You must have heard about NFTs that sold for millions of dollars and wonder what exactly makes NFTs so expensive. You may simply get the answer that NFTs can be digital versions of artworks, and art is always valuable. But the answer cannot be as simple since the digital world is complicated due to using cutting-edge technologies, such as blockchain and cryptocurrencies.
Have you checked the most expensive NFTs ever sold? If you have seen NFT artworks, like Beeple: The First 5000 Days or The Merge, and PFP NFT projects, including CryptoPunks and Bored Ape Yacht Club, you may also wonder what makes these NFTs so valuable to be sold for massive sums of money.
In the following, we will explore the factors that contribute to the high prices of NFTs. We will discuss the features that make NFTs valuable to collectors and investors.
What are NFTs?
Simply put, NFTs or non-fungible tokens are digital assets that are unique, irreplaceable, and provide exclusive ownership on the blockchain. They can be anything digital, like a song, a picture, a video, a tweet, or even a piece of digital land in an online game or virtual world.
NFTs are unique in that they do not have identical values. They are 1:1 tokens and cannot be exchanged with one another. NFT ownership is transparent and trackable using blockchain technology. All the records of transactions regarding an NFT are also available on the blockchain, and everyone can see that.
So far, you must have noticed why NFTs are unique and why collectors and investors are interested in them. But there are more reasons to make NFTs so expensive.
Reasons Why NFTs are Expensive
Several factors influence the price of an NFT. Here are some of the most important ones.
1. Scarcity
Whether it is art or a digital collectible, one reason directly increases the price of an NFT: Scarcity. Almost all NFT collections are released in limited quantities, meaning that collections are limited in number. This makes NFTs scarce and drives up their value in the NFT market.
For example, the Bored Ape Yacht Club collection includes 10,000 unique Bored Ape NFTs with unique characteristics, and some are rare because of their distinct traits and features, such as skins and accessories. The rarity and scarcity of these characters contribute to their high value and expensive sales.
The limited supply of these rare NFTs motivates collectors and investors to pay higher prices on secondary marketplaces such as OpenSea.
2. Uniqueness
NFTs are unique digital assets that cannot be replicated. This feature makes NFTs more valuable to investors and collectors. As NFTs are created on blockchain networks and their ownership is recorded securely on a blockchain, it is almost impossible to duplicate or hack them, which also adds to their value.
3. Flexibility
NFTs can represent a wide range of digital assets, including art, music, videos, tweets, etc. The flexibility of NFTs increases their versatility and potential usage, leading to their value appreciation.
Therefore, more artists can take advantage of NFT art and create their own NFT community, which improves their art sales and NFT prices.
4. Blockchain verification
As mentioned above, NFTs live on blockchains, and their ownership can be easily verified. It ensures their authenticity and makes them highly secure. Besides, all transactions of an NFT are secure and transparent, thanks to blockchain technology. Such features also increase their market value.
5. High demand
Popular NFTs are highly demanded among collectors and investors, leading to increased price sales. Such high demands for NFTs may stem from their historical significance. For example, the first tweet of the founder and CEO of Twitter, Jack Dorsey, sold for $2.9 million.
NFTs that are created by well-known development teams or celebrities are also highly sought after. Larva Labs and Beeple are good examples of popular characters in the NFT world that sell their non-fungible tokens at high prices.
6. Utility
Sometimes NFTs are traded for high prices since they can be used in a larger scope than being an art or belonging to a popular collection. NFT staking, as an example, is a great way to raise funds. NFT mortgages have become common in the last few years and helped NFT owners to make a profit from their valuable NFTs without selling them. Real estate NFTs can also be rented and make a passive income to their users.
A good example of this can be Assange DAO which raised funds to successfully purchase one of the most expensive NFTs of all time: The Clock. As the utility of NFTs increases, their prices also improve in the market.
In addition, the potential for innovative uses of NFTs due to their integration into new technologies and developments, such as metaverse, will add to the value of NFTs in the future. Right now, ownership of real estate NFTs, virtual weapons and goods in video games, and ownership of real-world assets, such as cars and buildings, have been possible due to the nature of NFTs.
7. Royalties
NFTs are created on a blockchain and based on a smart contract. Based on their smart contracts, NFTs can be programmed to pay royalties to their creators in future sales. Therefore, royalties create a new income stream that increases the value of NFTs.
This source of passive income for NFT artists and creators has attracted more artists to join the NFT world and gives buyers the sense of a profitable investment due to potential returns on their purchases.
8. Hype
Last but not least, NFT prices are directly influenced by the hype in the market. The hype and attention to NFTs from celebrities and media have introduced NFTs to many people worldwide. Accordingly, the trade volume has increased and caused a growth in the value of NFTs.
Celebrities like Snoop Dogg have been selling their art as NFTs, generating a lot of buzz in social media and marketplaces. It fuels the interest and demand for NFTs among their collectors and investors.
A final word
NFTs provide a safe and convenient way for investors to make a profit in the digital world. Due to their unique features, such as uniqueness, ownership transparency, and wide utility, NFTs have attracted many creators, investors, and collectors to the digital world.
On the other hand, the scarcity, flexibility, and high demand for NFTs also make them more popular among enthusiasts, leading to the higher value of NFTs. For example, the potential future utilities of NFTs in Metaverse seem to suggest a further increase in their value if the market hype is still high.
FAQs
- How are NFTs valued?
NFTs gain value based on their rarity, demand, and their cultural or artistic significance. Certain utilities of some NFTs also add to their value. The more unique an NFT and its usage are, the higher its value is likely to be.
- Why are NFTs valuable?
NFTs are valuable since they are unique and exclusive. Each NFT is one-of-a-kind and cannot be duplicated. It makes NFTs highly sought after by collectors.
- What is the future of NFTs?
NFTs are unique digital assets that are widely traded online. These tokens have found their utility in the digital world and are developing their new potential to be used in both virtual and physical worlds. NFTs play a significant role in metaverse now and are used to prove ownership of physical assets in the real world. It can be easily understood that NFTs will be an important part of our future adventure in the digital world.
