Jordan Bishop
March 29, 2022
What Is Phygital? How Can It Help Your Business?

In the business world, there is a constant striving to find new and innovative ways to attract customers and set oneself apart from the competition. A relatively new way of doing this is through NFTs or non-fungible tokens. These tokens can be integrated into a company’s physical products and services, offering customers a unique experience that they can’t find with regular physical items. This post will explore five ways businesses can integrate NFTs with physical products to boost sales and stand out from the competition. The term for this is Phygital.

What are NFTs, and how do they work?

NFTs are digital assets stored on a blockchain and powered by smart contracts. Unlike traditional cryptocurrencies (which also work on blockchain technology), each NFT is unique and can’t be replaced by another token, which is why they’re called non-fungible tokens. When minted, each NFT is identified by a unique ID, and once it’s written in the blockchain, that ID can never be changed.

These digital assets can contain all sorts of metadata besides the uniqueID that makes them one of a kind. It also stores ownership and transferability information and even special features that make them useful in different business settings, five of which we’ll learn about today.

The rise of phygital products and physical product-based NFTs

Phygital describes the union or marriage between the physical and digital realms. The term is frequently used to describe the integration of digital technologies into the brick&mortar in-store customer experience like the now ubiquitous McDonald’s Digital Kiosks or how some banks have added similar smart screens for self-servicing.

However, with the advent of NFTs and their different use cases in business, the term is now taking on a new meaning. The integration of real-life physical products with digital NFTs effectively blends both worlds into one, where the physical product gains qualities of the digital realm and the NFT gets a more tangible existence. This signals the rise of phygital products as the new format to deliver value to customers.

What are Phygital (physical asset-based) NFTs?

Physical asset-based NFTs can be described as a phygital asset whose digital qualities come from a digital file, metadata, and a smart contract encoded into an NFT. In other words, they are uniquely identifiable physical objects whose identity, ownership, transferability, and other features are written or coded as smart contracts on a blockchain.

Although not mandatory, physical asset-based NFTs are usually linked to a digital twin of the real asset (be it a digital image or 3D model). This makes these assets particularly promising as tools to integrate the real and virtual reality worlds as the emerging metaverse comes of age.

As the metaverse evolves, whether we see these phygital assets as physical assets with digital twins or digital assets with physical twins will cease to make a difference. The only thing that will matter is whether or not businesses were quick to catch on and started taking full advantage of the many benefits that NFTs offer for their products and services.

That said, here are five ways businesses can start integrating NFTs with their physical products to future-proof their business and create new, more valuable phygital products for their customers.

Five Use Cases of Physical Product-NFT Integration

#1 Adding transparency to foster trust in consumers.

Today’s broad access to information has only made customers hungry for more. To make better decisions, consumers will research brands and products before choosing what to buy. This means that it’s more important than ever for businesses to be as transparent as possible to gain and retain their trust. In fact, according to research by Salesforce, 95% of consumers say their trust in a company is key to remaining loyal to the brand.

Integrating NFTs into products can help customers verify the provenance of each product and get a better understanding of your business’s supply chain. Since this information is encoded into the token and is tamper-proof thanks to the decentralization of the blockchain, NFTs can add an important layer of transparency that can foster trust in your customers.

An example of this is Jamaica Blue Mountain Coffee, which, in 2021, began incorporating NFTs into every bag of roasted coffee they sold. Owners who scan the QR code on the bag are taken to a unique website for that NFT that displays information about the product, including information and pictures of the farmers and the coffee farms where they source their beans.

#2 Integrating NFTs into your products to protect your brand.

Highly popular consumer brands and high-end luxury brands are frequently subject to counterfeits that hurt the brand’s image (not to mention their bottom line). In the case of high-value goods, limited edition products, or collectibles, throwing in a certificate of authenticity can help solve this issue, but even those can be subject to counterfeiting.

Since NFTs contain ownership and transferability information of the underlying asset and this information is stored and readily available on a public blockchain, they remove the need for trust in third-party verification. In other words, they can act as certificates of authenticity that buyers can verify themselves when they’re making a purchase.

#3 Making your products traceable at the individual item level.

NFTs let you give your products a unique digital identity through the serialization of every item. This workS just like any other serial number, but with the difference that the information is stored on the blockchain. This makes it safer and more efficient than private serial number databases. Additionally, each minted physical item is tracked independently from all the others. So the blockchain will also contain the information of who owns each item and whether or not it has been resold.

As any business owner may imagine, this richness of information and single-item traceability may prove invaluable to fine-tune your production and marketing strategies in the future.

#4 Using NFTs to aid reverse logistics and upcycling for better waste management.

Making products traceable and both you as a business knowing where your products go and buyers knowing where their purchased products came from is only one part of the production management equation NFTs can help solve. They can also contain important information about the specific ways each individual item should be disposed of to minimize their environmental impact, more closely integrating the consumer into the product life-cycle.

Additionally, NFTs can help improve and optimize reverse logistics, setting clear roadmaps of how and where users can return used items for upcycling. This could help small businesses copy part of the business model Apple is famous for.

#5 Built-in royalty to add revenue from secondary markets.

It’s not uncommon for mass-market consumer products that are sold for pennies one day to become invaluable collectibles years down the road. Imagine if, as the original manufacturer, you could get a piece of that pie. You can if you mint the product as an NFT and add royalty fees to the smart contract. By doing this, you can generate extra revenue every time your products are traded on different platforms

The bottom line

NFTs offer a wide variety of benefits for businesses that want to integrate them into their physical products and services.

Some of these advantages include:

  • Increased transparency that can build trust with customers
  • The ability to use NFTs as certificates of authenticity
  • Individual item tracing for better production management
  • The ability to encode royalty fees into each product

Each of these benefits offers a unique way to improve your business. When combined, they offer an even more powerful toolkit for businesses to use.

NFTs are still in their early days, but they hold a lot of promise for the future of physical product integration. By starting early and getting your feet wet, you may discover a new use case for NFTs that can give you a first-mover advantage and propel your business to success.

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Jordan Bishop is the founder of Yore Oyster and How I Travel, two sites to help you optimize your finances while living an international life. He recently published his first book, Unperfect, and loves to connect with new people on LinkedIn.

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