NFTs are revolutionizing how we deal with ownership of digital assets. However, when hearing the word NFT, one can think of digital artworks, music, fashion, photography, and many other digital forms of digital assets. Although most of these non-fungible tokens link to repetitive AI-generated jpegs, their technology can aid in selling and owning physical assets like never before. Physical NFTs, also referred to as phygital NFTs, are non-fungible tokens tied to real-world assets. Linking a physical item to a token on the blockchain might be a revolutionary step in the physical market. Many world-renowned brands have already taken the step to create digital twins of their products and they’re seeing the full potential of what these non-fungible certificates of ownership can do.
So what are the benefits of linking a physical asset to an NFT? And how does it affect the sales of major brands?
Physical NFTs
It is already established that NFTs act as proof of authenticity and ownership of assets since NFT transactions are recorded on the immutable blockchain. Since their mainstream popularity kicked back in early 2021, NFTs often link to digital artworks. However, with the growth of Web3, NFTs have expanded to represent off-chain assets such as physical artworks, apparel, and real estate.
NFTs in this case, act as certificates of authenticity of real-life assets and records of their sales. For example, not all people are able to identify if the Prada bag they bought through a secondary sale is the real deal or not. However, if Prada chose to tokenize its designer bags, buyers can easily detect the authenticity of the product without being scammed out of their money. All they have to do is check the transaction history of a certain product and ensure that it came from the official company.
Moreover, physical NFTs are sold and traded like any other NFT, but with the bonus of redeeming the physical version of the digital media that it’s linked to. However, physical NFTs opened the door for more artistic mediums to the NFT space. For example, an NFT that links to a picture of a sculpture is not the same as linking to the sculpture itself. Also, aside from art and creative mediums, physical NFTs can digitize basically anything and record it on the blockchain. For example, the Romanian government is studying the implications of tokenizing government documents on a dedicated institutional NFT marketplace.
Benefits of Physical NFTs
NFTs can bring added value to physical items in many ways. Such as:
- Authenticity Proof: Since Physical NFTs can provide proof of the authenticity of a certain product, that means that physical assets cannot be counterfeited. The blockchain makes sure that information attached to the digital twin of an asset cannot be faked or altered.
- Transparency: In the real world, secondhand sales of valuable items are often abused to increase the price of a physical item higher than what it is valued at. Thanks to the record of transactions NFTs provide, now buyers can have an understanding of the item’s price history and market value, thus avoiding being scammed.
- Secondary Sales Royalties: In real life, when you create something and sell it, you earn a profit from the primary sale of the item. If the buyer resold the physical item to someone else, you don’t get anything out of it. However, thanks to NFTs’ smart contracts, you can determine a percentage of royalties each time a specific item is resold.
How to Link an NFT to a Physical Asset
Physical NFTs come in two parts, hence the name digital twin or phygital NFT. One part consists of a physical item, it could be basically anything that falls under physical assets. The other part is the digital asset of the physical item that one can tokenize on the blockchain through smart contracts. How to link them? Physical assets will have a visible identifier such as a QR code or a near-field communication NFC tag. Here are the steps to mint a physical NFT:
- Find a physical item you’d like to tokenize.
- Create a digital twin of the item by taking its photo.
- Make sure all metadata of the digitized item is correct. Such as size, color, unique features, author, and any other information you feel is important.
- Find a trustworthy marketplace such as Opensea to mint the digital asset as an NFT
- Create a QR code or an NFC tag to mark the physical item as an asset linked to an NFT.
Brands Opting for Phygital NFTs
With the fast evolution of the digital world, consumer behavior is changing toward the digitization of basically everything. Major brands are taking this opportunity to rebrand themselves to appeal to the new target market. Thus, brands have found new ways to let their customers know that they are up to date with technological advancements. That is by incorporating digital twins for their products, solidifying them as NFTs.
Brands have benefited from the tokenization of their physical products by capitalizing on resales. That is because NFTs’ smart contracts ensure that no one can break of tamper with the royalty system. Therefore, brands have the upper hand in all their tokenized products, benefiting from each and every resale. Brands have also applied limited-edition marketing strategies where holders of their NFTs will get rights to exclusive content, capitalizing on their FOMO and the urge of owning something special.
Moreover, smaller brands with little funds can use NFTs for crowdfunding a project. By launching an NFT collection, pre-sale of all NFTs can fund the actual project by allowing smaller brands to gather the financial resources needed.
Some brands even collaborated with successful NFT collections to market their physical products. This way, brands can reach a new audience and expand their market to the world of Web3 by partnering with already-established NFT names. For example, Gucci has partnered with the NFT collection Superplastic and launched a phygital collection. The collaboration bred a collection that included a handmade Italian ceramic sculpture accompanied by its digital counterpart.
Physical NFT Collections
Gap
Gap first announced its venture into the NFT ecosystem back in January of 2022. The retail giant launched its very first NFT collection as a gamified digital experience. The NFT collection consists of a Gap hoodie that unlocks physical clothing. Gap collaborated with Frank Ape’s artist Brandon Sines to make only 100 limited edition physical hoodies. Collectors who wish to buy the physical asset will have to own Common and Rare level NFTs.
Adidas Originals
Adidas partnered back in 2021 with BAYC, Punks Comic, and Gmoney on 30,000 Adidas Originals NFTs. Owning an Adidas original NFT unlocked exclusive content like premium experiences in the Sandbox and redeemable physical Adidas merchandise. NFT holders could claim exclusive physical items such as tracksuits, beanies, and hoodies. After receiving the physical product their NFT burned and became a new NFT with an increased phase number.
Mattel
Giant toy manufacturer Mattel has collaborated with entrepreneur Gary Vaynerchuck’s VeeFriends NFT collection and launched a physical UNO deck NFT. The UNO cards featured VeeFriends’ signature characters including Charming Cheetah, Sweet Swan, and Gary Bee. Mattel has also launched Balmain x Barbie collection where NFT holders could claim barbie-sized Balmain apparel.
New Era of Commercial Trade
While most associate NFTs with Ape jpegs and low-resolution pixel art, the blockchain has the potential of revolutionizing how we interact with physical products. Physical NFTs can play a major role in mundane transactions where the blockchain can provide authentication assurance. And perhaps, maybe linking a physical asset to an NFT is the best usage of these non-fungible tokens. Since they bridge the gap between the physical and digital worlds.