Investing in digital assets has recently been an excellent choice for those interested in the digital world. Non-fungible tokens have gained lots of popularity; however, many ask the question of what makes an NFT valuable. If you also wonder about investing in the NFT market and are looking for a guide to help you choose a truly valuable NFT to pick, here we explain the factors that make an NFT precious.
There are several essential qualities that make an NFT valuable. According to the definition of NFTs, the most basic ones are rarity, utility, and demand. An NFT with these basic qualities is sure to be the proper choice for investment. However, there are more factors to consider when you decide to invest in an NFT, factors such as authenticity, social reputation, etc. which are the main features of an NFT.
To better understand the qualities that make NFTs valuable, it seems necessary to review the definition of NFTs. We also discuss these qualities in detail to provide a comprehensive guide to what makes NFTs valuable to our readers.
What is an NFT?
Non-fungible tokens, or NFTs, are unique digital assets that can never be replicated. It means that each NFT is unique, and there are no two completely equal NFTs. Thus, an NFT is considered valuable based on its rarity and recognition. These digital assets should also be authentic and in demand. If an NFT has all of these qualities, it is valuable and a good investment.
Understanding the Value of an NFT
NFTs are non-fungible, meaning that they are unique digital assets that cannot be exchanged for one another. Unlike cryptocurrencies, such as Ethereum, that can be replaced by any other cryptocurrencies of the same blockchain, NFTs can’t be replaced.
Non-fungible tokens are further attractive due to the verification of their ownership and their interoperability, which ensures their usability in various applications. The application cases on NFTs result from their scarcity, which adds to their value as well. The more scares an NFT is, the more the demand and, as a result, its value is.
What makes an NFT valuable?
Considering the evolution in digital assets during the last couple of years, more qualifications are considered for an NFT to be valuable. The value of NFT, therefore, is affected by a number of distinct variables, which are discussed in the following.
One of the essential factors in determining the value of an NFT is its rarity. An NFT that is the only one of its kind is more valuable than the case there are multiple copies of an NFT. Uncommon or special NFTs have dramatically higher values. Being labeled as a ‘limited edition’ raises the token’s value since many investors choose to own a digital asset that no one else does.
Certain NFTs are more distinctive than others due to the qualities they have. You might have heard about Bored Ape NFTs from BAYC. The collection has a finite number of 10,000 tokens, and their values directly depend on the qualities they own; among 10,000 Bored Apes, for example, only 77 have ‘King’s Crown.’ The feature is rare, and if investors highly seek it, it makes the NFTs more valuable. Therefore, a low supply of a quality defined in an NFT may cause more demand for the token and, as a result, increase the value of the non-fungible token.
2. Utility and Collectability
The next factor on our list that improves the value of an NFT is its utility. NFTs enable the development of new business opportunities and revenues. Thanks to NFTs, now an artist can create her digital art and present it in an exhibition. The artist can turn her art into NFTs and sell it in the NFT market. Besides, she may create NFT tickets to the exhibition that not only grant its holders access to the event but also lives on a blockchain as a collectible asset. This collectible item presents that specific art exhibit and can be resold for profit. Such exclusive benefits add to the value of an NFT.
It is easily understood that NFTs enable the creation of new business models. They may go beyond the sale of physical products and services that requires certain utilities by investors. For example, a video game developer can create NFT in-game items and sell them to players. Players, in return, use their NFT collectibles to progress in the NFT game or sell them in the secondary markets.
3. Artistic and Cultural Significance
The reputation of the creator of an NFT also significantly impacts its value. A well-known creator in the NFT industry attracts the attention of possible investors in the NFT world, and they will be more willing to invest in NFTs.
For example, Snoop Dogg, the famous worldwide rapper, sells his music NFT collections faster than an unknown NFT musician. This is due to the fact that the reputation of the creator adds to the value of an NFT and makes it more desirable to NFT investors and collectors.
NFTs are also changing the influence of culture in the digital world. For example, an NFT representing a historical event, a cultural icon, or a significant moment in sports history, such as a record-breaking performance, can be highly sought after by a certain community in the NFT world. It means that an NFT representing a piece of history or culture can be significantly important to people and attract many investors.
Besides, NFT creators can use NFT platforms to create their own community and share their art as NFTs. They can easily reach out to their fans worldwide and expand their existing or new culture among followers all around the world.
4. Authenticity and Ownership
The other quality that makes an NFT more valuable is the ability to prove the ownership and authenticity of a digital asset. NFTs live on the blockchain, which allows the creation of an immutable digital record of the ownership of the digital asset. Thus, it is almost impossible to duplicate or share digital assets without permission.
The authenticity of ownership in NFTs is allowed through smart contracts that are permanently recorded in a blockchain. This makes all transactions regarding an NFT searchable for everyone, so the ownership of an NFT cannot be hacked or changed easily. This makes NFTs’ ownership immutable.
The interoperability of NFTs refers to the ability of various NFTs and NFT platforms to work together and transfer NFTs from one platform to another. Thus, NFTs can be used on different platforms, and their information can be accessed from other platforms.
NFT interoperability allows more flexibility and versatility in using NFTs and makes it easier for NFT holders to profit from their assets in various contexts. Interoperability allows different NFT projects and NFT platforms to work together and exchange information and value. Therefore, NFT utility increases, which in turn improves the value of NFTs.
6. Social Reputation
NFTs allow a new way of thinking about digital assets and communities. NFT platforms give creators a chance to express themselves and share their ideas with the world, and create communities where people with similar interests and values can come together. In fact, NFTs let communities form based on art and technology. These communities are decentralized, meaning that every member of the community, who owns NFTs of a collection, can vote for changes in an NFT collection or community. This allows them to use their NFTs to create social value and improve the world around them.
Besides, NFT projects encourage communities to create and support stronger bonds to the projects and form partnerships rather than company-consumer relationships. This leads to a social reputation for NFT projects as well as their communities. As the communities develop, the projects become more popular, and their values increase. The social reputation of NFT creators improves as well.
The hype of the digital world, especially NFTs, has attracted lots of investors to digital markets. Thus, investors frequently ask about what makes an NFT valuable! There are several factors contributing to the value of an NFT. The present article discussed some of the most important factors to influence the value of an NFT, including rarity, utility, and authenticity. Understanding these factors can help NFT investors and collectors make more informed decisions before investing in NFTs.
1. How does demand affect the value of an NFT?
Demand for an NFT is directly associated with its perceived scarcity. Rare NFTs are definite in number and have certain utilities. Thus, more investors and collectors look for them, which leads to an increase in their value.
2. How does interoperability impact NFT’s value?
As discussed in this article, interoperability provides more utility to NFTs since they can be used in various platforms for different purposes. The more the utility of an NFT, the more valuable it gets.
3. What are some of the important things to consider before buying an NFT?
In addition to considering the associated costs of buying an NFT, such as platform fees and transaction costs, you should search for the rarity, utility, and social reputation of the NFT project.