Redeeming physical NFTs: Easier said than done?

Despite the crypto winter, non-fungible tokens (NFTs) continue to attract interest. This has become apparent as many brands and retailers have started offering Digital NFTs attached to physical products. Known as "phygitals," these offers allow you to link real-world products to digital NFTs.

For example, RTFKT, a digital fashion and collectibles company, recently launched a project called Cryptokicks iRL. According to sources, RTFKT is creating digitally designed sneakers backed by a physical product.

The official RTFKT Twitter account recently tweeted that Lace Engine NFT holders will be able to pre-order a pair of iRL Cryptokicks, which can then be redeemed for their physical version starting May 1, 2023.

1/ We are allowing all Lace Engine holders to reserve their sneakers on the Interdimensional Hub RTFKT. This will allow cardholders until May to find a shipping address in the US.

To pick up a Lace Engine NFT on secondary:https://t.co/PoPwbooYqG

—RTFKT (@RTFKT) December 12, 2022

Redeeming physical NFTs can be challenging

While the concept behind phygitals may be appealing to brands and consumers, redeeming physical NFTs has proven challenging. For example, in some cases, NFT holders may only need to provide a wallet address to redeem a digital NFT linked to a physical item. However, this makes it difficult to collect personal information, such as shipping details, from NFT holders.

Jacob Ner-David, CEO of wine exchange Vinsent, told Cointelegraph that he ran into that problem after launching two NFT drops tied to physical bottles of wine. Ner-David explained that in late 2021, Vinsent launched both a public and private NFT drop. This allowed consumers to purchase tokenized bottles of fine wine that could be redeemed for physical bottles a year later.

Although the project was successful, Ner-David shared that only a small percentage of NFT holders have come forward to claim their physical bottles of wine. According to Ner-David, this is due to challenges with the redemption process and poor communication to NFT holders that their wine is ready to be claimed.

“The only way we can communicate with our NFT holders is through Discord, Twitter and Telegram. We need to collect your shipping information,” he said.

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Ner-David explained that 15% of NFT holders associated with private delivery have claimed their physical bottles of wine, while close to 30% involved with public delivery have redeemed their bottles.

“We have learned that there needs to be a redemption mechanism before launching a physical NFT drop,” he said. Ner-David added that storage of the unclaimed wine bottles has become problematic, noting that they remain at the Israel-based Jezreel Valley Winery.

Due to issues like these, companies that release physical NFT drops have started to take different approaches. For example, Jeff Malki, strategic advisor to NFT firm NXTG3NZ, told Cointelegraph that he helped facilitate the launch of the 7220 NXTG3NZ NFT digital sneaker that rapper Lil Durk launched in March 2022.

Malki explained that physical sneakers tied to these digital NFTs would be available in Q1 2023. He added that this particular drop is aimed at non-natives of Web3, noting that users have the option to submit their physical shipping addresses. at the time of purchase.

“We hope that 80% of our users are not cryptocurrency holders. If they wish to submit their data, they may do so. It would be ideal for NFT owners to enter their shipping details immediately after purchase, so items are shipped automatically,” he said.

Additionally, Malki noted that NXTG3NZ could implement a first-come, first-served system. This would mean that a top-tier group of NFT holders could claim your physical sneakers, but you have to choose your item and redeem it immediately. If this is not properly facilitated, another user may come forward to claim the physical item. malky said:

“NFTs are cutting edge and we are all trying to innovate. There are no blueprints for this process. Brands and companies are interested in working on phygital projects, but there is still a lot of risk involved.”

Although this may be the case for some phygital projects, others claim to have found successful strategies. For example, Charlotte Shaw, director of marketing for BlockBar, an NFT project that offers digital and physical wine founded in 2021, told Cointelegraph that the company offers NFT owners storage, insurance, a marketplace for resales, and global shipping. .

“Each BlockBar NFT corresponds to an actual physical bottle of wine or liquor, which bottle owners can resell, collect, give away, or at any time 'burn' in exchange for the physical bottle,” he said.

Shaw explained that the physical bottles are shipped from BlockBar's Singapore facility and can be redeemed through 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], which means that there will be one less digital NFT. When you redeem, you will also be asked to enter your shipping address and you will need to comply with your jurisdiction,” he explained.

According to Shaw, there have been no challenges associated with redeeming physical BlockBar NFTs. However, the collection of user information when NFTs are purchased creates a less decentralized platform. However, this may be the norm when it comes to ensuring NFT holders receive physical items. Brian Trunzo, metaverse lead at Polygon studios, told Cointelegraph that capturing user information is necessary for phygital projects.

Fortunately, solutions are being developed to ensure greater privacy for NFT holders who disclose personal information. For example, Justin Banon, co-founder of Web3's Boson Protocol trading layer, told Cointelegraph that "doxing" oneself is a big concern for Web3 natives.

To solve this dilemma, Banon explained that Boson Protocol had created a decentralized application that works as an end-to-end encrypted messaging solution. “This ensures that buyers only have to share private information with the seller and no other party,” he said.

Ner-David also noted that Vinsent is currently working with cross-chain NFT minting platform NFTrade to come up with a solution to the two previous phygital drops. For example, regarding the storage of physical wine bottles, Ner-David mentioned that a period of time would be included within the NFT cost to cover storage fees. “Then we could communicate with the NFT holder that costs will accrue if the NFT remains unclaimed. All of this would be incorporated into the NFT metadata.”

Physical NFTs are here to stay

Challenges aside, industry experts believe that phygitals will play an important role in moving brands and consumers forward. For example, Banon believes that physical NFTs will lead the way for Web3 loyalty programs.

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While companies like Starbucks have already started to implement loyalty programs using NFTs, Banon mentioned that physical NFTs would soon become part of these models:

“NFT and Web3 technology allow brands to create 'programmable loyalty commerce' apps and programs. When customers receive NFTs for performing targeted behaviors, such as buying, engaging, and staying loyal, these loyalty NFTs can unlock access to digital, physical, and experiential assets.”

Although innovative, Akbar Hamid, co-founder of diversity project Web3 People of Crypto Lab, told Cointelegraph that there is a long way to go in terms of resolving the challenges and logistics related to offering physical NFTs within the fashion, the retail trade and luxury consumer goods:

“There can be challenges with utility compliance for a much bigger drop when talking about physical items attached to digital. This is also the case if you are considering marketability and someone other than the original purchaser trades in the utility and physical good. A lot of brands don't have the infrastructure or the equipment to monitor this and that's key because we have to make sure the utility is delivered to the end user."

Due to concerns like these, Hamid explained that it might be better for companies that drop NFTs to work closely with brands and buyers to ensure the utility is redeemed efficiently.