Tool access NFTs, good or bad?

July 15th, 2023

There has been a growing trend of using NFTs as gated access to various tools and services. While this approach may seem innovative and exciting, it also comes with a range of concerns and potential drawbacks. I have compiled some key points below that I think bring up some interesting points for both creators and collectors to consider before either launching a collection or for collectors to consider before investing in such a collection.

Exclusivity
When you gate access you create exclusivity and hinder accessibility by requiring users to possess a specific NFT to access a tool, it creates a barrier for entry. This exclusivity contradicts the principles of open access and equal opportunity for all, limiting participation to a select few who can afford or obtain the necessary NFT.

Limiting Revenue
By gating access to an NFT collection, you are basically limiting the amount of customers you can onboard to generate revenue. This model will significantly reduce cash flow for your business as you rely on the initial sale/mint of the NFTs and maybe drip feed some royalties over time, if you can retain some relevancy after the initial hype from the mint. The whole idea of creating a profitable business is to scale revenue, limiting access does the complete opposite of this, it is a terrible business model.

Volatility
The value of an NFT can fluctuate significantly in these markets, using such a volatile asset as a requirement for accessing a tool introduces unnecessary financial risks. This in most cases would be a deterrent from anyone wanting to access the tools.

Speculation
Now this isn’t super important for a business creating tools, but tieing the NFT to a utility (like access to a tool) limits the upside speculation on its value, as you have created a measurable metric for the NFTs evaluation. As this market is heavily populated with speculators, you will find they wont be interested in your collection, which will reduce your relevancy, floor price and any market exposure for your tools that you would have received from being a popular collection. It also overlooks their capacity to represent ownership of unique digital items and reduces them to mere gate keys, undermining their intrinsic value and failing to leverage the full potential of NFTs.

Congestion
Some blockchain networks can experience scalability issues and network congestion. Imagine not being able to access your tool or service due to high traffic or down times from a specific chain. This will lead to a less efficient user experience that can discourage users and hinder widespread adoption of the tool.

Excessive use of Blockchain Technology
Integrating an NFT requirement for access adds an unnecessary layer of complexity and reliance on blockchain technology. While blockchain tech has its merits, it is not always the optimal solution for every use case. In some scenarios, traditional authentication or access management systems may be more appropriate, reliable, and scalable.

Marketing
Now there are some arguments to be had and often you will hear people say “But the community becomes your marketing team”…. well I would counter this argument that the only people making noise about your project are making noise about the NFT not your tools. They are incentivised by encouraging people to buy the NFT and seeing the floor price rise. Very rarely will you see a community member actually marketing a projects product or service and helping onboard new customers for them.

If marketing is needed for your product/service then you should be allocating some funds to marketing expenses, with paid ads, promotions, ambassadors or collaborations with other relevant projects to spread awareness. This will be more effective than a bunch of randoms posting screen shots of Magic Eden and saying “Told you not to fade anon”.

Conclusion
If you must launch an NFT collection and you wish to allow those holders free access, you need to open the product up to the public and charge a small fee or subscription as well. If you can not sustain revenue with this model and the help of some quality marketing, then maybe you didn’t have product market fit to begin with (Back to the drawing board).

Another option would be to ensure a creative rewards or a referral program to align incentives with the holders. Post tasks that get them to create awareness for your tools or services, in return for rewards. This will have them actually marketing your product instead of the NFT

While NFTs have their place in the digital art and collectibles space, using them as gated access to tools and services brings about a range of issues. From exclusivity and market volatility to limited utility and scalability challenges, the drawbacks far outweigh the perceived benefits (in my opinion of course).

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