NFTs, or non-fungible tokens, have spread to almost every part of the Internet and every business willing to invest in “Web3,” a future version of the Internet based on blockchain technology.

As they do, Hang, a new B2B startup in the area, wants to help some of the biggest brands in the world replace their existing membership and loyalty programs with NFTs using the technology.

With the rise of the internet, anyone could watch videos, listen to music, and look at pictures for free. People buy NFTs because they think that blockchain technology, which keeps a digital record of all transactions, will let them prove that they own a virtual item.

Last week, the company announced that it had raised $16 million in a Series A funding round. The round was led by crypto venture firm Paradigm, which has a stake in some of the biggest crypto players, like FTX, BlockFi, and Coinbase. Tiger Global, the eyewear company Warby Parker, the shoe store Allbirds, and Kevin Durant’s Thirty Five Ventures are among the other investors in Hang. Budweiser, Bleacher Report, Pinkberry, and the music festival groups Bonnaroo and Superfly were among its first clients.

Matt Smolin, co-founder and CEO of Hang, told CNBC that it’s hard for most brands at a certain size to make up for rising customer acquisition costs. “The best way to do that is to increase the lifetime value of their user base and reward loyalty,” he says, adding that this is often done through a tiered rewards system: the more often a customer buys something or interacts with a brand, the more benefits they get, and in some cases, they can “level up” to a certain kind of customer status.

“Because of blockchain technology, NFTs give brands a way to encourage their users to not only move up to a new level in their program but also appreciate the value of the asset they own, which they can then sell on [NFT] marketplaces,” Smolin said. “[Brands] can also take a royalty or a percentage from each resell transaction, which will only make users more loyal to that brand in the long run.”

NFTs are one-of-a-kind digital assets, often collectibles like artwork and sports trading cards, that are also verified and stored using blockchain technology. However, critics say that they are overhyped and could be bad for the environment because cryptocurrencies use a lot of energy. The network that supports ethereum, the second-biggest token, is used to build a lot of NFTs.

Eamon Javers of CNBC recently said that criminals have stolen as much as $22 million in NFTs through the social platform Discord, which has become a popular place for crypto traders to talk in recent years. Last month, an analysis company called TRM Labs found that at least 10 accounts in NFT channels on the Discord platform had been hacked. These hackers used what the company calls “social engineering” techniques to create a false sense of urgency around a certain digital asset. They did this by sending fake messages that made users who wanted to buy or sell their NFTs feel “FOMO,” which stands for “fear of missing out.”

Smolin said, “A lot of what we do isn’t really for your typical crypto audience.” “We want to work with some of the biggest brands in the world and help them solve real business problems. Yes, if [the brand] wants, a customer can pay with ethereum or some other cryptocurrency token. However, most of these brands prefer that their customers and users sign up with an email address and credit card.

Of course, that would mean the brand would have to turn a customer’s payment into cryptocurrency to complete the NFT transaction that supports a given reward redemption. But Smolin says that Hang’s long-term success and the use of NFTs by more people than just artists and collectors will depend on integrating some of the transaction technology that consumers were already familiar with, “like email and credit cards.”

Investors have been quick to say that digital assets’ long-term value will come from how they can be used. Institutional investors have found it hard to understand this message as the prices of collectible artwork like the popular Bored Ape Yacht Club and the equally hyped Crypto Punks continue to fluctuate wildly. This is happening at the same time as the recent “crypto winter” downturn.

“Bored Ape Yacht Club’s business model is all about being exclusive and having a small number of items, and it works really well for them. “But for most brands, it’s much more important to get millions of people to spend 10 percent more each year than to get 10,000 people to spend $400 once or twice,” he said. “A big part of what we’re planning for the future is for these NFTs to be free and for users to be able to get them in a store, on a website, or in an app. No longer is the number of NFTs being sold based on how few there are, but on the leveling system.”

It’s a new way of looking at the struggling cryptocurrency industry. During “crypto winter,” big companies like Three Arrows Capital and lenders like Celsius and Voyager Digital have all filed for bankruptcy. This has shaken people’s faith in the sector.

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