While non-fungible tokens (NFTs) prices have fallen in line with the broader crypto market over the past few weeks, there is still a lot of excitement around these digital assets, especially when they affect high-profile artists. However, until recently, investors viewed these NFTs simply as speculative works of art, which has led to tremendous volatility.
However, what we are seeing now is the emergence of utility-based NFTs that are moving beyond traditional NFTs and drawing attention to the blockchains that make this possible. This is good news for polygon (MATIK -1.47%), which has become one of the most popular blockchains for minting new, utility-based NFTs. MATIC is now one of the top 20 cryptos in the world with a market cap of nearly $5 billion.
What utility-based NFTs are and why they are important
In layman’s terms, utility-based NFTs combine an underlying creative asset (e.g., a work of art) with additional benefits, perks, or opportunities. So if you own a particular NFT, you may gain access to an exclusive VIP club simply by holding the asset. This is possible because your ownership of the asset is instantly verifiable via the blockchain. But what really gets interesting is what the blockchain enables in the form of smart contracts, which are small, executable computer programs. For example, the NFT could include a smart contract stating that any holder of the underlying creative asset can also participate in future revenue opportunities.
Thanks to blockchain technology, it is now possible for artists to release new music albums as NFTs. A growing list of prominent music artists have done so, including Snoop Dogg, Kings of Leon and DJ Steve Aoki. In mid-May, EDM pop duo The Chainsmokers released a new music album, Polygon, as NFT. Buying the NFT gives you perks like early access to concert tickets, free merchandise, and entry to members-only events. And here’s the best part – The Chainsmokers have embedded a smart contract into the NFT that gives fans the opportunity to earn a small percentage of the total streaming royalties from the new album. Every time a fan streams a song from the album on a service like Spotify (NYSE:SPOT)NFT buyers get the chance to participate in the positive side of the album.
Harness the power of Ethereum
Of course, naysayers might point out that Polygon is one of several blockchains used by artists to sell new NFT albums. Snoop Dogg used for example Cardano (CRYPTO:ADA) when he released his latest NFT album and others have used Solana (CRYPTO:SOL). In other words, Polygon hasn’t cornered the market for utility-based NFTs.
However, what this reasoning ignores is the fact that Polygon is a powerful blockchain built on top of it ether (CRYPT: ETH) Blockchain still dominating the market for traditional NFTs. This relationship is a huge built-in advantage. As a result, MATIC will likely be able to leverage the size and scope of the Ethereum ecosystem to bypass competitors.
Polygon, business geometry recalculation
Ultimately, blockchains like MATIC enable completely new business models. For example, think of music. Back in the day, paying $10 for a record album was pretty much a sunk sum. If your favorite artist sold millions of albums, you were literally one in a million in a crowd. You couldn’t show up at a music venue in New York City and charge VIP entry. You couldn’t use your album to get preferred seats at sold-out concerts. The best way to make money off the album was, quite simply, to trade it in at a record store for a few bucks. Now compare that to what is now possible when you combine blockchain technology with smart contracts. Suddenly an album isn’t just an album anymore.
With more high-profile artists already planning NFT releases in 2022, we could see an exciting new development of business models in almost every artistic field. Once investors see how Polygon is contributing, it’s easy to see how this little-known cryptocurrency could benefit from a future recovery in the NFT market.
Dominic Basulto owns Ethereum, Cardano and Polygon. The Motley Fool has positions in and recommends Ethereum, Solana, and Spotify Technology. The Motley Fool recommends Polygon. The Motley Fool has a disclosure policy.