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The Benefits, Problems, and Perils of NFT Utility

BY Eric James Beyer

August 23, 2022

If the NFT community were an extended family that met on occasion for holiday dinners and special events, utility would be the topical equivalent of politics and religion that people might try to avoid to keep things civil.

The word has sparked countless discussions in the space in recent months, and the outcomes of those conversations are likely to answer a crucial question facing the Web3 world: what does an artist who sells NFTs owe the people who buy their work?

The answer to what utility means is more straightforward and interesting than you might think. But to get to that answer, we need to understand the basics of what NFT utility is, why people are so up in arms about it, and what its future will be.

So, exactly what is NFT utility?

NFTs that come with utility (and not all do) give holders of those digital assets access to exclusive rights, benefits, and privileges. Does that sound rather broad? That’s probably because it is.

The beauty of NFTs is that this utility can vary as broadly as the human imagination. For example, when photographer Tim Flach partnered with Atlas Labs to release a set of NFT photographs of the Spix’s Macaw, a species declared extinct in the wild, the team offered collectors a chance to be present at an event involving their release back into the Brazilian rainforest.

Other projects have taken the concept of utility to astronomical heights (literally) by using NFTs to send people to space. But most NFT projects offering collectors utility exist closer to ground level.

When it comes to PFP NFT projects, buying an NFT in the collection often comes with some pretty appealing benefits (or utilities). Collectors are often first in line for upcoming airdrops, they get access to exclusive IRL events, and NFTs even allow fans of TV shows and comic books to have a say in the IP’s creative direction. Projects with a clearly-stated focus on utility often include clear roadmaps regarding where the developing team intends to lead the community. These might also outline how and why holders’ NFTs will retain and grow in value.

And why does NFT utility matter?

Flach and the Atlas Labs team didn’t have to offer that utility to collectors. However, the unique utility the project offered — i.e., letting collectors see birds released into the wild — certainly helped raise awareness for the NFT collection and incentivized people to buy the NFTs.

But why buy utility NFTs, instead of shopping for artistic value, alone? Rather than simply lending financial support to a conservation project, utility NFTs allowed owners a chance to be more intimately involved in what the team was doing. In short, an NFT’s utility may help individuals feel like they are meaningfully contributing to a project.

For other NFT collectors, utility is essential because it allows them to connect with other like-minded individuals. In this respect, for some members of the NFT community, NFT ownership isn’t really about literally owning a unique digital file. It’s the sense of community and camaraderie that comes along with it. For such individuals, digital meetups, live events, and related utilities are all important.

The NFT utility divide

But the concept of utility has cleaved a deep rift in the NFT ecosystem. For some collectors, the simple fact that NFTs can have utility makes them expect it, almost without exception. Others believe the community shouldn’t pressure artists into delivering utility, claiming that the art itself is the utility.

But this binary is false, and the range of opinions the community has voiced about NFT utility is a pretty good reflection of the diversity of needs that NFT projects have regarding it. Utility simply isn’t a one-size-fits-all dynamic that any one camp can praise or denounce.

Some NFT projects warrant utility 

The Bored Ape Yacht Club is one of the quintessential utility NFT projects out there. Owners of Bored Ape NFTs have received numerous benefits for having bought into the collection, including access to exclusive merch, allowlist access to Bored Ape Kennel Club and Mutant Ape Yacht Club airdrops, both of which have become highly-valuable collections in and of themselves due to the success of the main NFT project from which they originate.

Yuga Labs, the company behind BAYC, also reserved 45,000 parcels of digital land from the BAYC metaverse Otherside for collectors. Getting free (or next to free) airdrops of NFTs from successful projects before they go on sale to the public is a bit like getting free money, and when the project in question is BAYC, that’s not a small amount of money, either.

This is the nature of most PFP NFT projects — they are digital collectibles that tend to focus on building up hype and a community base and then rewarding that base for buying in and holding onto their digital assets. And while nobody is saying that the artwork behind PFP projects isn’t unique or doesn’t take talent to make, it’s unlikely that anyone will buy into these collections just because they like how they look. Without utility, BAYC wouldn’t be as successful as it has become today, for example.

And that’s completely fine. It’s also reasonable for a collector to expect utility from such a project, especially if the project’s developers communicated that clearly from the get-go.

But projects and their followers don’t always have the best and most clear communication, and assumption abound. Someone who bought into a high-utility PFP collection one day and then purchased a 1-of-1 artwork from a digital illustrator might assume that the latter will provide them with just as much utility as the former, for example. In the age of cryptocurrencies and non-fungible crypto art, digital assets are investments above all, right?

Well, not for everyone, least of all the artists who have taken to NFTs to build successful careers and receive proper remuneration for their work.

The case against mandatory NFT utility 

“We are the utility, we made the art, we never quit, we put all the hours in to build the art you love so much,” wrote the well-respected NFT community member and photographer Isaac “Drift” Wright in an April tweet. “We’re not here to make you money, we’re not fucking pfp projects. We’re long term investments, not a quick flip.”

Drift is a well-known photographer in the NFT community who came out strong against the demand-for-utility stance when the debate flared up online earlier this year. His words speak to the difference in utility dynamics between PFP projects and artists who present their work in the NFT format. Cath Simard, another photographer in the NFT space, echoed these thoughts when she responded to utility proponents by saying, “The roadmap is ME. The utility is my ART.”

Both artists present the age-old argument that art need not have any utility or function to be of value. After all, Jeff Koons’ giant metal sculpture Ballon Dog (Orange) sold for more than $58 million, and it’s doubtful that the owner of that piece complains that it can’t do tricks.

And yet, there are voices in the NFT community who believe this is not a valid argument and believe utility is an inherent property of the NFT format. If artists don’t want to be accountable to their “investors,” in this way, they claim, they can simply sell their work somewhere else and in a more traditional format.

There are several problems with this idea. Firstly, no rulebook states that any art presented as an NFT must include utility, and any assertion to the contrary has its origins in a rather sinister and entitled implication that is unbecoming of the NFT community.

NFTs have given artists a more direct and effective way to find proper compensation for their work. The technology is starting to change the static, hierarchical, and often impenetrable dynamics of the traditional art world that have kept so many artists from gaining exposure or finding success. In fact, these are the exact reasons why so many have celebrated the advent of the blockchain. The creator economy finally had a new way to bloom.

But for collectors to applaud a technology that better enables artists to make a living through their hard work in one moment and then turn around and act like those artists owe collectors a debt just for having used that technology is obscene. Similarly, automatically labeling NFT collectors “investors” is loaded and misleading rhetoric couched in the language of commodification that reinforces ugly Web2 paradigms.

Should artists (and projects in general) be clear about what (if any) utility they plan on providing to the people who purchase their work as NFTs? Absolutely. Should collectors assume that all NFTs will come with utility and thus feel entitled to it? Absolutely not. The NFT ecosystem is a two-way street between artists and collectors, and both need to be understanding, empathetic, and direct.

NFT utility is a shapeshifting tool, and that’s a good thing

Utility is not a switch that you flip on and off. Plenty of projects straddle the line between providing collectors with art for art’s sake and giving them utility as well.

For example, Sir Anthony Hopkins’ first NFT project leans heavily into a high-concept theme represented in some outstanding digital renderings that incorporate his work as a bona fide painter. The artwork is visually impressive and took a team of artists at Web3 creative studio Orange Comet a significant amount of time to produce.

But Hopkins’ NFT project also provides collectors utility, like giving owners of the rarer items in the collection autographed merchandise and even a chance to have brunch with the actor himself. Hopkins is a cultural icon if there ever was one — he could very well have said, “the art is the utility,” and left it at that. But he and the Orange Comet team clearly felt a hybrid model would work best for their project.

Indeed, what worked for Hopkins might not work for another NFT project, even a similar one. Utility is a customizable tool, not very different from clothing. You wear what you like and what works for you. But chiding people for what they wear (or don’t wear) is pointless, arrogant, and borders on harassment.

The NFT community is still in its infancy, but it’s infamous for infighting. And, while its members could certainly benefit from a reminder that so much of the internet (and Twitter especially) distills complex and nuanced topics into unhelpful sloganeering and sound-bites, the discussions people are having there are largely healthy and necessary. Web3 is a new, dimly-lit room whose edges have yet to be mapped. Those discussions help people feel their way around the walls and get their bearings.

That room will take definite shape as time passes, and the utility debate will subside. With any luck, people will look back on these discussions and wonder what all the fuss was about. One day, it could go without saying that NFTs can have any utility you want — without encroaching on the idea that they don’t necessarily have to.

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