As a society, we are digitizing more of our transactions on a day-to-day basis, making the physical wallet increasingly obsolete. Thanks to QR codes and payment apps, many of our plastic payment cards are going digital as well.

NFTs are playing a vital role in this ongoing transformation. The gated NFT in particular offers access to more tangible privileges and opportunities, while also giving holders a unique token representing their ownership of an object (physical or digital). This system is quickly becoming relevant in art, gaming, music and entertainment. Gated NFTs are poised to become more heavily adopted in the near future as organizations gravitate toward making more of their goods, services and content available through digitized access points.

Still, when deploying new digital technologies like gated NFTs, organizations should also be mindful of meeting the regulations that exist within their industries or business sectors. Can they be penalized as a business or lose their ability to perform commercial functions due to non-compliance when using these emerging technologies? It is possible but certainly preventable.

Demystifying gated NFTs

A gated NFT is a digital token that gives its holder exclusive access or privileges. For example, Mila Kunis' "Stoner Cats" drop, which, in addition to its non-fungible value, gave purchasers exclusive access to the cartoon series itself. When selling those NFTs, the former owners also gave away their access to the content and could no longer view it. Part of the appeal of gated NFTs is the exclusivity and access they unlock for their owners.

Gated NFTs can also be accessed in both the real world and within virtual spaces. Since they do not limit access to online content alone, they can also serve as passes to in-person events, such as concerts or conventions. In some cases, they can even offer exclusive access to meet-and-greets with talent after the show. Whatever access or privilege they may grant to the holder, think of gated NFTs as an add-on bonus that offers even more value than the inherent non-fungibility.

Challenges with their use

Say a casino has jumped at the opportunity to issue their own NFTs. To commemorate the occasion, it gives every purchaser exclusive access to attend an event at their venue. What happens if someone is under the required age to enter a casino and happens to have that NFT? Should they be let inside? Does the fact that they own the token exempt them and the casino from following state regulations?

I believe that the regulators would say no. Thus, it would be necessary for individual NFT holders to use the NFT to have access, plus verify themselves to determine eligibility for entry. The same would apply to someone wanting to use an NFT, where other restrictions exist, like purchasing requirements for age-restricted goods and services.

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With more countries like France looking to restrict adult content by age-gating access, adult-entertainment companies could be held responsible if their gated NFTs enabled minors to circumvent those censorship blocks. It's one of the things companies have to be mindful of and remain compliant with while enhancing the value of their brands through the opportunities that gated NFTs offer. 

How digital identity can help

Self-sovereign identity (SSI) allows the parties on the other side of the transaction to verify that any certification they are receiving comes from a trusted source. The person providing the verification has control over what information is shared. They can choose to certify their age and leave the rest of their identity confidential. When it comes to gated NFTs and access to places where minors are restricted, such as an online betting parlor, users would obtain access through their digital identity to verify their age.

Please note that verifying digital identity is not just for age. There are other attributes that may need verification for users to benefit from a gated NFT. For example, a hypothetical NFT student card could provide access to an educational institute or discounts to the campus bookstore. One could use their digital identity to verify that they are a student at the campus. The same concept applies to gym memberships that give members special bonuses for buying an NFT. Digital identity would certify their membership while restricting access to their home address.

For brick-and-mortar businesses, it is incumbent upon the business to ensure customers are entitled to the services you offer to avoid the risks of failing to comply with the law. The same is true with online sales where businesses could tie digital identity verification systems to existing point-of-sale systems. In either situation, the business could tie verification to loyalty programs, such as sharing coupons only after the verification process has been completed.

All this to say, if gated NFTs are the catalyst that takes NFTs from novelty to utility, SSI can be the intertwining glue that streamlines and strengthens the verification process. But it will only work with voluntary participation. So how can your business successfully implement an SSI system for consumers to reap their privileges?

Transparency will be the main factor for your business to overcome the early obstacle of slow adoption rates. It’s important to share why and how this will benefit consumers from privacy, security and convenience standpoints — such as reducing cases of identity fraud and getting rid of PIN codes and passwords. To get the ball rolling even further, you can issue their first gated NFT for free upon initial participation in the system.

Conclusion

Gated NFTs present a great opportunity for organizations to give exclusive and/or restricted access to their content, events or services. At the same time, they should be mindful that many of these services, benefits and privileges may have regulatory requirements for age or location.

A self-sovereign identity gives users that ability for verification. Thus, SSI will become an important counterpart to any use of gated NFTs. As a result, companies will be able to lawfully and profitably deploy them to enhance the value of their services, products and brands.

David Lucatch is the CEO, president and chair at Liquid Avatar Technologies, focusing on giving users control over their digital identity.


This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

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