The way of the hotel industry to Web3 (Part 1 — Hotel rooms as NFTs)

In this series of posts, I show how the hotel industry can harness unstoppable blockchain technology to secure a competitive advantage. Because one thing is for sure: The demands of tomorrow’s guests and the way business will be generated in the hotel industry will change fundamentally. For those who still doubt the future viability of blockchain technology, I recommend reading my article Blockchain is not equal to Bitcoin, where I explain the future opportunities of the technology in more detail.

As a prelude, I illustrate how hotel rooms may be inventoried on a blockchain in the future. This article is therefore aimed equally at IT and management.

The Hotel Market / The Travel Industry — Quo Vadis

It’s no secret that the travel industry, in particular the hotel industry, is one with the most chaotic IT systems in the world. Nowhere else are there so many systems, bridges, and APIs than in the lodging temples. There are many reasons for this. Outdated core systems (GDS), proprietary interfaces, insufficiently interlocked data systems, and high dependencies in the market. Many past attempts to unify the market have therefore failed. Digital Ledger Technology (DLT) brings all the necessary functions to solve this dilemma.

The use of DLT solves well-known obstacles and brings several advantages:

• better trust between partners
• transparent contracts
• simplification of business processes
• calculable transaction costs
• creation of standards for data exchange and data storage
• generation of additional revenues
• improvement of cybersecurity resilience

Tomorrow’s winners will be those who already apply blockchain technology to their hotel or travel business. Therefore, now is the time to say goodbye to the widespread belief never change a running system.

Inventory of hotel rooms as NFTs

The definition of an NFT states that it must be unique. If we look at a hotel room, we can argue whether this is the case. But at the latest when the hotel room is extended by the time, availability, and price, the criteria of an NFT are fulfilled.

To tokenize the room, we use the “Digital Twin Method” (Inverse NFT). That means, that the physical property (hotel room) is synthesized with a digital entry on the blockchain as an NFT. Accordingly, a digitally unique, non-exchangeable reference in the form of an NFT is created (minted) on the blockchain. Once the NFT is on the blockchain, it can be managed, traded, sold in the digital space, or redeemed as an overnight stay in the hotel.

The NFT to be minted thus consists of the following information:

• the hotel (and the hotel group) which makes the room available
• the hotel room with all its equipment and type
• the exact location of the hotel and the room itself within the hotel
• the time (day of the year) of availability
• the price per night at the time of availability
• restrictions at the time of availability

So that the hotel room can be marketed later, it must be minted as an NFT once on the blockchain. For each overnight stay, an NFT of the hotel room with an overnight rate is minted on the blockchain. The hotel manager determines how many room NFTs are and for which period they have to be minted (usually 365 days in advance = 365 NFTs for each hotel room with a daily price).

The minting process is usually ensured by the Property Management System (PMS) used in the hotel, which makes the creation process much easier for the hotel manager. Smart Contracts, which are also stored on the blockchain, represent the contractual set of rules for the subsequent marketing of the NFT. All reservation and stay restrictions are stored in smart contracts. Even if PMS providers do not yet support the management of rooms on a blockchain, this is guaranteed to become a feature soon.

The purchase of overnight stays as NFT

Lisa intends to stay in a hotel for three days in week 49 and has found a suitable hotel on a platform. She filters for the cheapest available stay price for the period and books three consecutive nights for USD 225. Lisa has long been accustomed to Web3 payment processes and pays the total price topped-up credit in the Stablecoin currency USDC on her crypto wallet. In return, Lisa receives an NFT combined with one NFT collection, which contains the three-room NFTs on the selected period stored on her crypto wallet.

The special. Lisa is now the legal tenant of the room for the booked period. According to the hotel’s smart contract, cancellation or rebooking is not possible. The smart contract only allows redemption (check-in). If something comes up Lisa has to take care of the resale herself.

Trade and redeem hotel room NFTs

Shortly before starting her vacation, Lisa realized she has overseen an appointment in her calendar on the 3rd day of her hotel stay. However, she does not want to cancel the whole vacation. Lisa knows that the hotel is in high demand at the time, so she detaches the 3rd day’s room NFT from her NFT collection to offer it for resale through a public hotel exchange connected to her crypto wallet with a supplement for USDC 120. She quickly finds a buyer and Lisa’s USDC balance increases on her crypto wallet by USDC 119.40. With the purchase, the room NFT of the 3rd day is transferred to the buyer’s crypto wallet.

According to the Smart Contract, the buyer confirms that he/she accepts the hotel’s contract by making the purchase. The hotel’s Smart Contract also states that if a hotel room is resold, the hotel will receive a fee of 0.5% of the sale price for each subsequent transaction.

On the 1st day of her vacation, Lisa goes straight to her room without having to wait long at the hotel reception, where she gets unrestricted access to the room after opening her crypto wallet and calling up the NFT during the travel period.

Advantages for the hotel manager

• increase trust between hotel and guest
• structured IT processes
• reduces fraud and payment risks
• reduction of organizational effort by shifting rebooking/cancellation to the guest
• better business planning and more efficient purchasing of goods
• early liquidity before the guest’s stay
• personnel savings through fixed predefined contracts
• additional income through trading fee
• no paper consumption

Conclusion

This article shows how blockchain technology will optimize hotel business processes and turn existing business models upside down. However, this is just the beginning. Follow me to learn how the travel industry is using blockchain technology in the future to strengthen customer loyalty, simplify processes and generate new revenue streams.

This article was written as part of the Frankfurt School Blockchain Center’s Scholar Program “NFT Talents 2022”. My thanks to the entire team.

Remarks

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About the author

Ralf Emanuel is a passionate entrepreneur. He founded two companies in the IT industry after managing large-scale IT projects since 1995. After developing and operating several critical enterprise applications in the tourism and finance sectors, he now specializes in IT consulting, focusing on digital transformation, cybersecurity, and blockchain while advising companies on their strategic direction.