mission, but our main focus was the utility. We ensured that the value of the perks we offered would exceed the NFT’s cost. We also made it clear in our branding and messaging that Surge wasn’t a project to flip - we were here to build lasting value through NFT technology. 

When it all came together, the Surge Passport NFT became a tokenized membership to an ecosystem of Web3 value such as tools, scholarships, subscriptions, and discounts.

How do you deliver utility through NFTs?

Utility NFTs deliver value in two ways:

1. The NFT itself is an appreciating asset if you believe in the project long-term.

2. Its utility acts as yield. In our case, the yield has:

• Numerical Value: Perks, discounts, vouchers, and opportunities that our holders receive. 

• Intellectual Value: Signal that you belong to a community focused on learning, growing, and changing the status quo. Access to like-minded individuals, mentorship, and support. 

We’ve also ensured that our value wasn’t delivered as a “one and done” and are constantly adding more perks. Because of that, even during the bear market, our holders aren’t phased and can continue to receive a yield on their NFTs.

If you're trying to build a community of dedicated holders, look at your NFT as a membership pass.

Use Cases and the Future of Utility NFTs

As the space matures, we’re confident we’ll see a rise in utility NFT models. Some exciting ways NFTs can be used to deliver utility:

1. Tokenized memberships like the Surge Passport NFT

2. Art or music NFTs that unlock real-world value like concert tickets, exclusive access and free downloads

3. Business NFTs used to confer loyalty points, rewards, discounts, vouchers, access to online services and products

4. Gaming and metaverse NFTs that expand the in-game experience and secure metaverse assets

5. As fundraising or governance assets, empowering decentralized communities

Soulbound tokens (SBTs) as the next step for utility NFTs

NFTs have been theorized as a good way to store identity and credentials online. However, the NFTs we know today are transferable and financialized. So, if you were to receive your college diploma as an NFT, you could technically sell it or transfer it to someone else.

To create a more adequate way to represent identity on the blockchain, Vitalik Buterin (creator of Ethereum) and others proposed the concept of Soulbound Tokens. SBTs will share a lot of characteristics with today’s NFTs, but they will be non-transferable and there will be no way to derive monetary gain from selling them. SBTs will be issued as proof of identity, credentials, records or achievements. 

As such, SBTs could have extensive applications in government, healthcare, and education. As building blocks of a decentralized society, SBTs will serve to improve our lives through connection and ownership. 

Although SBTs are still in development as a token standard, some projects are already running with the idea and creating new forms of Web3 value.

In Conclusion

From collectibles to utility tokens, we are seeing NFTs change the way our societies operate. In the process, we are building new business models and leveraging Web3 and NFTs to empower people around the world. 

As we move forward, utility tokens will become the standard model for unlocking the potential of NFT technology - beyond investments and speculation. We are excited to be witnessing this nascent technology develop into its future potential.

Want to discuss NFTs and their impact? Join the conversation in our Discord or on Twitter.