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October 30, 2022

Why are NFTs Valuable? What Gives Them Their Assigned Value

What differentiates one non-fungible token (NFT) from another? The NFT space is a new one, so what exactly makes why NFTs are valuable is still largely due to demand and hype. However, there are factual reasons why some NFT collections, such as the famed Bored Ape Yacht Club (BAYC), can command prices over a million!  

What Gives NFTs Value?

Aside from assigned value due to demand, the below points have a heavy influence over how much digital assets can cost.

• Scarcity

Non-fungible tokens are non-fungible. They cannot be copied, exchanged for another asset of the same value or replicated and each one is unique. No two NFTs are the same. So, when you purchase digital collectibles on blockchain technology and take them off the NFT market, you are introducing scarcity, which inflates the value.

• The Art

If you have seen some of the existing and future NFT Drops, you will notice that the artwork can be vastly different from one collection to the next. You can find traditional art pieces such as digitized versions of an original painting or even digital content such as virtual land. 

Each can cost thousands of dollars, but generally, NFTs that are one-of-a-kind or done by famous artists can also command high prices.

• The Perceived Value

Remember, there is little in life that is really worth anything without assigned or perceived value. Digital ownership of video game NFTs is coveted because of the value people give these tokens. Remember, your asset is only as valuable as the amount others are willing to pay for it.

You can also deem possible investment opportunities by perceived value, which depends a lot on due diligence.

Research what can sell on the secondary market. If you have big-time celebrities such as Snoop Dogg, Jimmy Fallon and Justin Bieber attached to certain projects, you can bet that there is a chance those NFTs will be valuable.

• Exclusivity

How is a moment on NBA Top Shot exclusive? There is something called screen recording or screenshots, so why should you spend your money on something that can be replicated?

The answer is it cannot be replicated. Think about baseball cards. There could be “fake” selling for thousands of dollars, but it just takes verification to find out which is the original. The same can be said about NFTs that sell on secondary markets. Only one has its info written on the blockchain, so the digital certificate of ownership of the intellectual property is exclusive.

• The Utility

The utility of an NFT also has an effect on its value. What can you do with the NFT? Some artwork like Bored Ape Yacht Club can give holders exclusive or early access to events. Others can give whitelist spots to purchase a new asset from the artists. NFTs are more than just digital art, they have functionality. The functionality will oftentimes have an impact on valuable an NFT is.

• Immortality

Lastly, what is the NFT’s staying power? Will your digital assets stand the test of time? There are NFT projects that garner a ton of hype before and a few weeks after the drop, but then they seem to disappear or fade away. Why is this?

What does the non-fungible asset represent? For example, CryptoPunks is one of the first non-fungible tokens on Ethereum. Having this status gives these non-fungible tokens incredible value that is timeless.

How NFTs are Created and Eventually Bought and Traded?

OpenSea

How do NFTs work? We say that they cannot be traded for assets of equal value on blockchain technology, but let’s get into more about how to buy NFTs and trading NFTs.

The best way to create, buy, and trade NFTs is through NFT marketplaces. OpenSea, and Nifty Gateway are examples of platforms to buy popular NFT collections. There are millions to choose from and you can even use them as a profile picture on some social media platforms such as Twitter.

To use these platforms and buy NFTs, you would need to get a crypto wallet. The MetaMask wallet is the best one as it supports various cryptocurrencies. 

What Types of NFTs Have the Most Value?

As of now, digital art NFTs have a lot of value. It makes up a big portion of the market for NFTs. They are also among the easiest to create. You can import existing artwork and convert them into NFTs, and list them for money on NFT marketplaces. 

Another form of NFTs that have a very high asking price is digital land. Metaverses (digital worlds) such as Sandbox and Decentraland have land parcels that go for millions of dollars. Yes, they are very valuable but it can be difficult for some of us to wrap our heads around this fact.

Land parcels in the digital world work similarly to real estate in the real world. The difference is the product isn’t tangible and it only exists on the digital plane. 

Another form of NFTs that has a lot of value is in-game tokens. You’d be surprised how much money the gaming industry rakes in. Players are willing to pay high prices for rare items and if you own an in-game NFT, yours could be rare!

Will Yours Bring Value?

It’s hard to say for sure if your NFT will bring value. However, if it ticks off some of the boxes we mentioned above about what gives an NFT value, then there is a change it will be.

If you are one of the early adopters of a collection that is very sought-after now, then it’s definitely easier to flip it for a profit. Most NFTs won’t command a high value like BAYC does, but there are the rare ones that could. 

Artists create NFTs in the hopes that their given NFT could bring value to the holders and maybe even the robust community that surrounds NFTs. Aside from exclusive access to events, NFTs can even be tied to charities to bring aid to the needy, and that in itself is worth a lot in our opinion.

Are NFTs Worth It?

There is still pushback in the world on NFTs. However, it’s important to note that the Internet was viewed in much of the same way decades ago. There are plenty of companies integrating NFTs into their operations, and we believe that NFTs are the future.

Benefits of NFT Ownership

NFTs have proven ownership that cannot be forged and each token is 100% unique. These assets also boost growth, and create economic opportunities. Of course, there is also some social clout tied to owning these tokens. NFTs are more than just digital representations of real-world items or digital collectibles, some can hold real utility that will benefit the world.

Safe Storage

NFT ownership is written on the blockchain and it is immutable. Aside from that, NFTs are safely stored on wallets that cannot be accessed if you lose the secret phrase. It is important to keep the access phrase safe from others and to remember it, because it’s possible that you can be locked out as well if you forget it!

What Will the Future Bring?

NFTs seem to have a big impact on trade. We continuously see high-profile companies and celebrities backing cryptocurrencies and NFT collections and sincerely feel that NFTs have a place in the future. What will it look like? That remains to be seen. 

Problems NFTs Face

Although we are hopeful and confident in the future of NFTs, there could still be issues that they face. One of the biggest issues right now is regulation. Since the NFT world is still quite a new one, which means the market is attractive for hackers and such people with ill intent. However, the security is growing and once the proper regulations are put in place, this will be less of a concern.

Another issue that NFTs face is the proof-of-work consensus. This is mostly done on Ethereum, which requires vast amounts of energy to mine and verify the NFT. However, a lot of chains are moving to the proof-of-stake consensus model, which takes up less

FAQ

• How are social proof and NFTs connected?

Social proof and NFTs are connected in many ways. For example, celebrity endorsements of a certain picture could lead to a hike in its price. Also, if everyone around you is into NFTs the fear of missing out could also lead others to engage in NFT transactions.

• What is most expensive NFT that was sold?

The most expensive NFT ever sold is always changing, but The Merge by Pak worth 91.8 million knocked the previous title holder The First 5000 Days by Beeple off of its pedestal. Pak is an anonymous artist that has quite a standing in the NFT world. The Merge is a fractional NFT held by almost 29,000 collectors.

Conclusion

Why are NFTs valuable? This is a tough question to answer as value is highly subjective. However, there are a few core factors that contribute to NFT value. They are scarcity, exclusivity, the perceived value, utility, immortality and the art itself. Using these pillars on top of rarity can help you identify valuable NFTs.

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