Blurring the Lines: Phygital Crypto

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, Blurring the Lines: Phygital Crypto

You may have come across the portmanteau term phygital, which describes a crossover and blending of physical and digital products and experiences. This term is particularly relevant to crypto, NFTs and web3, and, if crypto/web3 adoption gathers pace in the coming years, phygital packages may become commonplace.

There have been several recent crypto examples of the digital and the physical coming together, in various ways. Some of these fit into the phygital box, while others relate more generally to crypto being used in real-world cases, but all demonstrate that digital ledgers are not abstract virtual notions distinct from the real world.

Roofstock and USDC Homes

This month, a house sale was completed through the transfer of an NFT on the Roofstock onChain platform, which facilitates real estate trades through a specialized NFT marketplace. What’s more, the purchase was funded using a crypto lending service called USDC Homes, which offers crypto-collateralized financing options.

The buyer of the home, in South Carolina, United States, commented in particular on the ease of the process, in comparison with the time-consuming complications involved when buying and selling real estate the traditional way.

This observation contradicts an often cited criticism of crypto, which is that it’s difficult to onboard new users and go mainstream because of the amount of friction involved when getting started. This usually refers to the process of converting fiat to crypto, setting up wallets and negotiating the multitude of blockchains.

However, it’s inaccurate to assume that traditional transaction methods are always smooth and without complication, and in this case, a real estate purchase, it appears that the cryptocurrency alternative was the easier option.

It may be the case that, for certain types of purchases, at least, the narrative that crypto is complex and difficult to use starts to fall away, as it is demonstrated that crypto can sometimes provide a more straightforward means of trading and financing.

Azuki Physical Backed Token

One of the top tier NFT collections, slotting in just behind CryptoPunks and Bored Ape Yacht Club, is Azuki. Launched at the beginning of 2022, it is anime-themed and has become an established part of the NFT landscape, with its 10,000 assets trading from a minimum of around 11 ETH, at the time of writing.

Now, the project is introducing something called the Physical Backed Token, or PBT, and a procedure called scan-to-own. The system will use something called a BEAN Chip (azuki means a kind of bean in Japanese), which can be located in a physical product and is scanned to create the PBT, which records ownership (utilizing the Ethereum blockchain ), and can be traded in a fully decentralized manner.

How this will be utilized and what directions brands and developers might take with it remains to be seen, but it enables a fusing of physical and digital collectibles and allows physical ownership histories to be written on-chain.

It’s also notable that this innovation comes from an NFT collection focused on art and storytelling, indicating how, in the cluttered and chaotic world of NFTs, new ideas may emerge from unexpected directions.

Fashion and NFTs

An industry besides the art world that has been particularly receptive to NFTs, meaning, by extension, receptive to cryptocurrency, is the fashion sector. This is an area that lends itself naturally to a blending of the physical and the digital, and in which collectability and exclusivity are prioritized, so the NFT connection makes sense.

Established brands including the likes of Balmain, Dolce and Gabbana, and Louis Vuitton, among many others, are all exploring NFTs, and sneaker and streetwear culture are represented most clearly through Adidas, which collaborated with the Bored Ape Yacht Club NFT collection and Nike, which last year acquired the RTFKT digital wearables studio.

Those who are skeptical might point out that fashion is fickle, meaning we should not read too much into tie-ups between fashion brands and crypto creators.

However, the fact that NFTs and altcoins are making strong connections with the mainstream fashion world is notable, as it represents a significant departure from the finance and tech niches that crypto has primarily occupied up to now.

Distinguishing True Innovation

When assessing the crossover between the digital and the physical it’s important to distinguish between genuinely original, innovative applications and what can amount to little more than gimmicks.

The former is looking to utilize cryptocurrencies and blockchain technology to transact and create in ways not previously possible. The latter may appear interesting or generate hype but does not embody substantial change.

There is no shortage of NFT collections offering physical merchandise, and some of them are high quality and well executed. However, while this may drive interest in crypto, which is valuable for the entire sector, it would be a stretch to argue that such models are utilizing crypto in groundbreaking ways.

On the other hand, there are a few projects which appear to be exploring the edges, and are implementing blockchain technology in novel manners that can bring unique benefits. Roofstock, USDC Homes, Azuki and parts of the art and fashion world fall into this category, and might now be establishing paths along which others can follow.

You may have come across the portmanteau term phygital, which describes a crossover and blending of physical and digital products and experiences. This term is particularly relevant to crypto, NFTs and web3, and, if crypto/web3 adoption gathers pace in the coming years, phygital packages may become commonplace.

There have been several recent crypto examples of the digital and the physical coming together, in various ways. Some of these fit into the phygital box, while others relate more generally to crypto being used in real-world cases, but all demonstrate that digital ledgers are not abstract virtual notions distinct from the real world.

Roofstock and USDC Homes

This month, a house sale was completed through the transfer of an NFT on the Roofstock onChain platform, which facilitates real estate trades through a specialized NFT marketplace. What’s more, the purchase was funded using a crypto lending service called USDC Homes, which offers crypto-collateralized financing options.

The buyer of the home, in South Carolina, United States, commented in particular on the ease of the process, in comparison with the time-consuming complications involved when buying and selling real estate the traditional way.

This observation contradicts an often cited criticism of crypto, which is that it’s difficult to onboard new users and go mainstream because of the amount of friction involved when getting started. This usually refers to the process of converting fiat to crypto, setting up wallets and negotiating the multitude of blockchains.

However, it’s inaccurate to assume that traditional transaction methods are always smooth and without complication, and in this case, a real estate purchase, it appears that the cryptocurrency alternative was the easier option.

It may be the case that, for certain types of purchases, at least, the narrative that crypto is complex and difficult to use starts to fall away, as it is demonstrated that crypto can sometimes provide a more straightforward means of trading and financing.

Azuki Physical Backed Token

One of the top tier NFT collections, slotting in just behind CryptoPunks and Bored Ape Yacht Club, is Azuki. Launched at the beginning of 2022, it is anime-themed and has become an established part of the NFT landscape, with its 10,000 assets trading from a minimum of around 11 ETH, at the time of writing.

Now, the project is introducing something called the Physical Backed Token, or PBT, and a procedure called scan-to-own. The system will use something called a BEAN Chip (azuki means a kind of bean in Japanese), which can be located in a physical product and is scanned to create the PBT, which records ownership (utilizing the Ethereum blockchain ), and can be traded in a fully decentralized manner.

How this will be utilized and what directions brands and developers might take with it remains to be seen, but it enables a fusing of physical and digital collectibles and allows physical ownership histories to be written on-chain.

It’s also notable that this innovation comes from an NFT collection focused on art and storytelling, indicating how, in the cluttered and chaotic world of NFTs, new ideas may emerge from unexpected directions.

Fashion and NFTs

An industry besides the art world that has been particularly receptive to NFTs, meaning, by extension, receptive to cryptocurrency, is the fashion sector. This is an area that lends itself naturally to a blending of the physical and the digital, and in which collectability and exclusivity are prioritized, so the NFT connection makes sense.

Established brands including the likes of Balmain, Dolce and Gabbana, and Louis Vuitton, among many others, are all exploring NFTs, and sneaker and streetwear culture are represented most clearly through Adidas, which collaborated with the Bored Ape Yacht Club NFT collection and Nike, which last year acquired the RTFKT digital wearables studio.

Those who are skeptical might point out that fashion is fickle, meaning we should not read too much into tie-ups between fashion brands and crypto creators.

However, the fact that NFTs and altcoins are making strong connections with the mainstream fashion world is notable, as it represents a significant departure from the finance and tech niches that crypto has primarily occupied up to now.

Distinguishing True Innovation

When assessing the crossover between the digital and the physical it’s important to distinguish between genuinely original, innovative applications and what can amount to little more than gimmicks.

The former is looking to utilize cryptocurrencies and blockchain technology to transact and create in ways not previously possible. The latter may appear interesting or generate hype but does not embody substantial change.

There is no shortage of NFT collections offering physical merchandise, and some of them are high quality and well executed. However, while this may drive interest in crypto, which is valuable for the entire sector, it would be a stretch to argue that such models are utilizing crypto in groundbreaking ways.

On the other hand, there are a few projects which appear to be exploring the edges, and are implementing blockchain technology in novel manners that can bring unique benefits. Roofstock, USDC Homes, Azuki and parts of the art and fashion world fall into this category, and might now be establishing paths along which others can follow.

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