Nonfungible tokens continue to be popular despite the crypto-winter. As a result, many retailers and brands are offering digital NFTs as an option to physical products. Known as “phygitals,” these offerings allow real-world products to be tied to digital NFTs.
For example, RTFKT — a digital fashion and collectible company — recently launched a project called Cryptokicks iRL. Sources claim that RTFKT creates digitally-designed sneakers that are backed by a physical product.
RTFKT’s official Twitter account recently tweeted that Lace Engine NFT holders will be able to reserve a pair of Cryptokicks iRL, which can then be redeemed for its physical version starting May 1, 2023.
1/ All Lace Engine holders are allowed to reserve their sneakers at the RTFKT Interdimensional Center. This will give holders until May to determine a US shipping location.
To purchase a Lace Engine NFT for secondary:https://t.co/PoPwbooYqG
— RTFKT (@RTFKT) December 12, 2022
It can be difficult for physical NFTs to be redeemed
Although the idea behind phygitals is appealing to consumers and brands, it has been difficult to redeem physical NFTs. NFT holders might only need to provide their wallet address in order to redeem a digital NFT that is linked to a physical item. This makes it difficult for NFT holders to provide personal information, such shipping details.
Jacob Ner David, CEO of Vinsent wine marketplace, said to Cointelegraph that he had encountered this issue after launching two NFT Drops tied to physical bottles. Ner-David explained Vinsent launched two NFT drops at the end in 2021. This allowed consumers to buy tokenized bottles of fine wines that could be exchanged for physical bottles a year later.
Ner-David stated that the project was successful but only a small number of NFT holders had come forward to claim their physical bottles. Ner-David explained that this could be due to problems with the redemption process or poor communication to NFT holders regarding when their wine is available for claim.
“The only way we can communicate with our NFT holders is through Discord, Twitter and Telegram. We need to collect their shipping information,” he said.
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Ner-David stated that 15% of NFT holders involved with private drops have redeemed the wine they have purchased, while 30% have redeemed the bottles from the public drop.
“We have learned that there must be a redemption mechanism in place before launching a physical NFT drop,” he said. Ner-David said that the storage of unclaimed wine bottles is becoming a problem, and that they are still held at Israel’s Jezreel Val Winery.
These issues have led to companies that launch physical NFT drops adopting different approaches. Jeff Malki, a strategic advisor for NFT company NXTG3NZ, said to Cointelegraph that he was involved in the 7220 NXTG3NZ NFT digital sneaker drops rapper Lil Durk released in March 2022.
Malki said that physical sneakers that are tied to digital NFTs would be made available in the first quarter of 2023. Malki stated that this drop is not for Web3 natives. Users have the option of submitting their physical shipping address upon purchase.
“We expect 80% of our users to be non-crypto holders. If they want to provide their data, they may. It would be ideal for NFT owners to input their shipping data immediately upon purchase, so the items are shipped automatically,” he said.
Malki also mentioned that NXTG3NZ may implement a first come, first served system. This would allow a high-ranking group of NFT holders to claim their sneakers, but they must first choose their item and then redeem it. If this isn’t properly facilitated, another user could come forward to claim the physical item. Malki said:
“NFTs are cutting edge and we are all trying to innovate. This process is not governed by any blueprints. Brands and companies are interested in working on phygital projects, but there is still a lot of risk involved.”
While this might be true for some phygital project, others have claimed to have developed successful strategies. For example, Charlotte Shaw, chief marketing officer of BlockBar — an NFT project offering digital and physical wine founded in 2021 — told Cointelegraph that the firm offers NFT owners storage, insurance, a marketplace for resales and global shipping.
“Each BlockBar NFT corresponds to an actual physical bottle of wine or spirit, which bottle owners can resell, collect, gift or at any time ‘burn’ in exchange for the physical bottle,” she said.
Shaw elaborated that physical bottles are shipped from BlockBar’s facility in Singapore and can be redeemed via the BlockBar website. “When you redeem your bottle, you will be ‘burning’ the digital version in order to receive the physical version [one is exchanged for the other]This means that one less digital NFT is likely to exist. When you redeem, you will also be asked to enter your shipping address and you will need to be in full compliance of your jurisdiction,” she explained.
Shaw claims that there have been no problems with physical BlockBar NFTs being redeemed. But, the decentralized platform is less effective if user information is collected when NFTs have been purchased. However, this is the standard for ensuring NFT holders receive their physical items. Brian Trunzo from Polygon studios is the metaverse lead. He stated that it was necessary to collect user information for phygital project.
Solutions are being created to protect NFT holders’ personal information. For example, Justin Banon, co-founder of Web3 commerce layer Boson Protocol, told Cointelegraph that “doxing” oneself is a big concern for Web3 natives.
Banon explained that Boson Protocol created an application that acts as an encrypted messaging service that is decentralized and serves to solve this problem. “This ensures buyers only have to share private information with the seller and no other parties,” he said.
Ner-David also mentioned that Vinsent is currently working together with NFTrade, a cross-chain NFT minting platform, to develop a solution. Ner David, for example, mentioned that storage fees would be covered by the NFT. “We would then be able to communicate with the NFT holder that costs will accrue if the NFT remains unclaimed. This would all be incorporated into the NFT metadata.”
Physical NFTs will continue to be available
Industry experts agree that phygitals are a key component of brands’ and consumers’ future success. Banon, for instance, believes that physical NFTs will be the key to Web3 loyalty programs.
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Starbucks has already implemented loyalty programs with NFTs. Banon stated that physical NFTs would soon be part of these models.
“NFTs and Web3 technology enable brands to create ‘programmable loyalty commerce’ applications and programs. Where customers receive NFTs for performing target behaviors such as purchasing, engaging, and staying loyal, these loyalty NFTs can then unlock access to digital, physical and experiential assets.”
Cointelegraph spoke with Akbar Hamid, cofounder of Web3 diversity Project People of Crypto Lab. He said that although the idea is innovative, there are still many challenges to overcome in order to offer physical NFTs for luxury, fashion and retail products.
“There can be challenges with fulfilling utility for a much larger drop when you are talking about physical items attached to digital. This applies even if tradeability is being considered and someone redeems the utility and the physical good. Many brands don’t have the infrastructure or team to monitor this and that is key because we have to ensure the utility is delivered to the end user.”
Hamid said that NFT drop companies might want to work closely to brands and buyers in order to make sure that utility is earned efficiently.