NFTs, better known as Non-Fungible Tokens, come in the form of a digital piece of artwork, a video clip, an audio file, or a plot of virtual land, which are unique and singular in their existence. These artworks have their own digital certificates connected to blockchains to give them authenticity.
Similar to cryptocurrencies like Bitcoin, its connection to this shared ledger or blockchain records the owner of the NFT. It also means that you cannot duplicate, substitute, or divide an NFT, thus increasing its value.
Although you can buy these artworks for a few dollars at most, there are some NFTs that are worth a piece of junk or that they have no value at all. Some have prices that are worth millions of dollars, and these are the reasons why:
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Rarity
As mentioned, the uniqueness of these artworks is what raises their value. Of course, it follows that; the rarer the NFT is, the higher the demand for a particular NFT. Let’s take, for example, a rare coin and a one-dollar of the same denomination. If you want to use this money to pay in a supermarket, then both these denominations have the same value as the face value of one dollar. For collectors, the coin will have a higher appraisal. Some people are willing to bet all they have on the table to complete their collection.
There was a recent study in Alan Turing Institute or ATI wherein one of the determinants of why the NFT price keeps on soaring is that previous sales of an NFT collection can affect other tokens depicting similar images. One example is the CryptoPunk collection which sold for a hefty amount. It comprised 10 000 pixel punk characters, which amounts to a considerable sum a piece. This feature is also one of the most consistent price determinants, constituting almost 50% of NFT’s price fluctuation.
Utility
Utility emerged as one of the vital parameters in evaluating an NFT project. In order for an NFT to have to carry v alue, it should have a concrete application. As a case in point, people use NFTs in tokenizing precious metals, real estate, and even securities; to represent game assets or virtual land and in many more ways. These are some of the real-world applications of its uses since NFTs are in their nascent stage. As time goes by, there will be more innovative use that will emerge.
Functionality
This NFT feature refers to the ability of the NFT to be used in various applications. The adaptability of these non-fungible tokens to work and communicate on different blockchains and their networks will always make any transactions easier. For example, if you can utilize a weapon in any game, this token can have a higher chance of increasing its intrinsic value.
Supposition
Speculation is one of the catalysts that play in appraising the value of a potential asset. NFTs, much like cryptocurrencies and stocks, are highly speculative investments or assets where in buying one, you hope its value will one day go up so you can sell it.
One case of NFT speculation happened last December of 2017, where the price of CryptoKitty #18 glided from 9 ETH to 253 ETH in a matter of three days. While many investors who delved into crypto and other investments advise against the risk of speculating, you cannot remove the nature of humans to posit.
Ownership History
Similar to how auction houses present previously owned assets by famous and influential people or entities, the value of an NFT can also change depending on its history. The price of an NFT can also increase depending on its creator, especially if they are distinguished personalities or corporate groups.
If you are unsure about the ownership history of an NFT, there are marketplaces and sellers who sometimes help buyers find information using several tracking interfaces. You can also boost the NFT value proposition if you try working in tandem with enterprises or people who have established brand value for circulating NFTs.
Social Evidence
Social proof is among the most unwavering factor in determining the NFT valuation. If you check the profile for these tokens and they are well received on the social media platforms like Instagram and Twitter, this is an indication that they are already making solid roots for their stand. NFTs having more than five figures for their price usually have backing from prominent communities and famous people.
Wrapping Up
The value of potential assets is a vastly subjective concept, thus making it challenging to determine what would be the future value of an NFT. Since they are an asset class with limitless possibilities and are still on the spectrum of an emerging trend, it is safe to presume that their versatility will stay on an upward track. While you are considering using several NFT value estimators, it would be wise to be patient first and factor in all the things we have laid out before you arrive at a decision. Doing your due diligence can help a lot.