Token Gating and NFTs for Retailers: Guide

Non-fungible tokens (NFTs) have taken the art world by storm by creating ways for musicians, designers, and other creatives to control how their work is distributed. Retailers have also begun experimenting with NFTs via tokengating, a strategy that gives token holders access to exclusive products, experiences, content, and more.

Non-fungible tokens (NFTs) have taken the art world by storm by creating ways for musicians, designers, and other creatives to control how their work is distributed. 

Retailers have also begun experimenting with NFTs via token gating, a strategy that gives token holders access to exclusive products, experiences, content, and more. 

What are non-fungible tokens (NFTs)?

“NFTs are non-fungible tokens stored on a blockchain, a form of digital ledger that stores a record of each transaction that takes place,” says Raj Kallem, Head of Development at the 1687 Club, an NFT-based membership club. 

Ethereum and Solana are some of the most popular blockchains for NFTs, and NFTs can be purchased with cryptocurrencies or fiat.

It’s become common practice to attach digital content—such as art, music, or videos—to these NFTs.

Let’s break down the phrase “non-fungible token” to gain a deeper understanding of its meaning. “Fungible” means replaceable or mutually interchangeable. A dollar bill is an example of something fungible because it lacks unique properties and can therefore easily be replicated or replaced by another dollar bill.

“‘Non-fungible’ simply means that the token is unique and not interchangeable,” Kallem says. Real estate, land, and diamonds are examples of assets that are non-fungible because they have unique properties.

In some instances, NFTs are commonly used to represent verifiable ownership of digital content and for authentication purposes, but they have numerous other purposes as well, e.g., token gating.

Authentication is an important part of NFTs and blockchain technology. Even though people who don’t hold a NFT may be able to view or access digital content attached to someone else’s NFT, only one wallet can hold the NFT.

👾 GET STARTED: Ready to bring token gated commerce to your store? Shopify’s blockchain partners will help you build exclusive customer experiences around your brand with perks, rewards, or other exclusives based on your customers’ NFT purchases.

What is token gating?

Token gating is “a way of adding more value to an NFT by allowing the holder exclusive access to a community, content, or even physical products in addition to the digital token,” Kallem says. 

“It’s adding utility to an NFT,” adds Harrison Hosking, Marketing Manager of NFT wallet tracker Keak. 

For example, NFT holders may receive perks like special discounts on new products, early access to store openings, or invitations to members-only events.

“The really exciting thing is that token gating can be applied in an infinite number of ways,” Hosking says. “It's up to the seller to come up with creative ideas that give added value to their customers upon the purchase of their NFT.”

How does token gating work?

Ownership needs to be verified for NFT holders to receive access to token gated perks. Terrance Blau, tech lead of decentralized insurance solutions company Blockchainsure, explains the technical side of token gating.

“Network users connect to blockchains using a unique public and private key pair, which is like having a really long and complicated username and password,” he says. “This public-private key pair is called a wallet. If someone has your public key, they're able to send tokens to your wallet, and they can see what's in your wallet, but they can't access your wallet's tokens without your private key.

“Knowing this, programmers are able to write software that looks into a wallet to see if they have a particular NFT. They're also able to use that information to allow wallet access to do things based on whether it contains a particular NFT or not. This is called ‘tokengating.’ Token gating works by peeking into your wallet to see if you have a particular NFT or not, and then essentially returns a value of yes or no.”

Token gating benefits

While applications for blockchain technology are constantly evolving, token gating has already proven to have numerous benefits. Most notably, token gating improves security, is cost-effective and builds buzz.

Security

Because NFT ownership is verified through the blockchain, there’s no way to forge token ownership. Therefore, only token holders have access to an NFT’s perks.

Cost-effectiveness

One of the main benefits of token gating, and NFTs in general, is that it puts distribution, and therefore profits, directly in the hands of the NFT creators. Because there are few “middleman” costs associated with creating and selling NFTs, creators take home what they earn.

“Kings of Leon is a prime example of this,” Hosking says. “They released their album, 'When You See Yourself', as an NFT—one of the first in the music industry to do so. For fans of Kings of Leon, purchasing this NFT gave them access to enhanced media and album art (moving, digital album cover), limited edition vinyls, and a code for a digital download of the album. The kicker was that after two weeks of minting, no more NFTs were ever made again—making them a rare and more sought-after collectible. Did it work? They made $2 million from the two weeks of sales alone.”

Image Source: Market Realist

Building buzz

Token gating “yields amazing benefits because of the FOMO (fear of missing out) it can create,” says Ty Daniel Smith, CEO and Co-Founder of crypto brand marketing agency Coinbound. “Word of mouth is one of the most undervalued marketing variables, but token gating truly proves a case for word of mouth’s ROI potential. When done correctly, NFT projects can go viral with a great concept and utilize token gating.”

Token gating use cases for retailers

The sky’s the limit when it comes to applications for token gating. Here are just a few ways that NFT creators are providing value for their NFT holders.

Exclusive products: Shopify x Doodles

Exclusive product access is one of the most practical token gating use cases for retailers. With this strategy, limited edition items are only available to NFT holders.

Looking for inspiration? Popular NFT collection Doodles partnered with Shopify at SXSW 2022 to create an immersive experience for festival goers and Doodle NFT holders. During this collaboration, Shopify “brought URL and IRL together in a first-of-its kind token gated NFT retail drop with @doodles,” according to a tweet. Doodle holders had exclusive access to apparel and limited-edition merchandise and were able to transact seamlessly using Shopify POS.

Digital content: Stoner Cats

Stoner Cats is an animated series developed by actress Mila Kunis’ production company. Only people who hold Stoner Cats NFTs can watch the show. 

Through this token gating model, the Stoner Cats team has complete control over how the show is distributed. NFT holders get exclusive access to the series and a community with behind the scenes access to the production process. In other words, NFT holders have a say in what happens on the Stoner Cats show.

Membership clubs: Flyfish Club

“One common example of token gating in the NFT community is the ‘token as a membership card,’” Kallem says. “It functions as an access pass to a private club or exclusive community. In some cases, token holders are invited to real-life events and meet-ups.”

One of the most talked about NFT-based membership clubs is Flyfish Club, the world’s first NFT restaurant, and brainchild of serial entrepreneur Gary Vaynerchuck. Only people who have the Flyfish NFT can dine at this New York City restaurant.

Image Source: NFT Evening

Unlike a traditional members club, token holders don’t have to pay membership dues. Instead, they pay a one-time fee to purchase the NFT. Flyfish Club offers two tiers of membership. These tiers are tied to two types of tokens, which come with different perks. The Flyfish token gives holders general access to the club, while the Flyfish Omakase token gives holders the same privileges as Flyfish token holders, plus access to an exclusive “Omakase room.” 

In addition to restaurant access, Flyfish Club members can participate in a number of exclusive events and opportunities, such as a members-only yacht party. They can also purchase branded merchandise through the club’s members-only, password-protected Shopify store. 

Is token gating the future of retail?

NFTs are taking the world by storm. Is token gating the future of retail? Only time will tell. With token gating, retailers can reward fans with exclusive access to products, events, communities, and more. 

Token gating’s security features, profitability and built-in marketing power make it useful to businesses of all kinds.

Token gating FAQ

What is token gating?

Token gating is when a person or brand “gates” or blocks access to a product, community, or website until a person purchases an NFT token granting them access.

How does token gating work?

Token gating runs on the blockchain. Essentially, someone purchases an NFT token that then allows them entry into an online community or access to certain products, collections, experiences, etc.

How do you create a token gated community?

There are tools available that make creating a token gated community a much easier process than needing direct access to the blockchain. Create a community that requires a specific NFT token to enter it by coming up with building experiences, products, content, and more that people will be really interested in accessing. NFTs are not cheap, so you need to make sure your community is worth it.

Can you sell NFTs on Shopify?

Shopify has an NFT beta program that makes it possible to sell your own NFTs through a Shopify storefront.