Non-Fungible Tokens (NFTs) became successful because they can generate digital scarcity on the internet. Verifiable, unbreakable scarcity. It is very important to keep this in mind when considering use cases for dynamic NFTs.
NFTs and their dynamic counterparts make a lot of sense when they provide a utility or access to a limited resource. NFTs don’t have as clear of a use case in relation to events with unlimited resources (i.e., tickets for an online event where the audience can attend in unlimited numbers).
However, by limiting the audience’s size, i.e., a “VIP membership” capped at 100 people, a basic but powerful use case is created. But where NFTs truly shine is when access to a provably scarce resource can be provided to only those eligible. For example, they only let a specific NFT owner ask a question (and receive an answer) directly to a band member. In other words, making NFTs “dynamic” will add the most value in the context of ownership. The best use cases start with “as long as I own this NFT, I can [...]”.
In order to bring about the unlimited potential of dynamic NFTs, we are working intimately with Chainlink as the go-to oracle solution for Ether Cards. We have already begun integrating Chainlink VRF as a means of providing developers with access to verifiable randomness on-chain. However, Chainlink provides substantially more off-chain data and computation possibilities for Ether Cards.
Chainlink is a highly generalized decentralized oracle solution that allows developers to write to and read data from any external API and blockchain network, as well as perform various types of off-chain computation. This allows NFTs to be connected to the external world to trigger real-world events, be triggered by external data and computational outputs, and enable the creation of tokenized commodities.
Below, we present numerous use cases that developers can begin to explore on Ether Cards, many of which would require the use of Chainlink oracles.
The use cases below take into account the most important properties of NFTs, especially scarcity, provenance, and accountability.
- Provide access to a person’s attention, time, or other resources
- Provide access to an event
- NFTs triggered by real-world events
- NFTs triggering real-world events
- Connection of NFTs and physical objects
- Access Control
- Funding & Monetization
- Providing financial benefits
- Leveling, skill trees, and gamification of NFTs
- Representing commodities
The Baseball Card: Provide access to a person’s resources
This is one of the fundamental use cases of the system. It can and will be used everywhere from hiring expert contractors to commissioning artists to interacting with independent performers in the adult industry.
The simplest form of it is an “expert token” that gives rights to a predetermined amount of time of the expert. This allows the expert to sell their time, even in advance, and even with a dynamic, demand-based timing. This also provides the capacity for consumers to have a verified, trustless asset that provides them ownership over the expert’s limited resource (time). This asset is immutably tokenized, can be verified, and even sold to another person.
The NFT provides access to the person’s resources, and the features (traits) of the NFT specify the details (one-time, recurring, limitations, scheduling, etc)
The implementation will look similar to that of a baseball card that has the ability to connect the owner of the card and the person represented on the card. The interaction between the two parties can vary, but the limited number of that type of NFT makes the ability sought after, even more so if the person on the “baseball card” is popular.
The possibilities here are endless — we will create a separate paper on this use case.
Provide access to an event
Using NFTs to provide access to an event (“ticketing”) is a legitimate use case, especially if the number of tickets sold is limited. Counter-intuitively, this works exceptionally well with physical events, where the space and the number of attendees are limited by necessity.
One of the benefits of using NFTs instead of regular tickets is that the NFT ticket retains a degree of value after the event, either as memorabilia or simply as a limited-edition object that can be gamified. It can turn into a discount token for other events or drop benefits (discounts) for related events, services, or merchandise.
NFTs affected by the real world
Although the opportunities in the real world affecting NFTs are vast, the effects have the most value if they are permanent. For example, an NFT in which the picture is affected by changes in the weather seems interesting as a novelty, at most. On the other hand, an NFT sports card that receives damage if the opposite team wins engages the owner on a much more personal level.
A shortlist of ideas that might work well with NFTs is below. We expect this list to change or expand rapidly as research progresses and new ideas are uncovered:
- Sports Card NFTs getting repaired/damaged as the opponent loses/wins
- An artist self-portrait that changes daily (by the artist taking new photos of themselves daily)
- Prediction market results affecting/destroying / unlocking NFTs
- NFTs or features affected/unlocked by specific social media accounts mentioning specific words
- Challenges: similar to the artist self-portrait example mentioned above, but the NFT has some ETH locked in it that’s released to the current owner if the artist misses the daily updates 3 times
In general, any verifiable event will have the ability to affect NFTs. The general rule is that the event should have a fundamental effect on the NFT, changing its state, properties or value.
NFTs affecting the real world
A change in the state of the NFT or by utilizing its traits can and will have an effect in the real world as well. The most trivial of these effects is physical delivery. If the NFT’s art depicts an actual piece of art or object, and the NFT has the “redeem” trait, then the actual owner of the NFT can always decide to trigger that trait and receive the physical object.
- Have the “redeem” trait burned, so it can’t be used anymore
- The owner will have the physical object
- The NFT will consequently be worth less — because the redeem function was triggered.
We predict that this will often create interesting dynamics where the owners prefer to keep the NFT intact and not “damage” it, even if this means they will never obtain the physical object.
This is just one of the ways NFTs can have an effect on the real world. We are working on a more in-depth paper on this topic. The redeeming and delivery process could also be entirely automated through Chainlink oracles where storage and delivery confirmation is validated on-chain, providing users proof they will receive a physical item in exchange for their NFT.
Connection of NFTs and physical objects
The current approach towards NFT-physical object connections is mostly poorly implemented, with little thought given to actual practicality and usability. According to our research, there are two ways to implement this use case properly. One creates a temporary connection, while the other creates a permanent bond.
The temporary connection is described in the previous section (NFTs affecting the real world), where the connection is removed once the physical object is delivered.
The permanent connection has a fundamental problem: it is very difficult to avoid the situation where the owner of the NFT is different from the owner of the physical object.
The only way to avoid this — and the way we have implemented it — is when the physical object owns the NFT token.
In practical terms, our implementation gives the physical object an active, embedded NFC chip. This chip generates its own wallet, and never discloses the private key. The NFT that represents the object then gets minted to the public address of this wallet that is embedded into the object.
In this way, the physical object owns its own NFT and it can’t be transferred out of that wallet. BUT it can be updated with the new owner’s details, can provide provenance, and the owner can benefit from all the other benefits that are described in this document.
This structure also enables the Holy Grail of NFT use cases: the ability to pay royalties on physical objects on the secondary market.
Discounts are a fundamental trait type of dynamic NFTs, as implemented by Ether Cards. If the NFT has a discount in the context of the platform, all the user needs to do is to keep that NFT in their wallet that is connected with the (smart contract of the) platform. The discounts and other benefits will then be automatically applied, and no extra interaction is required by the user.
Access control is another fundamental trait category. If the NFT has an access trait that makes sense in the context of the platform, then the user will be able to access those features enabled by the traits.
For example — given an educational platform — a university with an NFT-based card that has a trait that enables issuing certificates, can thus issue certificates to its students.
The trait can come with the desired limitations of the platform owner — potentially limited by the number of certificates that can be issued, expire after a certain date, or they could be unlimited.
Funding & Monetization
Usually, the limited/expiring access traits are issued during normal operation when the platform is up and running. Using this method, the users of the system can purchase the features that they require to use.
The unlimited traits are commonly issued when the project is bootstrapped and sold to early adopters. These would normally be limited in issuance.
The above creates a unique fundraising and monetization model that can be used by any blockchain-based projects, especially, and most importantly, non-financial projects.
The above simple mechanism might hold the key for a simple and effective monetization model that any open-source project (even non-financial ones) can utilize. These models are much less prone to speculation than the previous method of blockchain-related fundraising, like initial coin offerings (ICOs).
This is due to the fact that if the project delivers on its promise and the platform is successful, then the early, unlimited cards will have a very high value. If the project fails, these cards will be worthless.
Ether Cards and its public sale in fact is a pilot project to test this new monetization/fundraising platform. We want to make this available to everyone under a very permissive, MIT-style license.
Providing Financial Benefits
It is straight-forward to utilize dynamic NFTs to provide direct financial benefits. The most technically straightforward way is to issue NFTs (or issue traits on NFTs) that provide direct revenue share.
For example, one can issue 100 NFTs, and each NFT will receive 1% of the incoming transaction of a platform (smart contract). So as transactions come in, the appropriate amounts will be automatically made available and can be claimed by the current owner of the NFTs.
This can be made more complex, for example, by providing ownership of some pool tokens and other drops. The fundamental idea is to have a limited resource (the NFTs) that can directly and financially benefit from the incoming transactions of a smart contract.
This creates ultimate transparency and can be used as part of a traditional fundraising strategy.
The challenges here are not technical but legal — securities law etc will have to be taken into account, but as long as proper KYC is done, and local laws are observed, this use case is very achievable.
Leveling, skill trees, and gamification of NFTs
Any set of Cards — created for a community, platform or in any other context — will start relatively equal in value or features.
There are tremendous opportunities in allowing these cards to be individualized by their owners.
The first one is providing these cards an ability to level up — by incentivizing their owners to complete actions that a) make their cards more valuable and b) make them more useful for the platform that issued the cards.
The second opportunity is the introduction of skill trees — requiring the owners of the cards to make a decision regarding how to improve their cards. In the simplest form, for example, they need to decide if they want their cards to have a better chance to get art drops or sports-related drops.
These will have two effects on the cards:
- They will be personalized, so the owners will be less likely to sell it
- They will be unique, with a unique set of features, and if the owners made good strategic decisions, then they will be extremely valuable due to the unique arrangement of these features.
In general, this kind of gamification, if designed well in the context of the cards’ intended usage, can add incredible subjective and objective value to the cards, especially due to their limited issuance.
The business opportunities in tokenizing commodities is very large, and — assuming continued acceptance of the technology — could be astronomical. The commodities market is worth tens of trillions of dollars, while the crude oil market alone is worth nearly $1.5 Trillion, presenting a large opportunity.
With Chainlink, the most widely used oracle network, a number of possibilities in this domain become possible. External price oracles could be used to peg NFTs to the value of a specific commodity, GPS oracles could track the shipment and delivery as an NFT, and Proof of Reserve oracles could verify an NFT is fully backed by the commodity it represents.
Tokenizing real-world assets into NFTs that are verifiable end-to-end is an area where secure oracles are fundamentally important. For this reason, we plan to build a set of special oracles on Chainlink and a business unit that specializes in the difficult task of real-world commodities provenance on the blockchain, via a standardized set of methods, business practices, and oracles.
We believe Ether Cards and Chainlink can be a standardized framework for building a wide variety of dynamic NFTs that require external resources, greatly expanding their utility beyond static digital assets and into gamified, DeFi-enabled, and/or spontaneously creative primitives, which support a completely unique asset class.
Do let us know if you are interested in this particular use case.
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About Ether Cards
Ether Cards is an NFT gamification and monetization platform. It helps artists to maximize the value of the art they create and helps NFT marketplaces keep their audience engaged.
Ether Cards is created and operated by a group of industry veterans who have a long professional history of supporting the biggest players in the space, including the Ethereum Foundation and Consensys.