The Importance of Utility in NFTs

4 min readDec 13, 2021

I bought this picture for 0.07 ETH. More correctly I paid for the right to own this object that has certain properties. One of the properties it has is that it has this really cool jpeg associated to it. At least… I think it is cool. Anyways it is an NFT. That acronym stands for non-fungible token. For something to be fungible means that it can be replaced by something of equal value. Paper money is fungible. If I had $10 and I wanted to break the note in to smaller notes any cashier or clerk could easy replace that for me with two $5 bills instead.

What Makes something Non-Fungible?

Given the money example, for something to be non-fungible means it can not be replaced by something else for equal value. Some examples of things that can’t be replaced: your birth certificate, that family heirloom you might have on display, or a piece of art that your kid made when they were very young. You’ll notice that these are things that in the real world usually have some sentimental value or are 1 of 1. Don’t pigeon-hole yourself into thinking those are the only two cases that something is non-fungible. I’m just not creative enough to think of more ways it could be represented.

The digital world presents a different case in each NFT is uniquely identified by a code in its metadata. If you were to search on opensea or rarible you may carbon copies of something like a bored ape from the bored ape yacht club collection, but it’s easy to tell what the original is due to the token id being tracked and recorded into transactions in the blockchain. Alright. By now, if your grandma were to ask you, you can explain what it is at least. However you must be wondering…

What is The Value Proposition?

In one word: Ownership.

And in some more words: All the other rights that come with ownership.

Digitally speaking, anything can be tokenized via smart contracts and made into an NFT so you might think that you can just take a CryptoPunk and tokenize it, but you can’t. It’s easy to see that’s not the original because of the blockchain.

The perks of having ownership is very much the same as what comes in real life. If you had the original Mona Lisa framed on your wall, that’s some pretty strong social prestige you’ve got to sling around. If you have a deed to a house, you can choose to rent it out and earn income or live in it yourself. Or to think slightly differently, if you owned a key, you could open a lock that nobody else could open.

Why Are People Paying so Much for Penguins and Monkeys?

I’m not here to tell you what the value of NFTs are. In reality, what we have now is mostly garbage and lacks any utility. A lot of this NFT art is valuable because people like it and they think it has value. And so art will be worth whatever somebody is willing to pay for it to say that they own it. Although this may exclude some from owning certain fine art, it places absolutely no restriction on anybody from viewing the art except in the case that the token acts like a key.

How Can Creators Introduce Utility?

So far, we’ve only talked about NFT as art. Well… It can be a lot more than art.

For example, I want to start with an industry seemingly unrelated to art: Insurance. Insurance is an inherently necessary public good which works due to the law of large numbers. Imagine if we tokenized insurance policies and formed the contracts in such a way that it leaves little up to interpretation for how the claims and arbitration processes would work.

I also want to discuss gaming. Game economies of the past treat items and land essentially the same as NFTs now except on centralized ledgers. What the blockchain brings to these gaming economies is the ability to seamlessly transfer game assets between players and irrefutable proof of ownership that cannot be easily overridden by the decision of game developers without significant change to their game. Now imagine if in game assets granted access to secret parts of a game. Surely that would drive people to chase after those in game NFTs to get access to whatever is hidden behind the metaphorical door. Or what if you owned a piece of land. You could essentially live as a king and tax all the players in your jurisdiction. Sounds like a pretty sweet deal to me.

NFTs could also be used as tickets to events, provide unlockable digital content in something other than games or they could even be your digital yellow pages entry much like how some use their ENS domains today to link their social media. The possibilities are endless and we just need to think of how we can use this technology to disintermediate or improve the services we use now.

If this made you decide to take the dive into NFTs, be careful out there. It is still the wild west.




Kakavarna.eth — Automation Engineer(9–5), crypto investor, and gamer with opinions